In common with other EU countries, current Belgian tax law generally does not specifically address the digital economy, with some limited exceptions. For example, provisions were introduced in 2016 to create a tax incentive for income deriving from IP innovations under a “innovation income deduction” which allows for (amongst other things) a possible effective tax rate on net computer software income of 4.44% (as against an ordinary corporate income tax rate of 29.58%) and a potential innovation income deduction rate of up to 85% of the net income deriving from IP innovations.
On 21 March 2018, the European Commission proposed new rules to ensure that digital business activities would be appropriately taxed in the EU. These new rules are contained in two proposals for Council Directives, which, if implemented, would be required to be implemented into Belgian law in the next couple of years.
The “long term solution”: The digital permanent establishment
The first proposed directive lays down rules extending the concept of a permanent establishment, so as to include a “significant digital presence” through which a business is wholly or partly carried out. New indicators of significant economic presence are therefore proposed by the directive for determining the ‘digital footprint’ of a business in a jurisdiction.
These new indicators would be defined according to:
- revenues received from the supply of digital services;
- the number of online users; or
- number of business contracts for digital services.
In the future, foreign digital service providers might be taxed in other states where they have a significant digital presence or footprint even if they have not any physical presence in these other states.
This proposed directive also establishes certain principles for attributing profits to or in respect to a significant digital presence for corporate tax purposes. The allocation rules follow the OECD authorized approach.
The proposed new rules would have to be integrated into Belgian domestic law and would also have to be implemented in tax treaties. As the concept of a digital permanent establishment would not apply to companies residing in a non-EU state and having a tax treaty with the EU Member State where the company has a significant digital presence, the European Commission recommends that the Member States negotiate the necessary adaptations to their double tax conventions with non-Union jurisdictions so as to bring into effect the definition of significant digital presence. Finally, the intention of the Commission is to integrate the provisions in the proposed directive into the proposals for a Common Consolidated Corporate Tax Base (CCCTB).
The “interim” Digital Services Tax
The second proposed directive contains an “interim” Digital Services Tax (“DST”), with a rate of 3% applicable on the gross taxable (digital) revenues originating from providing certain digital services to users in the EU.
The DST is applicable to Companies or consolidated groups having total revenues exceeding EUR 750 million worldwide and over EUR 50 million taxable (digital) revenues in the EU. The DST is applicable on the following services (the “taxable revenues”):
- Advertising: the placing on a digital interface of advertising targeted at users of that interface (this kind of digital service might target “free” internet social media platforms funded by advertisements)
- Multilateral interfaces: the making available to users of a multilateral digital interface which allows users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users (this kind of digital service might target internet platforms active in connecting people to mobility services, private housing, etc.)
- Selling user data: the transmission of data collected about users and generated from users’ activities on digital interfaces.
The target of the DST is essentially the large US digital businesses. The DST is an “interim” measure as the European Commission’s intention is to switch towards the comprehensive long term solution which requires a longer implementation, where the states would tax non-resident digital businesses on the basis of “virtual permanent establishment” resulting from a significant digital presence or footprint.
Entry into force
Both proposed directives foresee the implementation in Member States’ domestic law by 31 December 2019 at the latest, so that the new rules would become effective as of 1 January 2020.