The MLI will enter into force for Belgium on 1 October 2019. Assuming that the MLI already entered into force in the other contracting state, the MLI provisions will have effect with respect to withholding taxes on taxable events occurring on or after 1 January 2020. For all other taxes, including corporate income tax, the MLI provisions will have effect on taxable periods that begin on or after 1 April 2020. In case the taxable period follows the calendar year, the MLI provisions will only have effect on other taxes levied over taxable periods starting on or after 1 January 2021.
At the moment of signature of the MLI in 2017, Belgium submitted a list of 98 of its double tax treaties that it designated as “Covered Tax Agreements”, i.e. tax treaties to be modified through the MLI. At that time, the tax treaties concluded with Germany, Japan (including the new treaty that entered into force on 19 January 2019), the Netherlands, Norway (including the new treaty that entered into force on 26 April 2018) and Switzerland were not notified. In the final version of the ratification document, Belgium has removed the agreement with Taiwan and included the 2017 tax treaty with Botswana. The tax treaty with the Netherlands was initially not included because negotiations regarding a new tax treaty were ongoing. Since these negotiations have not progressed enough, Belgium decided to include the tax treaty with the Netherlands as well in the final ratification document. The Netherlands has not (yet) notified this treaty upon ratification of the MLI, so this treaty will not be modified by the MLI for the time being.
Like Luxembourg and the Netherlands, Belgium has chosen to apply the principal purposes test (“PPT”). The PPT provides that the benefit of a tax treaty may be denied if one of the principal purposes of an arrangement or transaction is to obtain tax treaty benefits unless granting these benefits is in line with the object and purpose of the applicable tax treaty. It will therefore be imperative in the future to demonstrate business purposes of an arrangement or transaction, and to ensure that there is adequate substance to achieve these purposes. Since Belgium considers an effective mechanism of dispute resolution of primary importance in order to mitigate any double taxation, it has been willing to implement the mandatory binding arbitration clause.
Although Belgium did initially not opt for the possibility to address the artificial avoidance of the permanent establishment (“PE”) status through commissionaire arrangements, it has withdrawn its reservation in the final version now. This is in line with Belgian law. The PE concept under national law has recently been extended so as to include PEs created via commissionaire (or similar) arrangements. This new rule applies as of assessment year 2021 (relating to the taxable period starting on 1 January 2020 at the earliest).
For a complete overview of the choices and reservations made by Belgium, we refer to our MLI website page “Overview: MLI choices made by the Netherlands, Belgium, Luxembourg and Switzerland”.
Please contact your trusted adviser at Loyens & Loeff in case you have any queries.
This article was sent as a Tax Flash newsletter on 2 July 2019.