This directive implemented a global minimum tax for multinationals. The draft bill provides that the rules will apply to fiscal years starting on or after 31 December 2023. Generally speaking, the draft bill is an accurate transposition of the directive. This article details key considerations specific to Belgium.
Reminder
Pillar Two focuses on the effective corporate tax paid by multinational companies and domestic (EU) groups with a consolidated worldwide turnover of at least MEUR 750 per year. These companies are expected to effectively pay at least 15% tax on their profits. The aim is to prevent large multinational companies from shifting their profits to low-tax countries in order to - partially - escape corporate tax.
For more information about this additional tax, we invite you to visit our last article on this topic.
Key considerations
- Belgium decided to implement Pillar Two via a separate law, rather than an incorporation into its existing Income Tax Code.
- OECD Administrative Guidance is relevant for the interpretation of the (draft) bill.
- Transitional safe harbour rules are incorporated in the draft bill in order to lighten the administrative burden related to the determination of the additional tax for specific low-risk jurisdictions.
- Top-up taxes levied under Pillar Two will be considered as non-deductible for corporate income tax purposes.
- The R&D tax credit regime will be amended (optional refund after 4 years instead of 5 years in case of non-utilization).
- The Belgian Ruling Commission will not be competent for issuing rulings on Pillar Two. However, taxpayers will be able to address their questions informally to a dedicated service within the tax administration.
- Future royal decrees will address the Belgian technical aspects relating to the model of tax returns, the application of penalties, etc.
QDMTT, IIR and UTPR
The draft bill includes the introduction of an Income Inclusion Rule (IIR) and an Undertaxed Profits Rule (UTPR). Belgium has also opted to adopt a Qualified Domestic Minimum Top-up Tax (QDMTT) as provided in the directive to ensure a 15% minimum tax on Belgian resident entities on a consolidated basis. The IIR and QDMTT are implemented for fiscal years starting on or after 31 December 2023 and the UTPR for fiscal years starting on or after 31 December 2024.
- QDMTT: application of an additional national tax for low-taxed entities established in Belgium
- IIR: when the group’s ultimate parent entity is Belgian, application of an additional tax to offset the shortfall in taxes levied on subsidiary entities falling under the scope of Pillar Two.
Belgium will only be entitled to apply the IIR if the exchange of information with the foreign tax jurisdictions shows that low-tax jurisdictions have not (sufficiently) withheld the QDMTT.
- UPTR: catch-all rule to enable Belgium to levy an additional tax for low-taxed entities established in jurisdictions where IIR and/or QDMTT have not been implemented.
Compliance
The QDMTT return must be filed within 11 months following the end of the fiscal year. The so-called GloBE (Global Anti-Base Erosion) information return (i.e., with IIR and UPTR) must be filed within 15 months following the end of the fiscal year (18 months for the first year of the application).
Administrative fines ranging from 2,500 to 250,000 EUR can be imposed for non-compliance. Although the draft does not explicitly include the Transitional Penalty Relief Regime proposed by the OECD, the Memorandum of Understanding states that a certain degree of "tolerance" will be applied for errors that have been made during the first years.
The GloBE Information Return is considered as a complex return meaning that the 10-year statute of limitation will apply.
Considerations related to the existing Belgian minimum tax rule
The implementation of Pillar Two has consequences on the existing Belgian minimum tax rule.
Prior to 2023, companies could deduct previous tax losses up to 1 million EUR + 70% of the taxable income exceeding 1 million EUR. As from 2023, the ceiling is reduced from 70% to 40%, implying that 60% of the remaining taxable base exceeding 1 million EUR becomes taxable, i.e. a kind of minimum tax of 15% (60% x 25%). Upon ratification of the final Pillar Two law, the current 40% ceiling will be increased again to 70%, in principle as of 2024.
Who will be impacted
The rules apply to large multinationals with annual consolidated revenues of at least MEUR 750 in at least two out of the prior four accounting periods.
Common structures likely to be impacted are those involving:
- tax havens, low-tax jurisdictions and jurisdictions with territorial regimes
- notional interest deduction regimes
- IP boxes and other incentives regimes, including tax holidays
- low-taxed financing, IP and global centralisation arrangements.
Every global organisation with global revenues of MEUR 750 or more will need to act to be compliant with Pillar Two. For those impacted, Pillar Two will have short and long-term impacts and you may expect a significant increase in compliance burden as the calculations are complex and many of the data points required may not currently be tracked, requiring updates to systems and changes to existing compliance processes.
How can we help?
BDO has a dedicated global team made up of International Corporate Tax experts who can advise and assist with planning for Pillar Two compliance. With global support, we provide consistency and a joined-up approach to Pillar Two.
We deliver pragmatic advice which is relevant to your organisation. As BDO is not tied to one technology platform, we can work with you to find a solution that is tailored to you. Our flexible approach reflects the dynamic organizations we work with.
More on Pillar Two
Our latest Corporate Tax Newsletter includes a status of implementation of Pillar Two around the globe. You can check it out here.
BDO Global are hosting a series of webinars over the next few months on the topic of Pillar Two: The new global minimum tax. The first webinar is taking place on Wednesday 6 December at 14:00 CET and will cover an overview of the rules, forthcoming financial statement disclosure obligations, and a suggested roadmap to compliance. The first webinar will be led by BDO UK and BDO Netherlands.
If you have any questions about Pillar Two, our experts are at your disposal to help you. Do not hesitate to contact us.