At the end of 2010, Belgium introduced a new transparency obligation for Belgian companies and permanent establishments to report in their annual tax return all payments exceeding 100,000 EUR on a yearly base made to tax havens (art. 307, §1, al.3 ITC).
As the legal provision was not entirely clear, the tax administration recently published a Circular Letter on this matter (circ. AAF n° 13/2010 of the 30th of November 2010).
The reporting obligation applies to all payments directly or indirectly made by Belgian companies or establishments to companies, legal entities or individuals located in "tax havens". As tax haven is considered any country that is mentioned on the OECD list of countries that do not apply the OECD standards of exchange of information, or on the Belgian list of countries that levy a corporate tax of less than 10%.
In its recent Circular Letter, the tax administration shows that they wish to conceive the obligation in its broadest sense. As such, the term "payments" is not limited to deductible costs, but covers all payments in cash or kind, including even the repayment of loans. Furthermore, companies not only have to report payments made for their own account, but also those made on behalf of third parties. The localisation in a tax haven is not only relating to recipients that have an address in a tax haven, but also to payments made to a financial account held in a tax haven. As it is not always possible for a taxpayer to know when a payment is made to a tax haven, the Circular Letter confirms this fact by stating that the obligation only applies to taxpayers that "know or reasonably should know" that such payment was made.
The penalty for not reporting is that the costs are not deductible (invoices, interests ...).
If the total of the payments in a certain year does not exceed 100,000 EUR, there is no obligation to report them. Important hereby is that if the tax administration would qualify at a later stage other payments as being to a tax haven and by doing so the limit of 100,000 EUR is exceeded, the total amount of all payments will be considered as non-deductible.
Although that the Circular Letter gives some useful clarifications of the position of the tax administration, but often deviates from the initial intention of the legislator which was to get insight into more "questionable" payments made by Belgian companies. The aforementioned broad interpretation by the tax administration risks imposing a heavy administrative burden on all taxpayers, also those that act in good faith.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
