Call for action: Broadening of the definition of “permanent establishment” ahead, a drastic change for the taxation of your company?
As a result of certain developments at international level – the OECD BEPS Action Plan – the concept of a “permanent establishment” has largely been broadened. As a result, the fiscal playing field will change dramatically and more companies operating across borders will create a taxable permanent establishment in Belgium.
In most cases, these new rules will apply as from 2020. However, in practice, we note that the Belgian tax administration has already complied with the new rules.
Foreign companies doing business in Belgium – the Belgian (TAX) Administration is lurking!
As a result of changed Belgian and international fiscal rules, the Belgian tax administration has recently drawn up a large series of fiscal questionnaires for foreign companies doing business in Belgium. The tax administration wants to find out which foreign companies with activities in Belgium have a taxable presence (so-called ‘permanent establishment’).
Many foreign companies are currently confronted with an extensive questionnaire. Moreover, in practice, there is a tendency for the Belgian tax administration to request information from third parties, for example from Belgian clients of the foreign company.
By means of this questionnaire and the information from third parties, the Belgian tax administration wishes to find out where the contract negotiations have taken place, who has conducted these negotiations, how long a certain construction or installation project has lasted on the Belgian territory, etc. This way, important information is made available to the Belgian tax administration, which may lead them to conclude that your company is taxable in Belgium… which in turn can have other Belgian (fiscal) implications….
Foreign companies in COVID-19 times
As a result of the measures taken under COVID-19, foreign companies may be faced with unexpected tax consequences. Due to certain travel restrictions, an employee of a foreign company may have to telework temporarily from his place of residence in Belgium.
A home office in Belgium can, in principle, give rise for a foreign company to have a material permanent establishment. However, it is important to emphasise that a home office does not automatically qualify as a permanent establishment. An important condition is, in fact, that the foreign employer has the employee’s home office at its disposal long-term.
The Belgian tax administration has not yet adopted a position on this. However, the OECD has already indicated that if an employee is obliged to telework because of the COVID-19 measures, the home office will in all likelihood not qualify as a material permanent establishment. After all, there is no question of a sufficiently permanent nature in these specific circumstances.
In addition, the COVID-19 measures could also give rise to a personal permanent establishment in Belgium if a sales representative works from his place of residence in Belgium and concludes contracts for the foreign company from there. Again, the OECD states that this situation will not give rise to a personal permanent establishment as it cannot be said that the sales representative “usually” concludes contracts in Belgium.
There are also many foreign companies operating on a Belgian construction site. In most cases, a construction site qualifies as a permanent establishment if it covers a period of at least 12 months. If the activities on the construction site are currently temporarily interrupted by the COVID-19 measures, the census of the 12-month period will still continue. In other words, this temporary interruption of the site may not be taken into account. As a result of such an interruption, the minimum period for a Belgian construction site may still be exceeded, which will result in the foreign company and its employees becoming taxable in Belgium.
Has your company already complied with the compulsory affiliation to the belgian social security? If not… then it is time for action to avoid fines and interests on late payment!
Foreign companies that are deemed to have a Belgian permanent establishment (Belgian activities of 30 days/calendar year are already eligible!) must also take into account the obligation to join a Belgian social security fund and to pay annual contributions. Several foreign companies have already received a letter from the Belgian National Institute for the Social Security of the Self-employed (NISSE) stating that they must join a social security fund in Belgium and pay the annual social security contributions, plus interests on late payment.
We note that this latter control action is mainly aimed at foreign companies that have a Belgian VAT number and/or a registration in the CBE (Crossroads Bank for Enterprises). In this context, we note an increased degree of cooperation between the various government institutions. For example, more and more information is exchanged between the Belgian tax administration and the social inspectorates. As a result, foreign companies that have made Limosa notifications or carried out VAT activities in Belgium are likely to be contacted by the Belgian National Institute for the Social Security of the Self-employed.
How can we help you?
Would you like us to check whether your company has a taxable Belgian permanent establishment? Has your company received a questionnaire from the tax administration or a letter from the Belgian NISSE? Does your company need help with the affiliation to a social security fund? Or with applying for an exemption certificate for the payment of the social security contributions? Does your company need help answering the questions of the tax administration within the framework of a tax audit? Does your company need assistance in determining the taxable base of the Belgian permanent establishment? Would you like to check your underlying transfer pricing file?
We are happy to help you!