Jacques Malherbe speaks about tax regularisation and remittances at IFE Belgium

Jacques Malherbe will speak about tax regularisation and remittances at the conference “Lutte contre le blanchiment – Compliance” held by IFE Belgium on 20 & 21 May in Brussels.

The programme is available here.

 

AMLD5 and Cryptocurrencies

Introduction

One of the biggest threats associated with virtual currencies (or cryptocurrencies) is their potential use for money laundering and terrorist financing purposes. With the adoption of the 5th Anti-Money Laundering Directive ( “AMLD5”) on 30 May 2018, the European Union attempts, amongst other things, to address this issue.

Senders and recipients of virtual currencies can usually carry out these transactions anonymously.

Distributed ledgers (e.g. blockchains) on which these operations are carried out offer an anonymous yet (in principle) safe technical channel. There is no need to associate a specific identity to a  virtual wallet or a transaction. Technically, no prior identification is required.

Besides, virtual currency transactions are not confined to specific jurisdictions. They are accepted roughly everywhere and do not require any centralised intermediary. Having Internet access is sufficient to send virtual currencies to the other side of the world.

These features of virtual currency transactions render the control on, and the interception of, these operations particularly tricky.

This is why, since a few years already, public authorities, notably at the European level, have been feeling the need for a new regulatory approach.

In its opinion (2014/08) of 4 July 2014 on virtual currencies, the European Banking Authority (“EBA”), advocated for a whole set of measures to address the risks of virtual currencies.

These measures included for instance:

  • the compulsory creation/licencing of a “scheme governance authority” for each virtual currency which would be in charge of its integrity;
  • the extension of the market abuse and AML rules to virtual currency transactions;
  • the enactment of specific rules of conduct for market participants.

Taking into account the complexity and the highly resource-intensive nature of the proposed comprehensive regulatory approach, and the urgent need for a quick regulatory response to virtual currencies, the EBA recommended, in the short run, to extend the personal scope of the AML Directives to the virtual currencies exchange providers (the “VCEPs”), i.e. providers engaged in exchange services between virtual currencies and fiat currencies).

AMLD4 and virtual currencies

Triggered by the November 2015 Paris attacks, the European Commission proposed to amend the 4th Anti-Money Laundering Directive (the “AMLD4”) even before its transposition date (in principle on 26 June 2017[1]). Its proposal consisted of bringing the following two entities under the scope of AML rules by the beginning of 2017:

  • the VCEPs; and
  • the custodian wallet providers (the “CWPs”), i.e. entities that provide services to safeguard private cryptographic keys on behalf of their customers, to hold, store and transfer virtual currencies.

Finally, the AMLD4 was not modified prior to its transposition, notably because the EBA itself advocated for an extension of the initial deadline (to allow both public authorities and businesses to adapt) in a second opinion on virtual currencies (2016/07) of 11 August 2016.

Nevertheless, these discussions paved the way for the changes brought by the AMLD5.

Regulatory approach of the AMLD5

One of the main innovations of the AMLD5 is to give a legal definition to virtual currencies.

Art. 1, (2), d) of the AMLD5 defines a virtual currency  as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency, and does not possess a legal status of currency or money, but is accepted by natural or legal persons, as a means of exchange, and which can be transferred, stored and traded electronically”.

Following the abovementioned propositions, the approach of the European legislator to regulate the use of virtual currencies consisted of including VCEPs and CWPs in the list of obliged entities regulated by AML rules.

Consequently, these new obliged entities will become subject to regulatory requirements similar to those of banks, payment institutions and other financial institutions.

For instance, they will be required to implement necessary customer due diligence controls, to monitor transactions and to report any suspicious activity to the relevant national authorities (i.e. the Financial Intelligence Processing Unit in Belgium).

The new obliged entities will also be subject to a registration obligation.

Through these obliged entities, the European legislator hopes that competent authorities will be able to monitor the use of virtual currencies.

However, the EU legislator admitted that this new approach would not entirely fix the problem of anonymity attached to cryptocurrency transactions since users can still execute these transactions without VCEPs and CWPs, thereby bypassing the new regulatory framework (recital 9 of AMLD5).

Only the beginning of the virtual currency regulation?

The AMLD5 must be implemented into national law before 10 January 2020.

However, the EU legislator is already aware of the fact that this new regulatory framework will not be sufficient to tackle AML issues in relation to virtual currencies. By 11 January 2022, the EU Commission has been mandated to examine and, as the case may be, draft legislative proposals regarding self-declaration by virtual currency owners and regarding the maintaining by the Member States of central databases registering users’ identities and wallet addresses.

It is likely that, sooner than later, other European legislative initiatives will come to cover other aspects of virtual currencies, e.g. the licencing of “scheme governing authorities”, or the use of virtual currencies as payment or investment means.

Besides, it is worth noting that the Member States do not necessarily wait for European initiatives and that some (fragmented) measures have already been adopted at national levels.

For instance, the FSMA issued a ban on the sale of derivatives products whose values derive from virtual currency to retail clients.

Existing regulations could also apply to virtual currencies. Though many legal uncertainties remain, the FSMA considers that some initial coins offerings can be subject to the rules of the law of 16 June 2006 on public offers (see its Communication 2017/20 of 13 November 2017).

It is also not excluded that some virtual currencies should be considered as “electronic money” in the meaning of Directive 2009/110/EC.

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For more information on virtual currencies, ICOs, blockchain and EU legislative initiatives in these fields, please contact Simont Braun’s Digital Finance Team (digitalfinance@simontbraun.eu).

[1] Member States had committed to transposing the AMLD4 before the transposition deadline. Belgium finally transposed the AMLD4 in the law of 18 September 2017.

UBO Register – What are the new obligations of Belgian entities?

Update – 4 October 2018

1. The Law of 18 September 2017 implementing the 4th EU Anti-Money Laundering Directive of 20 May 2015 (Directive EU 2015/849) has established a register of beneficial owners, namely the “UBO register” (Ultimate Beneficial Ownership). The Royal Decree of 30 July 2018 on the operating procedures of the UBO register has been published in the Belgian Official Journal on 14 August 2018 and will enter into force on 31 October 2018

2. The Law of 18 September 2017 requires companies registered in Belgium, (international) non-profit associations, foundations, trusts, fiduciaries and other similar entities to collect and keep adequate, accurate and up-to-date data relating to their ultimate beneficial owners and to file this information with the UBO register.

It should be noted that all forms of companies are covered, from listed companies to simple partnerships.

3. Article 4, 27° of the Law defines a “beneficial owner” as the individual(s) who, ultimately, own(s) or control(s) the company.

Regarding companies, this definition mainly refers to individuals who (i) ultimately own, directly or indirectly, a sufficient percentage of voting rights or shares (to possess, directly or through the holding by one or companies, of more than 25% of the voting rights or the share capital being a sufficient indication in this respect) or (ii) control the company through other means. In the absence of an individual fulfilling one of these conditions, the ultimate beneficial owner is the individual(s) acting as the principal manager.

Regarding (international) non-profit associations and foundations, the beneficial owners are the directors, daily managers, founders, individuals or categories of individuals to the benefit of whom the association was founded or any other individual who controls the association via other means.

For fiduciaries and trusts, the beneficial owners are the constituent, the fiduciaries, the trustees, the protector, the beneficiaries or categories of persons in the interest of whom the fiduciary or the trust was constituted, or any other individual who ultimately controls the fiduciary or trust.

The various categories of beneficial owners mentioned above are cumulative.

4. The Decree makes a distinction between the direct and indirect beneficial owner (the individual who “owns or controls the information provider through one or several legal entities”).

The report to the King stipulates that the concept of indirect beneficial owner aims at identifying the beneficiaries having an effective interest or control through the intermediary of other structures, including foreign legal entities.

5. The Royal Decree of 31 July 2018  transposes in part the 4th EU Anti-Money Laundering Directive and, by anticipation, the 5th EU Anti-Money Laundering Directive of 30 May 2018 (directive EU 2018/843) which amends the 4th  Directive.

The report to the King indicates that the creation of a UBO register and the exact identification of the beneficial owner also make Belgium compliant with the FATF’s recommendations and the OECD’s requirements relating to the exchange of information for tax purposes.

6. The Decree introduces the concept of information provider, namely the entities referred to in section 2 above.

The obligation to file the relevant information with the General Treasury Administration in charge of managing the UBO register lies upon the information providers, and more specifically upon their directors – and not upon the beneficial owners themselves.

The information will have to be updated at least once a year. However,  company directors shall have to communicate to the UBO register any change to the information on the beneficial owners within one month of such change.

All data should be uploaded to the register via the online platform MyMinFin. The register is operational since 27 September.

7. The Royal Decree requires companies incorporated in Belgium to communicate to the UBO register the following information on each beneficial owner:  (i) last name and first name, date of birth (day/month/year), citizenship(s), country of residence, complete address of residence, date on which they became the UBO of the company, national registry number or registration number with the Crossroads Bank for Companies (or similar identifier abroad), (ii) the relevant category of UBO they belong to, (iii) whether he/she is a direct or indirect UBO, (iv) whether he/she is an isolated UBO or jointly with other individuals, (v) if he/she is an indirect UBO, the complete identification of each intermediary, (vi) the percentage of shares or voting rights owned, and (vii) in the case of indirect detention or control, the percentage of shares or weighted voting rights held  in the company.

8. The (international) non-profit associations and foundations incorporated in Belgium will have to communicate to the UBO register the same information as required from the beneficial owners of companies, except the extent of the effective interest held in the company.

The Decree requires trustees and fiduciaries managing trusts, fiduciaries or similar legal entities from Belgium, to collect and preserve similar information on their beneficial owners and to communicate some information related to Belgium to the UBO register.

9. All data contained in the UBO register is accessible to the competent authorities and related entities (including the Ministry of Finance, tax authorities, the CTIF-CFI, the police, the NBB, the FSMA, company auditors, accountants, lawyers, notaries, bailiffs, etc.), as well as to any member of the public in accordance with the increased transparency principle implemented by the 5th Anti-Money Laundering Directive.

However, the members of the public will not have access to the first name, the exact date of birth, the complete address of residence, the national registry number or equivalent of the beneficial owners.

Members of the public may only search by company name or CBE number. They cannot use the beneficial owners’ name. Members of the public must log in and the logs used to consult information will be saved. They will also have to pay administrative costs.

Regarding all other legal entities – (international) non-profit associations, foundations, trusts and fiduciaries – the members of the public cannot have direct access to the UBO register.  They will have to file a request with the General Treasury Administration justifying a legitimate interest related to the fight against money-laundering or to the financing of terrorist or other similar activities.

10. Companies and beneficial owners will not be informed of the searches made on them by third parties in the UBO register.

11. The information providers will have to provide some information to beneficial owners to comply with the rules on data protection and privacy.

The General Treasury Administration will also inform the beneficial owners of their registration in the UBO register and send them all information recorded under their name once a year.

The beneficial owners will have the right to access all information registered under their name and request to modify or delete any inaccurate data.

Any consultation of the register will be recorded and kept for a period of ten years. The data contained in the register will also be registered and saved during ten years after the relevant company lost its legal personality or definitively ceased its activities.

12. Nevertheless, the General Treasury Administration may, at the request of a beneficial owner, limit access notably to the public to all or part of his/her information. The beneficial owner will have to demonstrate that “such access would create a disproportionate risk, a risk of fraud, harassment, kidnapping, blackmailing, extortion, violence or intimidations”, or if the beneficial owner is minor or incapacitated. The General Treasury Administration may grant such an exemption on a case by case basis upon a “detailed analysis of the exceptional nature of the circumstances”.

13. A criminal or administrative fine may be imposed on any company, (international) non-profit associations, foundations and, more specifically,  on their directors responsible for a breach of any of their obligations.

Practical aspects

14. On the basis of the applicable texts, the information providers should communicate for the first time the required information on beneficial owners to the UBO register by 30 November 2018. However, in practice, it results from the information that has just been published on the website of FPS Finance, that this deadline has been extended to 31 March 2019.

In the meantime, the following measures must be undertaken by the information providers:

  • Implement internal procedures to facilitate the collection of information mentioned in the Decree and communication of any related changes;
  • Identify the beneficial owners and the category(ies) to which they belong and collect the documents attesting the accuracy of the information communicated (i.e copy of the identity card, register of shareholders, authentic deed, articles of association of the intermediary company in case of indirect ownership);
  • Designate the legal representative or an authorised representative with an E-ID card who will be responsible for fill in all the information mentioned in the royal decree via the online platform MyMinFin on behalf of the information provider. In the event of an authorized representative, it may be either an internal agent to the information provider or an external agent (e.g. accountant, legal advisor, natural person or legal entity).

Various information is available on the website of the Federal Public Service Finance and in particular an FAQ.

Detailed guidelines are also being drafted. The user guide for the legal representative is now available.

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Sandrine Hirsch and Jacques Malherbe

For any question, please contact the authors:
sandrine.hirsch@simontbraun.eu – +32 2 533 17 64
jacques.malherbe@simontbraun.eu – +32 2 533 17 54

The Belgian corporate income tax reform

As announced since several months, the new Belgian corporate income tax reform was recently enacted by the law of 25 December 2017 (hereafter: “Law”), as published in the Belgian State Gazette of 27 December 2017. Hereunder you will find a summary of some of the major highlights of this reform.

Decrease of the nominal corporate income tax rates

As from tax assessment year 2019 (i.e. income 2018 if the accounting year matches the calendar year), the Law decreases the standard corporate income tax rate from 33.99% to 29.58%.

For small and medium-sized enterprises (hereafter: “SMEs”) a reduced corporate income tax rate of 20.40% will be applicable with respect to the first tranche of EUR 100,000.  Any taxable income exceeding EUR 100,000 will be subject to the standard corporate income tax rate of 29.58%.  This reduced tax rate of 20,40% on the first tranche of EUR 100,000 is however subject to the condition that a minimum annual remuneration is paid to at least one of the company’s directors.  The annual remuneration should at least be EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or an amount equal to the company’s taxable base (if the company’s taxable base is below EUR 45,000). The minimum remuneration is not required during the first four years for SMEs in order to benefit from the reduced corporate income tax rate.

As from tax assessment year 2021 (i.e. income 2020 if the accounting year matches the calendar year), the standard corporate income tax rate will be further reduced to 25%.  For SMEs, the reduced tax rate will be further reduced to 20% on the first tranche of EUR 100,000, provided the above-mentioned minimum annual remuneration is paid to at least one of the company’s directors.

Special taxation if no minimum annual remuneration is paid

Irrespective the fact whether or not a company qualifies as an SME, all companies (including large companies) should pay a minimum annual remuneration to at least one of the company’s directors of at least EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or an amount equal to the company’s taxable base (if the company’s taxable base is below EUR 45,000).

If no such remuneration is paid, or if the remuneration paid is below the minimum, then a special taxation of 5% will be applied at the level of the company on the difference between (i) EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or the companies taxable base (if the company’s taxable base is below EUR 45,000), and (ii) the highest remuneration paid by the company to one of the company’s directors.  Any special taxation paid in this respect will be a tax-deductible expense.

As from tax assessment year 2021 (i.e. income 2020 if the accounting year matches the calendar year), the special taxation will be increased from 5% to 10%.

As mentioned above, the minimum remuneration is not required during the first four years for SMEs.

For “related” companies (cf. Art. 11 of the Company Law Code), whereby at least half of the company directors are the same persons, the full amount of the remuneration paid by these related entities to one of its (common) directors will be taken into account cumulatively in order to verify whether the minimum remuneration has been paid.  However, for related companies, the minimum annual remuneration is increased to EUR 75,000.

Minimum taxation basket if too many tax deductions are available

The Law also introduces a minimum taxation basket if and to the extent that the company has too many available tax deductions (dividends received deduction, patent income deduction, innovation deduction and investment deduction).  Indeed, the new Law limits as from tax assessment year 2019 the full use of these tax deductions, whereby these deductions will, per tax year, be capped to EUR 1,000,000 plus 70% of the remaining taxable result.  Consequently, 30% of that remaining taxable result will then be subject to the corporate income tax (irrespective the presence of additional non-used deductions which will be carried forward to the next tax year), thus leading to a minimum taxable base, i.e. the minimum “basket”.  On this minimum basket, corporate income tax will be due.

A fully exempt dividend received deduction regime

Until the new Law, the Belgian dividend received deduction regime (hereafter: “DRD-regime”) merely allowed, under certain conditions, a 95% deduction of the dividends received by a Belgian company.  As a rule, the DRD-regime was available to Belgian companies provided that (i) some quantitative conditions (“participation” condition), (ii) qualitative conditions (“subject-to-tax” condition), and (iii) the 1 year holding requirement were met.  The quantitative condition required a minimum shareholding of 10% or EUR 2,500,000 in the company distributing the dividends.  The qualitative conditions required in essence that the company distributing (or redistributing) the dividends was subject to a normal corporate income tax regime.  If these conditions were fulfilled, then the dividends received would be exempt for 95% in the Belgian corporate income tax, and the remaining 5% would then be subject to the ordinary corporate income tax of 33.99%, thus leading to an effective “tax-leakage” of 1.6995% (i.e. 33.99% x 5%) on the dividends received.

As from tax assessment year 2019 (i.e. income 2018 if the accounting year matches the calendar year), the new Law has extended the 95% dividend received exemption to a full (100%) exemption.

Modification as to the calculation basis of the notional interest deduction

The Law also changes the current calculation basis of the notional interest deduction, whereby the notional interest deduction will no longer be calculated on the company’s total amount of (qualifying) net equity at the end of the preceding financial year, but will be calculated on the so-called “incremental” risk capital, which equals 1/5 of the positive difference between (i) the net equity at the end of the taxable period and (ii) the net equity at the end of the fifth preceding taxable period.

Modified tax regime for capital gains on shares

Until the new Law, capital gains on shares realized by Belgian companies were subject to either of the following regimes: (i) a full exemption for capital gains on shares realized by SMEs which comply with the subject-to-tax condition and the 1-year holding requirement, (ii) a 0.412% taxation on capital gains on shares realized by Belgian companies (non-SMEs) which comply with the subject-to-tax condition and the 1-year holding requirement (except for SMEs benefiting from a full exemption), (iii) a 25.75% taxation on capital gains on shares realized by Belgian companies which comply with the subject-to-tax condition but not with the 1-year holding requirement (for SMEs and non-SMEs), or (iv) the standard corporate income tax (of in principle 33.99%) for capital gains of which the shares did not fulfil the subject-to-tax condition.

The new Law abolishes the 0.412% taxation on capital gains realized by non-SMEs.  This means that non-SMEs, can now also benefit from a full exemption on capital gains on shares.

However, the full capital gains exemption has now been tightened, since a new minimum participation requirement has been introduced in order to benefit from the full exemption on realized capital gains, and whereby this new condition is also extended to SMEs.  This minimum participation requirement requires that the company realizing the capital gains has a minimum participation of either 10% or EUR 2,500,000 in the share capital of the company whose shares are realized.

This means that the new tax regime on capital gains on shares realized by Belgian companies can basically be summarized as follows:

  • a full exemption for capital gains on shares realized by Belgian companies (SMEs or non-SMEs) that comply with (i) the subject-to-tax condition, (ii) the 1-year holding requirement, and (iii) the minimum participation requirement;
  • during tax assessment years 2019 and 2020, a 25.50% taxation for capital gains on shares realized if (i) the subject-to-tax condition and (ii) the minimum participation requirement are fulfilled, but not the 1-year holding requirement.  SMEs realizing such capital gains could then benefit from a 20.40% taxation up and to the extent that the SMEs benefit from the special 20.40% tax rate.  As from tax assessment year 2021 onwards, the rate would then be reduced to 25%, and to 20% for SME’s up and to the extent that the SMEs benefit from the 20% tax rate; or
  • during tax assessment years 2019 and 2020, the standard corporate income tax rate of 29.58% if either the subject-to-tax condition or the minimum participation requirement is not fulfilled.  SMEs would then be subject to the 20.40% taxation up and to the extent that the SMEs benefit from the special 20.40% tax rate.  As from tax assessment year 2021 onwards, the rate would then be reduced to 25%, and to 20% for SMEs up and to the extent that the SMEs benefit from the 20% tax rate.

Taxation of capital decreases

The Law also introduces a tax modification with respect to capital decreases carried out as from 1 January 2018 onwards.  If and to the extent the equity of the company is composed of fiscally paid-in capital as well as reserves (i.e. retained earnings), then a capital decrease will, for tax purposes, be proportionally imputed to the paid-in capital on the one hand and the reserves on the other hand, whereby such imputation will firstly be made to the taxed reserves and subsequently to the tax-exempt reserves.  The imputation of the capital decrease to the reserves will then be assimilated with a dividend distribution which will, in principle, be subject to the applicable withholding tax.

Miscellaneous tax modifications

The above-mentioned modifications are conceptually the most significant changes in the Belgian corporate income tax.  Besides these modifications, the Law has also introduced a variety of changes and modifications, amongst which:

  • the limitation of the use of certain deductions, e. upon corporate restructurings (proportional limitation of excess dividend received deductions), upon a change of control that does not meet legitimate financial or economic needs (loss of excess dividend received deduction or innovation deduction), or upon a tax audit (no tax deductions to offset a tax supplement, except current year dividend received deductions);
  • an increase of the tax increase that is due upon insufficient tax prepayments, an increase of the lump sum taxable base as applicable upon no or late filings of tax returns; and
  • a modification with respect to late payment interests on taxes or compensatory interests on tax reimbursements.

 

For any question, please contact Lievin De Wulf: +32 (0)2 533 17 78 or ldw@simontbraun.eu

The Belgian tax treatment of income stemming from the assigment of license of copyrights

Simont Braun recently assisted one of its clients in obtaining a ruling from the Ruling Commission in which an extensive and refined application was made of the interesting Belgian tax treatment with respect to personal income received from the assignment or license of copyrights.

The distinction between the compensation received by an individual in exchange for professional services rendered and the compensation received for assigning or licensing copyrights is made on the basis of a flat percentage (ranging between 5 and 25%).

The specific percentages as accepted by the Ruling Commission for each specific job description are based on a factual analysis of the individual tasks and creativity required for the respective job descriptions, as well as on the market value of the creative results which are protected by copyright.

Full article available in French and Dutch

 

Jacques Malherbe joins Simont Braun’s Tax department

SIMONT BRAUN is pleased to announce that Jacques Malherbe has joined its tax department as Of Counsel on the 1st of January 2017 where he will be working next to Lievin De Wulf (Partner) and Martina Bertha (Of Counsel).

Jacques Malherbe has a well-known reputation in the field of tax law that he taught at the Louvain University from 1970 to 2005 and still at the moment in many universities abroad. He is the author of many publications. He advises Belgian and international clients on all aspects of tax law. Next to his advisory work, Jacques Malherbe is also involved in litigation and arbitration in tax and financial matters.