Tax reduction for companies must be made up for elsewhere, warns Peeters

A decrease in company taxes

A decrease in company taxes is necessary, but the reduction in tax income must be compensated for elsewhere, warned Thursday CD&V Deputy Prime Minister Kris Peeters, in columns of De Tijd, returning to the path of Conseil Supérieur des Finances (CSF).

Following the government seminar at Val-Duchesse last Saturday, the Federal Government kept amongst its priorities for 2017 a company tax reform. The matter has been raised regularly for a long time, and should be defined under this legislature.

The tax rate in Belgium is 33.99%, a rate which is rarely applied in practice, given the significant number of tax deductions. The evolution of the international context has compromised some of these tax niches, such as “excess profit rulings”, which are clearly in the sights of the European Commission, or notional interest. A reform is therefore of current relevance.

CSF’s vision has several paths. It discards the idea of an optional system, as envisaged at one time by the Minister of Finance Johan Van Overtveldt, that is, a choice between the present system and a rate reduction to 20% without the array of deductions.

CSF argues in favour of a sole system, which would guarantee simplicity and avoid subjecting investors to the risk of choice in an uncertain environment. In order to fund a lowering of the rate to 25%, doing away with the reduction for at-risk capital (notional interest) would be required, without which “nothing significant would be achieved.”

The decision could prompt the exit of financing companies to other more attractive countries, but CSF is optimistic due to anti-abuse measures being implemented through the initiative of the OECD.

The removal of notional interest would not be enough. CSF also recommends altering the deductibility of expenses and increasing the withholding tax on real estate.

In the event of a reduction to 20%, “sufficiently substantial modification” would also be necessary for the deduction of expenses, as well as measures to avoid a new wave of transformations of individual companies subjected to the natural persons’ tax, into companies.

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