The new group contribution regime provides for the possibility to transfer profits to related parties that are in a loss position for a given year. This regime is subject to a number of strict conditions, but could potentially result in significant tax savings. Note that also (final) losses of other EEA operations could be used to offset taxable income in Belgium.
For financial years starting on or after 1 January 2019 (and related to assessment year 2020 or subsequent years) a tax consolidation in the form of a group contribution regime has been foreseen in Belgian income tax law. This regime is inspired by similar regimes applied in Scandinavian countries.
Under the group contribution regime a transfer of profits is made possible between different Belgian tax payers (including Belgian establishments). The transferor will be entitled to deduct this contribution from its taxable basis, thereby reducing its corporate income tax charge. In return, for the tax advantage the transferor is receiving, it will need to pay a compensation to the lossmaking entity, equal to the corresponding tax benefit of the current year loss. The payment of the compensation is treated as a tax neutral event.
The group contribution regime is subject to certain (strict) conditions:
- Participation requirement - The group contribution regime is only available when one (EEA or domestic) entity holds directly at least 90% of the capital in the other (EEA or domestic) entity or where at least 90% of the capital of both entities is directly held by a (EEA or domestic) joint parent. Note that certain legal questions can be raised with respect to these strict participation requirements.
- Holding period requirement - The participation requirement needs to be met for a period of five years, i.e. for the assessment year the group contribution regime is applied and the 4 preceding years.
- Excluded entities - Certain specific entities that benefit from a preferential tax regime such as investment companies or companies which are taxed on a lump sum basis are excluded from the group contribution regime.
- Current year losses only - The regime only applies to current year losses. Historical carry forward tax losses cannot be transferred via the group contribution rule. In line with ECJ case law, the group contribution regime is also available for the liquidation losses of an EEA entity if these losses can be considered as final, i.e., there is no possibility to use these losses in that jurisdiction in the future.
A number of formalities need to be complied with in order to apply the above regime (such as an opt in via a contribution agreement each year the contribution regime is applied, timing of the payment, and the preparation of the corporate income tax return itself). The template contribution agreement was issued on 13 February 2020 (together with a circular letter from the tax authorities).
The impact of the above regime also needs to be carefully considered when assessing tax provisions, available carry forward tax losses (DTA-assessment), advance tax payments etc.