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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 can, in
certain circumstances, continue operating until
2010; key fiscal changes are indicated below.
Fiscal
Advantages of Co-ordination Centres
Co-ordination
Centres enjoy the following fiscal advantages:
i) Corporate Income Tax on Profits:
Although the co-ordination centre pays 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 is
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 are no withholding
taxes imposed by law on outgoing dividends, royalties
or loan interest remitted by a co-ordination centre
unless the recipient is 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 is 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% will be 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 are exempted from real estate property
taxes (unless the property is leased to group
members) which gives 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 are taxed
at the standard corporate income tax rate of 33.99%.
Even then the Belgian corporate shareholder will
not be taxed on dividends received unless he holds
at least 5% of the share capital of the co-ordination
centre. This concession applies 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 are 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 can continue operating until 2010 under
transitional arrangements).
Pre-conditions for Qualification
as a Co-ordination Centre
Co-ordination
centre status is 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
is 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 is 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.
i) Restricted Activities: Co-ordination
centre companies are restricted in what activities
they can 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 can 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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