INSIGHT: Belgium and Digital Taxation—Where do we Stand?

Sept. 30, 2020, 7:01 AM

While the Covid-19 pandemic and its devastating consequences on the global economy have made headlines in recent months, it has also led to more frequent discussions on the possibility of implementing digital services taxes (DST) on certain companies in a series of countries. Belgium has been no exception to this, but the debate on whether a national DST should be levied started well before the Covid-19 outbreak.

This article will reflect on political developments in Belgium around a possible DST, before analyzing the current situation and discussing what could happen next.

Draft Law on DST from 2019

In January 2019, Vanessa Matz, Member of Parliament for CdH (French-speaking centrist party), and a handful of other MPs introduced two related bills to Parliament. The first one focused on the long term and the implementation of EU Directive 2018/0072, laying down criteria to determine whether a digital company could be considered as established in Belgium and therefore subject to taxation. The second one aimed to create a temporary 3% tax on revenue generated by internet giants through some of their online activities. The legislator foresaw that such a tax would apply until a better international or EU solution allowing for more legal certainty and solving potential double taxation issues could be found.

The Parliament’s Finance and Budget Committee discussed the second bill before ultimately rejecting it. This can be explained by MPs’ concerns about the temporary nature of the proposed DST. According to them, if passed, it could require too-frequent changes to Belgian legislation to adapt it to ongoing developments at the EU or international level, where discussions were also taking place. As the second bill was rejected, the first one was not even considered.

2019 Elections and Aftermath

It is worth pointing out that both bills were introduced about a month and a half after the fall of Prime Minister Charles Michel’s government, with the three parties remaining in the caretaker government and their former coalition partner voting against the bill or abstaining. At that time, all parties were also preparing for the May 26 Federal, Regional and European elections, all taking place simultaneously.

During the campaign, most major political parties supported the implementation of a tax on large digital companies in their election programs: this was the case for CdH, the Flemish Christian Democrats (CD&V), the French-speaking Democrat Federalists (DéFI), the French-speaking liberals (MR), the Greens (Ecolo and Groen) and the socialist parties (sp.a and PS), while only the Flemish liberals (Open VLD) and the New Flemish Alliance (N-VA) did not explicitly mention it. Some parties preferred to seek a joint European solution while others were in favor of a unilateral Belgian DST, each with different rates (up to 5% for the Greens).

However, the topic did not receive much public attention, as discussions focused on other issues, such as the reduction of the corporate tax rate under the Michel government.

After the election, the Belgian political landscape was more fragmented than ever due to the victories of the far-right and far-left (winning 30 out of 150 seats in the Chamber of Representatives) and significant losses for traditional parties. These factors made it difficult to predict which coalition could emerge. Furthermore, the partners which had been part of the caretaker government since the fall of Charles Michel’s coalition all lost seats, making it even harder for the executive power to pass new laws without external support. Without a clear majority in Parliament, ad hoc coalitions could be formed between MPs: this has led to Belgian parliamentarians being extremely active since the moment they took the oath of office.

New DST Bill in Parliament

After being reelected, Ms Matz reintroduced her two bills (see here and here) in Parliament on July 10, 2019. In both cases, the draft legislation was quite similar to what had been proposed earlier. However, this time, there were more developments with regard to the bill which would introduce a Belgian DST. Its purpose remained to implement a temporary 3% tax levy on revenue generated by so-called internet giants through some of their online activities. The introduction still clearly highlighted the need to find a longer-term multilateral solution at the EU or Organization for Economic Cooperation and Development (OECD) level.

The temporary tax targeted three services in particular:

  • selling advertisements on a digital platform;
  • selling users’ data, which is gathered through their online activities, to third parties;
  • providing digital intermediation services allowing users to find and get in touch with others, for instance facilitating the selling of goods or services between them (although the bill lists some exceptions to which the law would not apply, for instance crowdfunding or financial platforms).

To be subject to the Belgian DST, companies would have to reach two different thresholds:

  • having global revenue exceeding 750 million euros ($874 million) per fiscal year;
  • with taxable revenue in Belgium above 25 million euros (an amount later amended to 5 million euros).

Moreover, the draft law defined some criteria to determine when users could be considered active in Belgium. The bill also specified how the DST would be collected and tried to prevent double taxation by providing some additional guidelines.

Due to the high level of parliamentary activity since the start of the legislative period, not much happened with regard to the proposal until 2020. It is true that, by the end of 2019, two MPs from other parties (DéFI and sp.a) agreed to co-sign the bill, but all three parties behind it were still far from having enough seats to pass it. In February 2020, however, Ms Matz’s bill was put on the agenda of the Finance and Budget Committee. Soon after, it was decided to refer to the Council of State, Belgium’s administrative court, to seek its advice on the matter. Its opinion was released on May 5, 2020 and urged legislators to amend the law for various reasons.

Council of State Opinion

First, the Council of State concluded that the law could be considered as favoring companies which would not pay the DST because they would not reach the revenue thresholds. According to the Council of State, such selective nature could lead to the law being interpreted as implicit illegal state aid.

The Council of State was also concerned about a potential violation of the principles of non-discrimination and equality. It therefore asked legislators to justify the difference of treatment between companies which would be subject to the DST and others which would not.

As a concrete example, the Council of State noted that a company generating 700 million euros in global revenue, including 70 million euros in Belgium, would not pay the DST because only one threshold would be reached, while another company generating 750 million euros in global revenue, including slightly more than 25 million euros in Belgium, would meet the conditions and have to pay DST, despite its weaker position on the Belgian market.

However, the Council of State believed that the law would not violate the rules of the World Trade Organization (WTO) under Article XIV d) of the WTO’s General Agreement on Trade in Services.

As the Federal Finance Administration had also given its opinion, e.g. recommending a threshold for Belgian revenue set between 700,000 euros and 5 million euros, the law was amended in May 2020 to set the Belgian threshold at 5 million euros instead of 25 million, and take into account the remarks of the Council of State. The bill also proposed some penalties for companies not paying their DST (or paying it late). In addition, some references to EU law were added and the wording of some paragraphs slightly changed (like in a second series of amendments from July 2020).

The bill is now still pending in Parliament and it is unclear when a parliamentary debate or vote on it may happen, as there is a large amount of other legislation to be discussed. However, various sources indicate that the three parties which support the draft law seem to have built a coalition strong enough to pass it.

Results of Covid-19 Crisis and Government Formation Talks

In addition to the bill discussed above, some party leaders have also become more vocal about their desire to tax digital giants. With the Belgian public deficit expected to grow from 9 billion euros in 2019 to around 35 billion in 2020—and with the media frequently referring to the profits made by digital giants—there is little doubt that the Covid-19 pandemic has contributed to that trend.

During a sitting of the Parliament’s Finance and Budget Committee on June 30, 2020, Pascal Saint-Amans, Director of the Center for Tax Policy and Administration at the OECD, and Luc Batselier, Fiscal Advisor at the Permanent Representation of Belgium to the OECD, answered questions from MPs, warning against the risks of such a unilateral measure. On July 15, 2020 Deputy Prime Minister and Minister of Finance Alexander De Croo (Open VLD), a leading figure within his party, said that he would prefer a multilateral solution. He added that it was uncertain how much a Belgian DST would bring in additional revenue for the Belgian State, while expressing his concerns about potential US retaliation measures. Moreover, some organizations, like AmCham Belgium in a recent position paper, have also been trying to highlight other risks of implementing a national DST without broader reflection: for instance, a Belgian DST could increase Belgium’s high tax burden and add compliance costs for taxpayers.

In private discussions, many politicians frequently acknowledge that an EU or international solution would be preferable, but at the moment not many of them seem likely to take a stand against a Belgian DST proposal in public, a move which would be very unpopular in these times of crisis.

Planning Points

Based on the 2019 party programs and recent declarations, there seems to be increasing momentum for the implementation of a DST in Belgium. As most parties tend to support multilateralism, a national DST, if implemented, is likely to be temporary until a common (and better) solution is found at the EU or OECD level. It is also worth noting that over past months an increasing number of parties have become more vocal about supporting such a tax.

At the same time, it is important to monitor the ongoing negotiations at the Federal level. A few weeks ago, seven parties decided to sit together at the negotiating table (Open VLD, MR, CD&V, Ecolo and Groen, PS, sp.a) to try to form a new government by October 1. Their chances of success are hard to assess at the moment. However, it is interesting to see that the negotiators are all rumored to support a Belgian DST. There has been no official confirmation yet, but this shows that a Belgian tax on internet giants is becoming increasingly popular.

It is unclear whether a DST proposal would be part of the upcoming government agreement and, if so, what it would mean in terms of rate, temporary or permanent nature, the services it would apply to, etc. If a DST is included in a government agreement, two scenarios are possible. Either the government supports the bill introduced by Ms Matz, which is possible if CdH is in the governing coalition but unlikely if not, because the majority rarely sides with the opposition when there is a government in power in Belgium; or the government submits its own proposal, which should then be passed fairly easily.

As the revenues a DST would bring to the Belgian state are unknown, and the possibility of U.S. retaliations cannot be excluded, would the benefits outweigh the economic costs for a small open economy like Belgium? In any event, the coming weeks and months will be crucial for Belgium and a potential national DST.

David Gaier is Public Affairs Officer at the American Chamber of Commerce in Belgium (AmCham Belgium).

The author may be reached at: dgaier@amcham.be

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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