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A recent tax ruling of the Belgian tax authority (the Tax
Ruling) confirms that a transfer of the registered seat of a
company from the United States to The Netherlands via Belgium
should not trigger any tax consequences in Belgium. Although the
Tax Ruling does not create a legal precedent, the decision may open
up a new gateway into the European Union for companies that would
like to re-domicile to an EU country that does not otherwise allow
a direct transfer of registered seat from a non-EU
jurisdiction.
Registered seat
In this article, “registered seat” refers to its
nationality and the laws that apply to it. There are two different
theories: the “center of management seat” model and the
“country of incorporation” model.
According to the “center of management seat” model,
a company is subject to the laws of the state where its effective
center of management is located, irrespective of its country of
incorporation. Jurisdictions applying this model include
Luxembourg, Germany, France and Spain.
According to the “country of incorporation” model, a
company is subject to the laws of the state where it was
incorporated (i.e., where its “registered
office” or “statutory seat” is), irrespective of
where it is effectively managed. Under this model, a company
retains the nationality of the country in which it was originally
incorporated, even if it transfers the center of its management to
another country. Jurisdictions using this model include England,
The Netherlands and the United States.
However, in many jurisdictions that use the “country of
incorporation” model, whether a company is subject to tax in
those jurisdictions does not depend (at least not exclusively) on
its country of incorporation. Instead, this may be determined by
other independent connecting factors, such as its “central
management and control” for UK tax purposes or its
“effective management” for Dutch tax purposes.
Transfer of registered seat (or re-domiciliation)
The transfer of a company’s registered seat is also known as
re-domiciliation. Generally, the transfer of a company’s
registered seat will only affect the corporate law applicable to
the company. Re-domiciliation may have non-tax rationales, such as
benefitting from the destination country’s network of
(non-tax) treaties and regulatory framework. Sometimes, a
re-domiciliation to a more tax-friendly jurisdiction may bring tax
advantages if the company is subject to tax in its original
jurisdiction because it was incorporated or has its registered seat
there. For example, if a company is subject to tax in a
“country of incorporation” model jurisdiction because
its effective management is situated there, a re-domiciliation
coupled with a transfer of the location of their effective
management to another jurisdiction may reduce their administrative
burden ensuring that they are subject to both the corporate laws
and taxing regime of the destination jurisdiction.
Whether re-domiciliation (into or out of a country) is permitted
depends on the domestic law of that country. A line of case law of
the European Court of Justice (including Cartesio (2008),
Vale (2012) and Polbud (2018)) is relevant in
this context. These cases, subject to certain conditions, allow a
company that is formed in accordance with the legislation of an EU
Member State to convert itself into a company governed by the law
of another EU Member State. Some EU Member States that do not
otherwise allow re-domiciliation (such as The Netherlands) have
relied on this case law to allow cross-border conversions or
divisions from and to other EU Member States.
Belgium as a springboard
Belgium can potentially be a springboard for a non-EU company
that would like (and is allowed under its domestic law) to
re-domicile to a specific EU state not accepting re-domiciliation
other than from an EU Member State (such as The Netherlands).
Pursuant to the new Belgian Code of Companies and Association
(the CCA), Belgium recently adopted the “country of
incorporation” model. Accordingly, from a Belgian law
perspective, the applicable company law is determined on the basis
of the formal criterion of the “statutory seat.” A
formal procedure for a cross-border transfer of a company’s
registered seat into and from Belgium has also been introduced in
the CCA. However, for the purposes of Belgian corporate tax, the
company’s effective management remains the criterion. A new
rebuttable presumption has been added such that a company with a
Belgian statutory seat will be presumed to have its effective
management in Belgium. This presumption can be rebutted if it can
be demonstrated that:
- the effective management of the
company (for the purposes of Belgian tax law) is not located in
Belgium but in another state; and - the company is tax resident in a
state other than Belgium pursuant to both domestic tax law in that
other state and applicable tax treaties.
The Tax Ruling examined an arrangement that would take advantage
of the new regime in the CCA by re-domiciling a company from the
United States to The Netherlands via Belgium. The arrangement would
broadly involve the following steps in accordance with the CCA
(where applicable):
- First, the company would transfer its
seat of effective management from the United States to The
Netherlands. It would register as a foreign company in the trade
register of The Netherlands Chamber of Commerce. In doing so, it
would also become a Dutch tax resident. - Second, it would transfer its
statutory seat from the United States to Belgium. It would thereby
be converted into a Belgian limited company and become subject to
Belgian company law. - Third, after waiting for two months
as required by the CCA, it would transfer its statutory seat from
Belgium to The Netherlands. It would finally be converted into a
Dutch limited company.
The Tax Ruling held that the presumption would be rebutted under
these circumstances. The company in question would not be
considered a Belgian resident company, so it could not be subject
to Belgian corporate tax. It may only be subject to some minor
compliance formalities, such as filing an annual account for the
financial year in which the statutory seat would be registered in
Belgium.
Further considerations
It is worth noting that the Tax Ruling above does not create a
legal precedent. Each case must therefore still be considered
on its own merits. Also, one should also carefully assess the tax
and non-tax consequences of the re-domiciliation in the
company’s original and destination jurisdictions.
Useful for UK companies after Brexit?
How useful will this potential gateway for re-domiciliation be
for companies in the UK before and after Brexit? At present, UK law
does not include any provisions that allow a true re-domiciliation
(i.e., transfer of “registered office”) into
or out of the UK. Even though the European Court of Justice’s
case law (such as Cartesio, Vale and
Polbud) bind the UK (at least before Brexit), most
practitioners note that these cases have not been enshrined in UK
law.
Some practitioners suggest that although the European Commission
can commence infringement proceedings against the UK for failing to
implement EU law, in practice it seems unlikely that the UK
government will introduce any such provisions in the UK before the
end of the Brexit transition period. Even if such provisions were
introduced into UK law, it would be unnecessary to use Belgium as a
springboard into the EU as a UK company could directly re-domicile
to any EU Member State.
Originally Published by Cadwalader, December 2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.