Capital gains on shares realised by companies: the current regime

It should be remembered that the basis of assessment for corporate income tax (CIT) corresponds to the accounting result of the company subject to CIT. By way of derogation, tax law may decide to exempt certain elements of the accounting result. And this is exactly what it has done in the case of capital gains on shares.

Under Belgian law, it is therefore by way of exception that capital gains on shares are exempt from CIT. The legislator has made the exemption on capital gains subject to strict conditions, most of which are common with those of the participation exemption regime (the Participation Exemption Regime) of European origin (i.e., the parent-subsidiary directive).  

To benefit from the Participation Exemption Regime, dividends received by a company need to meet the following conditions: a qualitative condition (‘bad’ dividends are excluded) and also a quantitative condition: the company must, either, (i) hold (or undertake to hold) for more than one year a participation representing 10% of the capital of the distributing company or (ii) whose historical acquisition value is at least € 2,500,000. If the shares sold are eligible for the Participation Exemption Regime, the capital gain realised will be exempt.

Belgian federal coalition agreement

On a CIT level, the capital gains regime should be impacted by the agreement through the dual reinforcement of the ancillary criterion of the quantitative condition of the Participation Exemption Regime. Although the main criterion of 10% equity interest is not being called into question, the alternative criterion of historical acquisition value is being raised from EUR 2,5 to 4 millions for large companies and in transactions between them, and the equity interest must be classified as a financial fixed asset (financieel vast actief).

This last condition was initially introduced in 2004 and then removed in 2011.

As reported [Ch. Chéruy and Ch. Laurent, Le régime fiscal des sociétés holding en Belgique, 2e éd., Bruxelles, Larcier, 2007, p. 342-346], this reference to the nature of a financial fixed asset is highly questionable because it allows the tax authorities to interfere in accounting choices made independently by the company on the basis of extremely subjective criteria. Indeed, to qualify as financial fixed assets, accounting law stipulates that the shares (whether or not qualifying as a participation) must be acquired with a view to establishing a lasting and specific link with the underlying company.

Thus, in an equivalent situation, two different companies could consider that a holding of 4 million euros could sometimes be a financial fixed asset, and sometimes constitute a disqualifying treasury placement. With the proposed reform, companies will have to rework the accounting presentation of their shareholdings by asking themselves questions that have been of no fiscal relevance for nearly 15 years, with the risk that the tax authorities will interfere in this ‘reworking’ seeing it as an opportunity to tax certain capital gains on shares.

An appeal to common sense

The introduction of this condition in 2004 gave rise to numerous disputes with the tax authorities, which de facto received an instrument for controlling the company's sovereign accounting choices.

In 2011, the legislator abandoned this condition, which was simply contrary to European law in that it also applied to holdings of at least 10% (i.e., the first criterion of the quantitative condition)

While the argument of violation of European law seems less relevant (given that the alternative criterion is a purely internal criterion), legal certainty - a cardinal principle in tax matters according to the government agreement - requires that this new condition, which has all the hallmarks of a false good idea, be abandoned now.

This analysis was originally published by L’Echo media outlet in French. To access the original article, please click here.