By Moïse Gnakouri, PhD student, Leuven Catholic University, Brussels
The Belgian government submitted a bill to Parliament (the Chamber of Deputies) on May 27, 2021, amending the Belgian income tax law with regard to the conditions for the deduction of losses by foreign branches.
The draft law serves to correct or clarify certain regulations that were introduced by the Corporate Income Tax Reform Act of December 25, 2017. In this law, the rules on the deduction of foreign losses have been revised so that, in principle, losses in a countries with which Belgium has concluded a double taxation agreement are no longer included in the tax base.
Due to the 2017 tax reform, losses realized by foreign branches cannot be deducted from 2018, unless they are final losses that were realized in a member state of the European Economic Area.
The reform also introduced a so-called recapture scheme, which was intended to counteract the effects of the double loss deduction. In practice, this provision aimed to neutralize losses from an earlier taxable period in a country with which Belgium has a double taxation treaty when making a second deduction of these losses in order to avoid a double deduction of losses.
However, the recovery rule only applies to the extent that these losses have actually been offset against income that is taxable in Belgium under national law and contractual provisions, i.e. profit of Belgian origin or profit of foreign origin that was not double tax-exempt from tax treaties.
The wording of this provision has created some confusion. As a result, the current draft law would revise the wording of this provision without fundamentally changing the philosophy behind it.
In addition, the draft law clarifies that if the company resumes operations in the state in which the losses occurred within three years after deduction of the final losses, only the amount of the final losses offset against the taxable profit, the previous tax periods are to be included in the tax base.
If the new law is passed, it will come into force in 2022. However, the Belgian government has stated that the current provisions of the Belgian Income Tax Act on the conditions for the deductibility of foreign losses should be interpreted in accordance with the draft law.
Moïse Gnakouri is a Ph.D. Researcher at the Catholic University of Leuven. His main research interests are in the areas of taxes and development, tax federalism and international tax law.
Moïse holds a law degree from Paris 1 Panthéon Sorbonne University and a Masters in Tax Law and Asset Management.
Telephone: +32 465 32 93 48 (Belgium); +225 70500536 (Ivory Coast)