Belgian Parliament Adopts New Pillar Two Law with Key Modifications

On May 2, 2024, the Belgian parliament passed a new iteration of the Pillar Two law, integrating specific directives from the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). This enactment not only incorporates administrative guidelines issued by the OECD inclusive framework during 2023 but also rectifies prior legislative oversights identified in the original December 19, 2023, Pillar Two law.

One of the pivotal changes introduced by this new law pertains to the Belgian Innovation Income Deduction (IID). The amendments are designed to uphold the efficacy of the IID for entities subject to Belgium's Pillar Two legislation, ensuring that benefits remain intact. Without these adjustments, the IID's advantages would have been diminished, potentially leading to partial loss due to a required top-up tax for groups with a Global Anti-Base Erosion (GloBE) tax rate in Belgium below 15% as a consequence of the IID.

Scheduled to come into effect concurrently with the original law of December 19, 2023, the new law's implementation dates mirror those of its predecessor. Specifically, the Qualified Domestic Minimum Top-Up Tax (QDMTT) and Income Inclusion Rule (IIR) are set to be enforced from December 31, 2023 (applicable from January 1, 2024, for calendar year taxpayers). Additionally, the Undertaxed Profits Rule (UTPR) will be operational from December 31, 2024 (enforced from January 1, 2025, for calendar year taxpayers).

Here are the key features encapsulated in the new law:

Transitional Country-by-Country (CbC) Report Safe Harbour Clarifications

• Incorporation of OECD administrative guidance from December 2023 regarding the transitional CbC safe harbors, including anti-hybrid rule applications.
• Belgian application of anti-hybrid rules limited to arrangements entered into after December 18, 2023, aligning with constitutional constraints on retroactive provisions.

Correction of Safe Harbour for Multinational Enterprise (MNE) Groups

• Alignment with OECD rules on top-up tax reduction for MNEs in their initial international activity phase, as per Council Directive (EU) 2022/2523 (Pillar Two directive).
• Clarification that safe harbors extend to IIR applications only for low-taxed jurisdictions where the Ultimate Parent Entity (UPE) operates.

Modifications to the IID

• Introduction of effective minimum tax measures, ensuring a 15% tax payable by Belgian taxpayers while fostering innovation competitiveness.
• Provisions allowing deferral of IID usage, carry-forward of unused portions as non-refundable tax credits, and flexibility in offsetting future corporate income tax liabilities.

Extension of Qualified Refundable Tax Credits (QRTC) Definition

• Inclusion of Marketable Transferable Tax Credits (MTTC) meeting specific criteria as QRTC, enhancing tax credit flexibility.

Election in Respect of Excluded Dividends

• Empowering MNE groups to elect inclusion of dividends from all portfolio shareholdings in GloBE income computation, aligning with OECD guidelines.

Inclusion of Safe Harbour Rules

• Simplified calculations for non-material constituent entities and QDMTT safe harbour provisions, streamlining compliance efforts.
• Transitional UTPR safe harbour for fiscal years ending by December 31, 2026, for jurisdictions with corporate income tax rates exceeding 20%.

Allocation of Taxes Under Blended CFC Tax Regime

• Adoption of OECD guidance on allocating Controlled Foreign Company (CFC) taxes from regimes like the US Global Intangible Low-Taxed Income (GILTI) regime, enhancing clarity in tax treatment.

Source/ recommended read:

• New Pillar Two law adopted by Belgian parliament | Tax Alerts | Deloitte Belgium