The Advocate General of the Court of Justice rules that the "Fairness Tax" contradicts European tax rules. What is the impact on Belgian companies and the State budget?
Since the 2014 tax year, national companies and Belgian subsidiaries of foreign companies have been subject to fairness tax (or "fairness tax"). Introduced by the Di Rupo government, this separate contribution of 5.15% is applied to the distribution of dividends which are not subject to the normal rate of corporation tax. At issue here is the application of the deduction of deferred tax losses or deductions for venture capital.
What is at stake?
When it was introduced, the government wanted to subject companies who paid little or no tax to a minimum tax, by using tax deduction mechanisms. Issue: when this tax was introduced, questions were raised about the compatibility of the legislation with tax law in the European Union.
In February 2014, the Belgian subsidiary of Fortum Project Finance (Finnish company) brought an appeal against this tax before the Constitutional Court. The Constitutional Court asked the European Court of Justice three questions:
- Does the fairness tax constitute a withholding tax prohibited by the parent-subsidiary European directive?
- Do dividends collected by Belgian companies not exempted in Belgium contravene the directive?
- Does the different treatment of Belgian companies and Belgian subsidiaries of foreign companies contravene the freedom of establishment in the European Union?
A compatible... but problematic tax
The European Court of Justice finally gave its verdict, but the opinion still needs to be qualified in certain respects. The Advocate General of the European Court of Justice in effect deemed the fairness tax "contrary to European regulations", but he considered the measure to be compatible with the principle of free establishment laid down in the texts and treaties. The problem resides precisely around the directive governing parent companies and their subsidiaries in Belgium, the objective of which is an exemption from withholding tax (under certain conditions) for dividends paid by subsidiaries to parent companies, which the fairness tax calls into question.
A highly political issue too
"A skeleton comes out of the closet", commented the Minister of Finance Van Overtveldt after the opinion of the Advocate General. For him, the consequences could be enormous, particularly from a budgetary point of view, without so far giving the slightest indication of these. He added that he has "always had many doubts" about this tax, "a doubt confirmed by the Court." The government has stated that it is currently leaning towards a reform of corporation tax, in a tense atmosphere between the partners of the current majority, particularly to make "this tax fairer for SMEs."
The Socialist Party, for its part, continues to defend this minimal tax through thick and thin. The leader of the Socialist Group in the Chamber of Representatives, Laurette Onkelinkx, in L'Avenir, suspects that the Minister is benefitting from a "technical remark from the Advocate General to give a tax break to the multinationals" and that "this minimum tax should be maintained, (...) a matter of fiscal justice and decency with regard to the efforts required by the population."
Reforestation and biodiversity in practice
Some causes are more important than the pursuit of EBITDA. Without trees there can be no biodiversity, and flora, fauna, soil, water and air are all affected. That is why WeForest is mobilising companies to plant forests.
Reforestation is neither a luxury nor a question for hippies. It is indispensable for the climate and biodiversity, the quality of our soil and water, as well as for food; it is thus vital for the future of all species.
The solutions, which remain under-recognised, are simply waiting to emerge. They are not technical, do not adhere to the logic of extraction and do not call on limited natural resources. They are tremendously effective, draw their inspiration from natural ecosystems and entail integrating trees into fields. See also the article The full potential of reforestation.
We have pinpointed two relevant non-governmental initiatives: Ecosia, a search engine launched by a start-up in Berlin, has attracted 7 billion users and plants one tree for every 45 searches made – the equivalent of some 27 million trees planted to this day; secondly, the non-profit organisation WeForest is utilising its expertise in this area, its basis in science and its business network to engage in sustainable reforestation. We went to meet Marie-Noëlle Keijzer, the founder of WeForest, to hear her story.
From carbon offsetting to corporate 'water footprints'
In the early days, WeForest was not convinced by carbon offsetting, which it regarded as too reductive. Yet it was a means to connect with its target audience: companies anxious to measure, reduce and then offset the carbon emissions that they are not able to avoid. Today, the objective of 'net positive emissions' has been set, which also aims to offset past emissions.
It is obvious that environmental concerns now extend beyond carbon alone. Many are beginning to examine their water footprint. A new vision is taking hold, which entails development aid via the promotion of reforestation. "Moving countries out of poverty and doing more than simply planting trees and leaving: this is how companies now wish to act in a socially responsible way", explains Marie-Noëlle Keijzer, CEO of WeForest.
Intervening on vegetation, carbon, water, air and employment
With the 270 corporate clients that have joined it since 2011, WeForest planted almost 17 million new trees and restored 13,000 hectares of land by the end of 2017, and aims to double these figures by 2020. It offers high-impact marketing materials to customer companies with messages such as 'one sale = one tree planted'.
In 2014, Brabantia decided to 'do something different'. It wanted to sell products, of course, but also give thought to global issues. Working alongside WeForest, the company entered into a joint financing project supporting reforestation. "Since Brabantia began to state on its website, on YouTube and on its packaging that one tree would be planted for every rotary dryer sold, it has seen a 25% increase in sales every year", explains the head of WeForest, citing well-substantiated case studies with certified benchmarks: "We go beyond the theoretical", she continues. "There is total transparency, with every customer receiving a GPS map of the hectares they have funded. We then ensure the forest is protected, approve our customers' projects and help develop the socio-economic activity of the entire region by initiating alternative revenue sources which create employment."
A tree is more valuable in the ground than on it
WeForest is not engaged in helping Zambia in order to maintain its reliance on international aid, but to educate the hundreds of farmers who chopped down all of their trees in order to sell them for firewood. By bringing them together, the association demonstrates that they do not have to clear trees to sell forestry chips, and that by selectively collecting biomass, they can provide heat without cutting a tree down. WeForest trains women to work as nursery growers, giving them a job, an income and an identity. It also supplies beehives to farmers who have begun to produce honey as a new source of income. Bees have other positive effects too, since they pollinate flowers, plants and fruit crops, for example. "It's really simple", affirms Marie-Noëlle Keijzer. "If we kill bees and birds by using pesticides and insecticides, we are preventing nature from doing its work."
Trees provide a habitat for animals and natural fertiliser for plants
In regions of Brazil where tree coverage is 3%, leopards have completely died out. Agriculture has supplanted forests wherever the ground is level. WeForest cannot operate across the entirety of the country, which is much too large. But they have created green corridors, and life has begun again. Trees and plants have been restored, attracting birds and animals that use them to move around, eat and reproduce.
Trees are also a natural source of fertiliser: corn grows more quickly when it is close to trees. They provide shade and retain water in the soil.
There are trees and trees
Not all reforestation projects are equal. Some trees boost the food supply or increase soil nitrogen levels (such as the lucerne), whereas others are detrimental to diversity. For example, no animals will live in palm tree plantations where the soil is also full of chemicals. "We won't solve the problem if we do nothing to change the causes of deforestation: intensive agriculture for the purposes of producing meat, for example", says Marie-Noëlle Keijzer, firmly convinced. Solutions exist, but everyone needs to accept their share of responsibility.
Sources: BNP Paribas Fortis, WeForest
Simpler rules for VAT on e-commerce are one step closer
Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.
Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?
A new threshold for "digital services" from 1 January 2019
Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.
The "one-stop shop" will gradually be extended
In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.
Distance selling of goods also to be covered from 2021
Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.
The other priority: the fight against fraud
This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival.
Thinking of buying a property with your company? Take care!
We explain how stricter rules now apply to the "split purchase" of a property obtained via a company. This is a favourable fiscal arrangement for a company director, but one that must be approached with more caution than ever.
The "usufruct/bare ownership" structure
For several years now, the so-called mixed purchase (private/professional) of a property has been common practice for some company directors. This fiscally beneficial solution is based on the principle of "breaking up" full ownership of the property. On one hand, the usufruct is assigned to the company for a certain amount (proportion of the purchase price). This means that the company is entitled to use the property with no rental liabilities during a given period (generally between 20 and 30 years). On the other, the company director acquires bare ownership of the property, which allows him/her to retake full possession of the building once the usufruct has expired without paying a euro more.
The crux of the issue: the valuation of the usufruct
Where is the interest in this arrangement? It lies in maximising the cost to the company of acquiring the usufruct. This is because the larger the sum paid by the company, the smaller the sum the director has to pay at the time of purchase (not forgetting taxes, registration levies, indemnities, etc.). In addition, the company can deduct building/service charges such as withholding tax, maintenance and financial costs, and amortise the value of the usufruct over the agreed term. This is the best possible fiscal scenario, but one that has resulted in a certain amount of abuse at the point of the oft-mentioned "usufruct valuation". It is not by chance then that the tax authorities have been studying the issue for a few years now with a view to tidying things up a little.
The taxman turns the screw even more
Up until now, the authorities used a formula known as the Ruysseveldt formula to calculate the usufruct value, based on the discounted proceeds of gross rental yield for the duration of the usufruct term. However, this approach led to over-valuations, and so did not prove effective enough in the eyes of the tax authorities. This is why they recently decided to apply a new financial appraisal formula which is much tougher. In reality, this is the method already in place since 2016 to assess cases filed with the Service des décisions anticipées (SDA) (advance ruling service) of Federal Public Service Finance. It should be recalled that this service has established a "pre-filing procedure" for usufruct arrangements (used in advance of the official application) to ensure the future operation benefits from a certain degree of legal security.
The "advance ruling" formula is much less favourable
By changing its stance on the issue, the tax authorities could cause problems for some directors who have been too greedy. This is because the two formulae produce rather different results. Take this basic example of a property with a purchase price of EUR 500,000, for which the company acquired the usufruct at a cost of EUR 425,000 under the Ruysseveldt formula (85% of the price). In this case, the director has only paid EUR 75,000 for the bare ownership. Based on the authorities' new approach, the financial valuation of the usufruct would actually sit at around 60%, with bare ownership at around 40%. This means the individual would have had to pay EUR 125,000 more – an altogether different situation.
Handle with care
So any head of a company who wishes to be involved in this kind of operation will need to be more prudent than ever before. One of the most important things is to demonstrate that the arrangement genuinely reflects a financial logic. With this in mind, well-informed entrepreneurs will ensure they prove the property deal will profit the company, and will adequately evaluate the usufruct's value and term. Finally, we should emphasise that approval can be sought from the tax authorities via the fiscal ruling website.
The secrets of the companies that almost died
Among Standard & Poor's top 1,200 firms, 11 nearly ended up dead and buried. But they managed to recover. What is their secret?
Standard & Poor's is one of the three principal financial ratings agencies. Its 1200 Index covers 31 countries and 70% of the global stock market capitalisation.
In the last two years, 33% of North American companies have reportedly registered disappointing performances, and one third of these could disappear during the next five years. Fifty years ago, this percentage was barely 5%. In the past, firms could hope to survive without changing their products, but the difference today is that needs are constantly evolving, cycles are shorter and transformation must be in the organisation's genes.
The Boston Consulting Group studied 11 companies figuring on S&P's 1200 Index that almost disappeared forever at the start of the decade. These are the bank HSBC, the biopharmaceutical giant Bristol-Myers Squibb (BMS), Boston Scientific, a leader in medical technology, the electronics company Nokia, the paper industry firm UPM-Kymmene, the French car manufacturer PSA (makers of Peugeot, Citroën, etc.), Olympus (cameras and audio), the Ajinomoto conglomerate, the petrochemical company Lanxess, the airline Qantas and the energy and infrastructure group Acciona. Not exactly companies nobody has heard of...
So where are they now? After bouncing back remarkably, they are now recording spectacular results in terms of turnover, profit margins and/or capitalisation. But since 75% of efforts to transform companies are in vain, what explains the fact that these companies are still around today?
What the "comeback kids" have in common
They all managed to:
- re-evaluate their situation every two to three years and avoid falling back on easy solutions such as incremental changes to the budget;
- regularly question what they are doing, review their strategy and reinvent themselves: when Qantas was attacked by the low-cost market, it started by hitting back on the same turf before picking itself up and returning to the segment that set it apart initially – premium air travel. It invests in comfort and services, a decision rewarded by the adhesion of other sectors to its loyalty scheme.
Nokia would not have survived competition from Apple and Google without deciding to abandon its mobile phones in favour of its network infrastructure, a new profitable business for the Finnish firm;
- reduce their complexity, along with their cost structure, and make cuts to become more agile and make a quicker transformation. HSBC has offloaded heavily, now comprising four business units: an opportunity seized for the global conglomerate;
- endorse a culture of change and innovation;
- invest in all aspects of digital technology.
What about in Belgium?
One company that could claim the status of comeback kid is fencing manufacturer Betafence: after taking the smart step to refocus a business that had become outdated, it then transformed itself into a specialist in securing the perimeters of power stations, oil refineries and pipelines – a change of strategy that was rather fruitful.
In 2009, performances were slipping for the Vandemoortele Group and it was obliged to sell its star brand Alpro – taking a step back to come back stronger.
Finally, Agfa-Gevaert has also shown signs of success after evolving from an analogue photo group to a supplier of imaging (especially medical but also digital) as well as software.
The moral of the story is simple: companies must dare to keep questioning what they do.