Business abroad? No more wiping out losses in Belgium
Following the corporate tax reform, losses suffered by a branch in a country with which Belgium has concluded a double taxation treaty can no longer be deducted in Belgium.
The January 2020 corporate tax reform has not gone unnoticed. When some changes to the Belgian tax system were highly publicized (fiscal consolidation, basket, tax rate, etc.), the modified modification to theallocation of losses of foreign branches to the profits of a Belgian company went unnoticed. This does not mean, however, that it is inconsequential.
Before the reform, for a Belgian company investing abroad (in a country with which Belgium has signed a double taxation treaty), operating as a branch was the most advantageous solution.
A foreign branch made losses (which is often the case in the start-up phase), these were directly attributable to the current Belgian profits (or even future, if the situation were to persist) of the Belgian company. The Belgian public treasury therefore agreed to bear the foreign losses.
In the event of a return to better fortune of the foreign branch, the company logically has the right to use “abroad” the foreign losses suffered by the branch in most countries allowing the attribution of the losses reported on the profits of the subsequent accounting years.
In order to prevent the Belgian company from benefiting from a double advantage (deduction in Belgium and deduction abroad), the “take-back” rule Allow Belgian head office profits to be taxed in Belgium which may previously have been exempted from ISOC due to the use of foreign branch losses when they were not actually “usable” abroad.
Removal of the deduction
Following the corporate tax reform, such a deduction is no longer possible: losses suffered by the branch in a country with which Belgium has concluded a double taxation treaty can no longer be retained in Belgium.
The only exception to this principle concerns cases of so-called “definitive” losses. a branch located in the European Economic Area. By “definitive losses” we mean the losses incurred when the branch ceases its activities definitively and for no deduction has been accepted. In the presence of such losses, the deduction in Belgium is always possible and that without application of the rule of “recapture” because, by definition, the foreign branch which suffers definitive losses has interrupted its activities and will never again use the losses.
Foreign branches are placed on an equal footing with foreign subsidiaries.
Foreign branches are therefore set up on an equal footing with foreign subsidiaries. The deduction is only possible in the event of a definitive loss on the occasion of the closure of the branch, like the deduction of a depreciation realized on the shares on the occasion of the liquidation of the subsidiary. foreign (up to the capital invested in the subsidiary). Likewise, foreign profits are exempts, while dividends receive income from income definitively taxed at 100% (against 95% before the equalization of treatment configured on the occasion of the reform).
SME exporters penalized
The application over time of this new reform remains very complicated. It is always possible to impute previous losses incurred abroad before January 1, 2020 on future Belgian profits. Careful monitoring of the use of foreign source loss inventory is necessary, which can be complex for companies with multiple overseas branches.
If we can understand the equity method between subsidiaries and foreign branches, we can regret that this is not in favor of the export of our Belgian SMEs to have started an activity abroad the form of branches turns out to be lighter than the establishment of a subsidiary …
Patrice Delacroix and Olivier Hermand
PwC Partners