Further to the recent negotiations on the 2013-2014 budget, the new Bill of 17 July 2013 imposes a notification measure re private estate and off-shore structures in which Belgian tax payers are, directly or indirectly, involved.
A new notion is inserted to the Belgian income tax code, the so-called ‘legal constructions’, by which private estate structures and off-shore entities are envisaged. The parliamentary documents explicitly mention trusts, foreign foundations, the Anstalt in Liechtenstein and the Limited on the Bahama’s as examples of the envisaged structures, but other structures could also fall under the scope of this new law.
Two distinct categories of legal constructions are defined in the Bill:
A legal relationship whereby goods or rights are put with an administrator who will manage them for the benefit of a beneficiary or a specific goal. The legal relationship has the following characteristics:
- The legal ownership of the goods and rights of the legal construction belongs to an administrator or another person for the account of the administrator;
- The goods of the legal construction form a separate estate and are no part of the estate of the administrator;
- The administrator is entitled to and has the obligation to manage and dispose of the goods of the legal construction, in accordance with the stipulations of the legal construction and the specific legal obligations applicable, for which management he takes responsibility.
A non-resident legal entity that:
- is not subject to any income tax in the country in which it is established or located or is, regarding the income from capital and movable property, subject to a substantially more beneficial tax regime than the one applicable to such income in Belgium; and
- whose shares or parts are entirely or partially held by a Belgian tax resident or of which the beneficial owner of the goods and capital is a Belgian tax resident.
A list will be made of the legal entities qualifying for this second category of legal constructions.
Regarding the first category of legal constructions (i.e. the private estate structures), the Bill specifies that it aims for transfers of estate for which no immediate, effective and equivalent remuneration is received, though whereby some determined obligations to the administrator can be imposed.
The Bill clearly aims at capturing any Belgian individual tax resident that is directly or indirectly involved with a private estate or off-shore structure as defined above.
The notification measure will not only apply to the ones having established a legal construction, but also to those who are, at their knowledge, beneficiary or even potential beneficiary in any way or at any time of such legal construction.
A founder of a legal construction is defined as follows:
the individual that established the legal construction outside his professional activities;
the individual who contributed goods and rights to the legal construction (the provision thus captures legal constructions established by third parties);
the individuals that are direct or indirect heirs of the aforementioned persons, from the decease of the latter onwards, unless if those heirs deliver proof that they and their entitled ones, will not benefit at any time or in any way from financial or other benefits granted by the construction;
the individual holding legal rights to the shares or parts or holding economic rights to the goods and capital belonging to the second category of legal constructions (i.e. the off-shore entities).
The Bill defines ‘benefits’ as not solely the direct financial grants by a legal construction but also the other benefits that a beneficiary could obtain (like an expense charged to the legal construction or a real estate put at disposal etc).
From assessment year 2014, revenue year 2013 onwards, Belgian resident tax payers have to indicate in their individual income tax return the existence of a legal construction of which the taxpayer himself, his spouse or his minor children are either a founder, or are, at his knowledge, in any way or at any time beneficiary or potential beneficiary.
Intention of the legislator
The new Bill stresses that it is not the intention to prohibit the legal constructions as such, but that it aims for creating transparency and ‘repairing the present taxation vacuum’.
The notification measure is proposed in order to allow the Belgian tax administration to follow-up the transfers to and the revenue or the grants from a legal construction that are subject to Belgian taxation and, if so the case, to tax them correct or to verify whether these were correctly declared. The real intention of the Bill is indeed to enable the tax administration to potentially apply existing anti-abuse measures to tax non-reported income.
It is stated that the present Bill connects with the proposition to expand the European Savings Directive by which a look-through approach would be applied in order to identify the ultimate beneficiary of trusts, Stiftungen and so forth.
It goes without say that notification obligations on taxpayers are as strong as the exchange of information obligations between the countries concerned. International tendencies are however putting more and more pressure on the countries concerned, even on some of the most notorious tax havens.
In this respect, reference must be made to the recently signed agreements on exchange of information (f.e. exchange of information agreements with Bermuda and the Bahamas) and ongoing negotiations on exchange of information agreements (f.e. with Guernsey).
Actions to take
In the light of the above, it is in the interest of Belgian resident tax payers to monitor the revenue they receive, directly or indirectly, from private estate structures and off-shore entities and the qualification of such revenue for Belgian tax purposes. The same goes for Belgian tax residents who are future beneficiaries of such structures.