Government refuses to end tax avoidance mechanism

The Minister for Finance, Johan Van Overtveldt (New Flemish Alliance), is refusing to tackle so-called “hybrid mechanisms”.

These tax-efficient structures are frequently used by multi-nationals. The measure now comprises part of series of proposals within a multilateral agreement, instigated by the Organisation for Economic Cooperation and Development (OECD). Belgium has expressed reservations about this. De Standaard reported today that the minister however stated two years ago that he wanted to end these hybrid mechanisms.

Last week, Johan Van Overtveldt signed the agreement with the OECD on Belgium’s behalf. The agreement will have the effect of adapting thousands of tax treaties. This agreement will enable governments to put an end to hybrid mechanisms. It is these mechanisms which are enabling multinationals to take advantage of disparities in tax legislation as between countries. Belgium is refusing to tackle one of the most-used mechanisms to deduct taxable income: agency arrangements.

Thanks to their existence, foreign multinationals can sell products in Belgium, without having to open a head office there, and without being taxed on the profits generated in the country. Instead of such a course of action, they call upon an agent. The agent works in his or her own name but on behalf of the foreign business.

Providing a reaction to De Standaard, the Department of Finance indicates that Johan Van Overtveldt is highly aware of the issue, but that the current mechanism within the Belgian tax system is intended to tackle the phenomenon. Although Belgium is not levying tax on such multinationals, a partner country is often doing so. In practice, the minister says that this does depend very much upon what the agent actually does and not upon the country in which the activity is reported for tax purposes.

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