Belgium implemented the Pillar Two rules at the end of last year via publication of the Law of 19 December 2023 (Belgian Pillar Two Law). The Pillar Two rules entered into force on 31 December 2023 and apply to Fiscal Years starting on or after 31 December 2023 for in-scope multinational or domestic groups. For more information, we refer to our previous Tax article.
On 29 May 2024, various amendments to this Belgian Pillar Two Law were published a.o. to implement the Administrative Guidance (AG) issued by the OECD in February 2023, July 2023 (see our Tax article) and December 2023 (see our Tax article). The amendments apply for Fiscal Years starting as of 31 December 2023.
The most relevant amendments can be summarized as follows.
Reporting obligations
- For organizational purposes, each group that is in scope of the Pillar Two rules needs to obtain one so-called CBE-number. This facilitates contacts with the tax authorities regarding Pillar Two, the filing of the relevant Pillar Two returns and levying of the Qualified Domestic Minimum Top-up Tax (QDMTT), Income Inclusion Rule (IIR) or Undertaxed Profit Rule (UTPR). For more information see our Tax Flash.
- The central filing of the GloBE information return in one jurisdiction can delay obtaining the relevant information needed by the Belgian tax authorities to issue the Pillar Two Top-up Tax assessment. To ensure the timely collection of Top-up Tax in Belgium, the Belgian group entity must file a separate form mentioning the amount of IIR or UTPR to be paid in Belgium within the same filing deadline as for the GloBE information return, i.e. 15 months following the relevant Fiscal Year (18 months after the first year the group becomes subject to the Pillar Two rules).
Safe Harbours
- The Safe Harbour for Non-Material Constituent Entities (NMCE) set out in the December 2023 AG is implemented, allowing simplified calculations for NMCEs.
- Under the QDMTT Safe Harbour, the Top-up Tax payable under the GloBE rules is deemed to be zero for a jurisdiction if a QDMTT is levied by this other jurisdiction following the conditions set out in the July 2023 AG (i.e. the QDMTT Accounting Standard, the Consistency Standard and the Administration Standard). This Safe Harbour is now implemented but surprisingly refers to a QDMTT as defined under GloBE and not to the standards described in the July 2023 AG, which may give rise to some uncertainties.
- The Transitional UTPR Safe Harbour introduced in the July 2023 AG is implemented. This Safe Harbour is designed to provide transitional relief in the Ultimate Parent Entity (UPE) Jurisdiction during the first two years in which the GloBE rules come into effect. Under the Transitional UTPR Safe Harbour, the UTPR Top-up Tax Amount calculated for the UPE Jurisdiction shall be deemed to be zero. It applies to Fiscal Years starting before 1 December 2026 and ending before 31 December 2026 provided that the UPE jurisdiction has a nominal corporate income tax rate of 20%.
- A hybrid arbitrage arrangement as described in the December 2023 AG is included in the CbCR Safe Harbour. To comply with the principle of legal certainty, only hybrid arbitrage arrangements entered into after 18 December 2023 are captured.
Marketable transferrable tax credits
Under the Pillar Two rules a difference is made between Qualified Refundable Tax Credits (QRTCs), which are refundable in cash or cash equivalents within four years, and Non-Qualified Refundable Tax Credits (Non-QRTCs), which are refundable after four years. A QRTC is treated as an increase to the GloBE Income (denominator), while a Non-QRTC is treated as a reduction to the Covered Taxes (numerator). Both therefore reduce the effective tax rate (ETR), but this effect is (in principle) much stronger for a Non-QRTC. For this reason, the Belgian legislator already amended the current tax credit for research and development by reducing the repayment period from five to four years as of assessment year 2025.
The July 2023 AG contained further guidance on the tax treatment of other categories of tax credits, thereby treating marketable transferrable tax credits the same as QRTCs. This similar treatment has now been implemented in Belgium. In Belgium no credits exist that qualify as marketable transferrable tax credits.
Qualified Domestic Minimum Top-up Tax
The February 2023 AG clarified that the QDMTT shall exclude taxes paid or incurred by Constituent Entity-owners under CFC Regimes that are allocable to CFCs under the GloBE Rules, as well as taxes paid or incurred by Main Entities that are allocable to Permanent Establishments (PE) under the GloBE rules. The policy rationale is that the jurisdiction where the CFC or PE is located should have the first right to tax income of Entities located within its territory under a QDMTT. This guidance was already integrated in the Belgian Pillar Two Law. The February AG (and thus the Belgian Pillar Two Law) did not yet specifically address the treatment of taxes paid by Constituent Entity-owners on the income of Hybrid Entities or distributions from distributing Constituent Entities, which under GloBE rules are allocated to the Hybrid Entity and distributing Constituent Entity (CE) respectively. Further guidance was introduced in the December 2023 AG which has now been implemented in Belgium. Based on this guidance, the QDMTT in Belgium shall also exclude taxes paid by Constituent Entity-owners on the income of Hybrid Entities. However, withholding taxes imposed by Belgium on dividend distributions made by a Belgian CE are allocated to the distributing Belgian CE under the QDMTT.
Blended Controlled Foreign Company Taxes
The February 2023 AG introduced the concept of a so-called ‘Blended CFC Tax Regime'. A Blended CFC Tax Regime is a tax regime that aggregates income, losses, and creditable taxes of all CFCs to determine the CFC liability and whereby the CFC tax rate is less than 15%. US GILTI is a good example hereof. Under a simplified allocation method, CFC taxes are allocated to jurisdictions having (i) a GloBE Jurisdictional ETR below the so-called Applicable Rate (i.e. the rate at which the CFC country imposes the CFC tax), and (ii) so-called Attributable Income. The rule applies for a transitional period only. The GloBE Jurisdictional ETR is the effective tax rate computed under Article 5.1 of the GloBE rules without regard to covered taxes under the CFC Tax regime. The December 2023 AG provides further guidance on how to determine the GloBE jurisdictional ETR in jurisdictions where, for example, the group relies on a safe harbour or where multiple jurisdictional ETRs are calculated (e.g. if the group also has a joint venture or Minority-Owned Constituent Entities in that jurisdiction). Special rules are introduced for that purpose.
Belgium has now implemented the February 2023 AG for Fiscal Years starting before 1 January 2026 or not ending after 30 June 2027. Unfortunately, the Belgian amended text does not incorporate the December 2023 AG and no reference is made to these additional guidelines in the parliamentary works either. It is therefore uncertain whether these special rules can be relied upon.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.