Payments made to so-called “tax havens” – Important update to take into account when preparing tax returns for assessment year 2021!

Principles and legal background

Article 307 §1/2 of the Belgian Income Tax Code (“BITC92”) foresees that taxpayers subject to corporate income tax are obliged to declare, on a 275 F form, all payments which they have made, directly or indirectly, to persons established in a state that:

  1. has been assigned by the OECD Global Forum on Transparency and Exchange of Information, after a thorough assessment of the extent to which the state applied the OECD standard of tax transparency, as a state that does not effectively or substantially applies the said standard. Those “non-compliant” states are listed on the so-called “OECD list”, or;
  2. has been included in a list of states – “Belgian list” – applying no income taxation or a low level of tax (typically a corporate tax levied at a nominal rate lower than 10% or effective tax rate on foreign income is lower than 15%). This Belgian list contains 30 states[1] (article 179 of the Royal Decree implementing the BITC92).

As a reminder, the obligation to declare payments only applies to payments exceeding in total EUR 100.000 per taxable period. It applies to all kind of payments, i.e. payments made in cash, by bank transfer or payments in kind.

Regarding the tax consequences, the article 198 §1, 10° BITC92 foresees that above-mentioned payments are only deductible as business expenses payments provided that they have been declared and, that the taxpayer is able to provide evidence that they have been made in the framework of “real and genuine” transactions and to persons other than artificial constructions.

Points of attention with respect to the OECD list – Administrative position updated

In the circular 2020/C/112 on the temporary COVID-19 measures, tax authorities have specified that jurisdictions having received a “partially compliant” rating from the Global Forum on Transparency and Exchange of Information are also in the scope of the article 307 §1/2 BITC, and not only the “non-compliant” jurisdictions. This has been also confirmed in a parliamentary question on 30 June 2021 by the Minister of Finance.

In practice, the Global Forum of the OECD assess on regular basis the standard of exchange of information on request (so-called “EOIR”) and allocates compliance ratings to its the Forum members (161 jurisdictions).

Four types of ratings can be allocated:

  • Compliant and largely compliant : EOIR is implemented completed or to a large extent;
  • Partially compliant : the EOIR is only partly implemented;
  • Non-compliant : when there are fundamental deficiencies in the implementation of EOIR.

Partially compliant jurisdiction represent around 12% of the rated jurisdictions and non-compliant jurisdiction represent around only 3%. By extending the reporting obligation to partially compliant jurisdictions, tax authorities have then substantially enlarged the scope of targeted jurisdictions.

 Concretely, this means that the OECD list of jurisdictions (non-compliant and partially compliant) to be taken into account is the following: Andorra, Anguilla, Antigua & Barbuda, Austria, Barbados, Botswana, British Virgin Islands, Costa Rica, Curaçao, Cyprus, Dominica, Ghana, Guatemala, Indonesia, Israel, Jamaica, Kazakhstan, Liberia, Panama, Seychelles, Sint-Maarten, Trinidad and Tobago, Turkey, Vanuatu. We strongly advise to proceed to a regular check to the OECD list.

Please note that British Virgin Islands, Anguilla and Vanuatu are also mentioned on the Belgian list.

[1] Abu Dhabi, Ajman, Anguilla; Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Dubai, Fujairah, Guernsey, Jersey, Isle of Man, Marshall Island, Micronesia, Monaco, Montenegro, Nauru, Uzbekistan, Palau, Pitcairn Islands, Ras al Khaimah, Saint-Barthélemy, Sharjah, Somalia, Turkmenistan, Turks-and-Caicos’ Islands, Umm al Quwain, Vanuatu, Wallis-et-Futuna.