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Belgium Co-ordination Centres
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Information: Low-Tax and Incentive Regimes
Co-ordination Centres
Belgian Co-ordination centres
were examined by the European Commission as possibly breaking
State Aid rules, and as part of the Code of Conduct Committee's
examination of 'unfair tax competition'. The Belgian authorities
prepared legislation during 2002 to bring the co-ordination
centre regime into compliance with EU rules, and agreement
was finally reached with the EU in 2003 after a case in the
European Court of Justice. Changes to the regime took effect
from 2004. Under transitional arrangements laid down by the
EC, Co-ordination Centres could, in certain circumstances,
continue operating until 2010; key fiscal changes are indicated
below.
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Fiscal Advantages of Co-ordination Centres
Co-ordination
Centres enjoyed the following fiscal advantages:
i) Corporate Income Tax
on Profits: Although the co-ordination centre paid
normal Belgium corporate income tax rates of up to 33.99%
(including the 3% so-called crisis surcharge) what differs
is that instead of the co-ordination centre being taxed on
its trading profits it was taxed on between 4%-10% of its
total "business expenses" (with the percentage being
a matter for negotiation with the fiscal authorities). Until
2004, salary and financial costs were excluded from "business
expenses" for the purposes of the assessment. Thus a
co-ordination centre which had high business profits, high
financial and salary costs but low business expenses (other
than salary and financial costs) would pay considerably less
corporation tax than other Belgian corporate entities.
ii) Withholding Taxes:
There were no withholding taxes imposed by law on outgoing
dividends, royalties or loan interest remitted by a co-ordination
centre unless the recipient was a resident individual or non-profit
making exempt company. In Belgium withholding taxes stand
at between 15%-25% so the absence of a withholding tax levy
on the activities of co-ordination centres was a substantial
fiscal concession.
iii) Share Capital Duty:
Until 2004, co-ordination centres were exempted from payment
of capital duty on any issue or increase of share capital.
This duty currently stands at 0.5%. From 2004, a duty of 0.25%
was imposed on co-ordination centres. The duty was abolished
in 2006.
iv) Real Estate Taxes:
In Belgium real estate taxes are based on a notional net rental
value as determined by the tax authorities. They include a
regional tax, a provincial tax and a communal tax. These taxes
vary according to the region, the province and the commune
in which the real estate is located and whilst their payment
can be deducted from profits it cannot be credited against
corporate income tax (i.e. it gets the least favorable fiscal
treatment). As a rule of thumb the sum total of these property
taxes amounts to approximately 25%-30% of a property's annual
rental value such that this tax is considered a significant
business expense. Co-ordination centres were exempted from
real estate property taxes (unless the property is leased
to group members) which gave them a considerable fiscal advantage
over other Belgian corporate entities.
v) Corporate Income Tax
on Outgoing Dividends: 5% of the dividends received by
a Belgian corporate shareholder from a co-ordination centre
were taxed at the standard corporate income tax rate of 33.99%.
Even then the Belgian corporate shareholder was not taxed
on dividends received unless he held at least 5% of the share
capital of the co-ordination centre. This concession applied
to all "qualifying" Belgian holding companies and
is not unique to co-ordination centres. (For further information
see the section entitled Belgian
Holding Companies). In the case of non-resident shareholders
any corporate income tax payable on dividend income remitted
by a co-ordination centre to the non-resident shareholder
is a question for the domestic tax laws of the jurisdiction
in which the non-resident corporate shareholder resides.
vi) Work Permits & Special
Income Tax Allowances: Foreign executives and researchers
employed by co-ordination centres were exempted from the requirement
to obtain work permits and enjoy special income tax rates
and concessions (For further information see the section entitled
Special Expatriate Fiscal Regime).
(N.B. co-ordination centres
are now subject to a 400,000 Belgian franc annual tax per
employee up to a maximum of 4m Belgian francs. Nonetheless
this tax has had little impact on the number of centres being
established. By 2002 more than 400 of them had been established.)
(N.B.
No new Co-ordination centres are being formed as a result
of a ruling by the European Court of Justice in 2003. Certain
existing Co-ordination centres could continue operating until
2010 under transitional arrangements).
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Pre-conditions
for Qualification as a Co-ordination Centre
Co-ordination centre status
was only granted to very large industrial conglomerates which
are able to meet the following pre-conditions:
i) Multinational Group:
The entity applying to set up a co-ordination centre must
be part of a multinational group with subsidiaries in at least
4 different countries for a period of at least 2 years before
the request for co-ordination centre status is submitted.
A 20% cross shareholding was sufficient to make a company
a member of the group.
ii) Minimum Turnover &
Equity Requirements: The multinational group must have:
- Total Consolidated Equity:
A total consolidated equity of at least 1 billion Belgian
francs (US$30m) of which the non-Belgian portion must be
either 20% of the total group's consolidated equity or a
lesser percentage with a value of at least 500 million Belgian
francs (US$15m).
- Total Consolidated Turnover:
A total consolidated turnover of at least 10 billion Belgian
francs (US$300m) of which the non Belgian portion must amount
to at least 5 billion Belgian francs (US$150m) or a lesser
amount which constitutes not less than 20% of the group's
total consolidated turnover.
iii) Minimum of 10 Employees:
By the second year of operations the co-ordination centre
must have at least 10 employees.
iv) Royal Decree: co-ordination
centre status was granted by Royal Decree for an initial period
of 10 years renewable thereafter. A written request must be
submitted to and the approval obtained of the Ministers of
employment, economics, finance and small businesses. The request
must contain details of all planned activities.
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Restricted &
Permitted Activities
i) Restricted Activities:
Co-ordination centre companies were restricted in what activities
they could carry out . For example:
- Holding Companies:
They cannot hold shares in other companies i.e. they must
be subsidiaries and not holding companies.
- Industrial or Commercial
Activities: They
cannot carry out industrial or commercial activities.
- Banking, Insurance or
Financial Services: They cannot be companies in the
banking, insurance or financial services sectors
ii) Permitted Activities:
Co-ordination centers could provide "financial and business"
services to their group companies. Financial and business
activities include the following:
- Leasing:
By purchasing and leasing assets to other group members
all the group leasing income is received in a tax-free environment.
- Re-invoicing: By
purchasing off one group member at a low price and selling
to another group member at a high price profits can be retained
in a tax free environment (subject to transfer pricing rules,
evidently).
- Financing Activities:
The co-ordination centre can become the hub for financing,
insurance and re-insurance activities, achieving economies
of scale and the centralisation of profits from loan interest
and insurance in a tax-free environment.
- Centralisation of Group
Activities: Centralisation of administrative, accounting,
purchasing and advertising activities of all the group members,
with members being billed for services provided and with
the income from these services being received in a tax free
environment.
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