In the context of the latest budgetary measures, a decision has been taken to intensify the taxation of the financial intermediaries (banks, insurance companies and investment undertakings). The changes are therefore aimed at the entire financial sector.
The revision will limit the tax deductibility in the Belgian corporate tax regime of the annual tax on credit institutions (the so-called bank tax - tax rate of 0,13231%), the annual tax on collective investment undertakings (the so-called subscription tax - tax rate of 0,0925%) and the annual tax on insurance companies (tax rate of 0,0925%).
Only the tax deductibility of the named taxes for Belgian corporate tax purposes is changed; no changes will be made to the actual taxes or the applicable tax rates.
The deduction of these taxes will be limited to 20%. Previously, they were 100% tax deductible. This means that these taxes will be included in the disallowed expenses up to 80%. Presumably, this is to achieve an effective tax burden of 20% rather than an actual tax burden corresponding to the higher default corporate tax rate of 25%.
This measure obviously only concerns companies subject to Belgian corporate income tax. Belgian branches of foreign companies may also be confronted with this additional taxation.
Indirectly, it also affects investors insofar as Belgian corporate income tax is paid with funds held for the investors.
A particular problem arises for Belgian regulated investment companies which are liable for the subscription tax and which are also subject to the specific corporate tax regime under section 185bis of the Income Tax Code 1992 (the so-called limited tax base).
For the above-mentioned regulated investment companies, the actual tax burden does not only increase by 20% calculated on the initial tax of 9.25 bp, but it increases even further because the percentage of disallowed expenses will give rise to a corporate tax liability and this corporate tax liability will in turn give rise to a new disallowed expense. This is because Belgian corporate tax is also a disallowed expense at 100% and then taxed at the applicable corporate tax rate (25%).
By treating the corporate tax as a disallowed expense, from the year in which corporate tax becomes payable as a result of this measure, the regulated investment companies concerned will continue to pay additional corporate tax year after year.
This measure thus gives rise to a so-called "tax on tax" situation. This problem is already known but its effects are now increased significantly by the here discussed measure. The number of years that the snowball effect lasts depends on the size of the taxable base and when the corporate tax is included in the annual accounts.
The question is whether the legislator really intended this additional taxation. Although such tax-on-tax situation has already been challenged before in Belgian courts, no satisfactory result has been achieved for the taxpayer. However, sufficient arguments can be found today to challenge this unequal treatment.
The measure would apply to taxes due as from 1 January 2023.
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