This week-end, the political parties forming a large majority in Parliament, reached an agreement on the 2012-2014 budgets. Based on the currently available information, the main tax issues dealt with in this agreement are summarized below, but details of how they will be implemented are not yet known.

Capital gains on shares

• For individuals, the situation remains unchanged, meaning that capital gains on shares sold in the context of an individual’s normal management of his/her personal assets, are tax exempt. Other capital gains remain subject to taxation at 16.5% or 33%.
• For companies, the full exemption of capital gains on shares which qualify for the participation exemption regime is confirmed, although the original proposal would have limited the exemption to 95%. However, capital gains on shares sold within the first year of acquisition will now be subject to a separate taxation at a rate of 25% (and not at the standard rate of 33.99%).

Withholding taxes on dividends and interest

• The standard rate for dividends remains 25%.
• The 15% rate applicable to interest and certain dividends is increased to 21%; however liquidation surpluses would remain subject to 10%.   
• An additional 4% taxation will apply, as a crisis contribution, to all income from movable assets in excess of 20,000 EUR (liquidation surpluses and exempt interest on saving deposits should be excluded). It remains unclear whether movable income already taxed at 25% will be subject to this additional 4%. This additional taxation would either be applied at source (i.e. 25% withholding tax) or through the yearly income tax return.

Notional interest deduction (NID)

• This innovative measure, intended to support capital-intensive companies and SME’s and to reduce discrimination between equity-funding and debt-funding, has once again been maintained. Its rate, however, will be capped at 3% (3.5% for SME’s) and no carry-forward will be allowed.
• Existing excess NID, already carried-forward, remains deductible but subject to a yearly cap. This cap would work as follows: the first million taxable base can be entirely offset by existing carried-forward NID. If there is any surplus taxable base, only 60% of it can be offset in the same way. This measure is not intended to reduce the total amount of existing excess NID that companies can presently offset during the 7-year carry-forward limit, i.e. it should be possible for a company that would have been able, but for this cap, to offset a given amount of NID within the current 7 year limit, to continue to deduct it up to the same amount, even if that would result in an extension of the utilization period.

Thin-cap rule The existing thin capitalization rule, whose scope of application is limited to “tainted” loans, would be extended and increased to a 5/1 debt-to-equity ratio.

Stock-options The taxation of stock options will be increased; no details are yet known but it has been reported that the rate to determine the benefit in kind might be raised from 15% to 18% (or 7.5% to 9%).

Benefits in kind

• The taxation of company cars, as a benefit in kind for employees, will increase depending on the CO² emission, and the vehicle’s price.
• The taxation of free housing, heating and electricity, as a benefit in kind for directors, will increase. For free housing, this increase will be achieved by applying a higher coefficient to the indexed cadastral revenue for determining the taxable benefit in kind.

Tax on stock exchange transactions The taxation on stock exchange transactions will be increased; Not all the details are known yet, but the rate and the cap should increase by 30%.

VAT Notary’s and bailiff’s fees will become subject to VAT at 21%.

General anti-abuse measure The conditions applicable to the general anti-abuse measure will be relaxed.