Belgian law adopted on the Pillar 2 minimum taxation

The Belgian draft law on the implementation of the minimum taxation for multinational enterprises and large-scale domestic groups (hereafter: the law) is adopted by the Belgian Parliament. The law generally follows the EU Directive of 14 December 2022 and transposes the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR) into Belgian legislation. Additionally, it incorporates the Belgian Domestic Minimum Top-up Tax (DMTT) and the transitional safe harbour rules, as well as implements changes to the Belgian R&D tax credit. While it also generally incorporates the supplementary rules introduced by the OECD Administrative Guidance of February 2023, the supplementary rules of the OECD Administrative Guidance of July 2023 will be included in a separate draft law, amending the current law.

The law will become effective on 31 December 2023 and will apply to fiscal years beginning from this date, except for the UTPR which will apply to fiscal years beginning from 31 December 2024. The key features of the law are summarized below. 

The law closely follows the EU Directive in the determination of the qualifying income or loss, the adjusted covered taxes and the calculation of the effective tax rate and the jurisdictional top-up tax.

To meet the criteria of the Qualified Refundable Tax Credit, the law includes changes to the Belgian Income Tax Act whereby it shortens the periods of the R&D tax credit to become refundable within four years (instead of five years). Accordingly, the R&D tax credit can be used in the current year and can be carried forward for three assessment years (instead of four assessment years) at the election of the taxpayer. Any non-deductible amount will be refunded after four assessment years (instead of five assessment years). The modified R&D tax credit is applicable as from assessment year 2025.

The calculation of the Belgian DMTT is aligned with that of the jurisdictional top-up tax. To reduce the administrative burden, a de minimis exclusion is included and the application of the temporary safe harbour rules is extended to the DMTT. The amount of DMTT is deductible from the Belgian jurisdictional top-up tax.

The law incorporates the three transitional safe harbour tests introduced by the OECD (under the framework on Safe Harbours and Penalty Relief) in December 2022, i.e., (i) de minimis test; (ii) simplified ETR test; and (iii) routine profits test. These tests cover fiscal years beginning after 30 December 2023 and on or before 31 December 2026, but not including a fiscal year that ends after 30 June 2028. Hereby, the rule of “once out, always out” applies (i.e., when none of the three tests applies in a fiscal year for a given jurisdiction, the group cannot apply the safe harbour in the subsequent year for the same jurisdiction – unless the group had no Constituent Entities in that jurisdiction in the previous fiscal year).

In Belgium, separate tax returns will need to be filed annually for the DMTT and, unless a notification suffice, the jurisdictional top-up tax. These tax returns qualify as complex returns and the statute of limitations for audit and assessment will be 10 years.

The filing deadline for the DMTT-return is earlier than that of the jurisdictional top-up tax-return. The deadline for filing the DMTT-return is the last day of the 11^th month following the closure of the fiscal year.

The deadline for filing the jurisdictional top-up tax-return is the last day of the 15^th month following the closure of the fiscal year, but the first filing deadline is extended to the last day of the 18^th month following the fiscal year that begins by the latest on 31 December 2024. Where the fiscal year coincides with the calendar year, the above means that for the fiscal year 2024, the first filing deadlines are 30 November 2025 for the DMTT-return and 30 June 2026 for the jurisdictional top-up tax-return.

The proposal provides for a basis to introduce a system of advance payments for the DMTT and the IIR-top-up tax. The details of the system will be elaborated later in secondary legislation.

The penalties for non-compliance will range from EUR 2.500 to EUR 250.000 per violation. Additionally, Belgian constituent entities of a group will have joint and several liability for amounts payable by them in relation to the DMTT and the UTPR.

Regarding tax certainty, the law specifies that the Belgian Ruling Commission has no competence to issue advance rulings concerning minimum taxation. However, requests for advance clarifications about the application of the rules can be addressed to a dedicated service within the General Tax Department of the Tax Authorities.

While the Belgian proposal does not contain any surprising elements compared to the EU Directive and the OECD Model, the rules remain complex. Groups that will (potentially) be in scope of the Belgian minimum taxation, are therefore advised to take action to ensure a smooth transition into the new regime. Most importantly, the required data points and the necessary technology adaptations should be identified to facilitate timely compliance, also considering the filing deadline of the DMTT. Furthermore, in light of the Belgian advance payment requirements, the potentially payable top-up tax amounts should be estimated as early as possible to effectively manage the impact on cash flow and financial results. If you have any questions on the Belgian implementation of the minimum taxation or need assistance, our Pillar Two experts are happy to assist you.