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Belgium: Tax haven and hell

Belgium attracts multinationals looking for tax benefits. At the same time, Belgian money disappears to offshore tax havens. In 2016, Belgium ranked second when it comes to tax evasion in Europe. Even the Belgian state itself appeared as an investor in tax heavens as disclosed in the Paradise Papers. While anti-tax avoidance measures have been implemented since then, Belgium still lags compared to the rest of Europe.

2017 was a record year for Belgium’s Special Tax Inspectorate (STI) as they raked in 2.1 billion euro in fines and tax increases. The STI’s mission is to “fight against serious and organised tax evasion” and examine “fraud cases in connection with organised economic and financial crime.” In 2017, they opened 28 percent more cases than in 2016.

On Feb. 2, 2018, an Antwerp financial judge restricted the STI from obtaining transaction information from payment services without direct evidence of fraud. The verdict followed STI’s request for information about purchases in Belgium with foreign credit and debit cards.

By reviewing the information from payment services such as Worldline, Alpha Card Merchant Services and Ingenico Financial Solutions, the STI wanted to uncover hidden assets in Luxembourg, Monaco, Switzerland and other tax havens.

Besides confirming the record year figure, the STI declined to comment. “There is not a lot of enthusiasm to elaborate on STI”, said Francis Adyns, spokesperson for the Federal Public Service Finance (FBS).

The money flow

In 2016, Belgian-based companies transferred 221 billion euro to tax havens, such as the Cayman Islands, the United Arab Emirates, Bahrain, Bermuda and Jersey Guernsey, according to Federal Public Service Finance data obtained by Walloon newspaper Le Soir.

Companies that have over 100,000 euro in fiscally-advantageous locations must report this to the Ministry of Finance. Only 853 companies made declarations, however, and at the time, Singapore, Hong Kong and Panama were not listed as tax havens by FPS Finance.

The declarations concern any kind of payment, making it hard to assess what the money really represents. Besides losing money to tax avoidance, Belgium has also been a destination for multinationals looking for better tax conditions.

A 2016, Oxfam Novib report based on investigations by the European Commission ranks Belgium second in Europe when it comes to corporate tax avoidance. The Netherlands ranks first and Cyprus third.

“Based on the study by the European Commission, you could say that Belgium is a tax haven”, said Maaike Vanmeerhaeghe, policy officer of inequality and tax at Oxfam. “That was then, at the end of 2015, not a surprise as Belgium offered harmful tax benefits to multinationals.”

Under the notional interest deduction system, companies subject to Belgian corporate tax could deduct interest based on shareholder net asset equity from their taxable income. Multinationals used this system by setting up financing companies in Belgium and then loaning money to subsidiaries in other countries.

“The most important tax benefits were the excess profit rulings, the notional interest deduction system, and the patent box, which is a tax benefit on income from intellectual property”, Vanmeerhaeghe said. “In 2018, this situation has changed a lot because those three benefits are either no longer allocated or have been reformed.”

The Cabinet of the Belgian Minister of Finance Johan Van Overtveldt said that in 2017, the notional interest deduction has been limited as part of an overhaul in corporate tax policy.

“The system was attuned to the track chosen by the European Commission itself, namely to follow the guidelines of the Common Consolidated Corporate Tax Base”, the cabinet said. “Plenty of complex fiscal deductions were constricted; the few that remain are linked to real economic activity in Belgium.”

Loopholes in the tax system

Van Overtveldt has been criticized by opposition party members for blocking transparency and corporate tax initiatives such as the financial transaction tax, the Tobin tax, of which he has been an outspoken opponent, and European tax avoidance directives. But his cabinet responds that the minister has created several initiatives to combat tax avoidance and financial fraud.

“Following our minister’s proposal, the Cayman tax was fortified in the beginning of October,” they said. “Belgium is an active player in various international initiatives aimed at dealing with the complex constructions of multinationals. Belgium was the first country to exchange rulings information with other member states, and we increased the STI budget and the number of civil servants fighting fiscal fraud.”

While restrictions to prevent tax avoidance increased, other tax reforms have been beneficial for multinational corporations.

“In general, you can say that the government – under international pressure – undertook steps to reform harmful tax benefits”, Vanmeerhaeghe said. “But Belgium compensated for these reforms by lowering corporate tax and taking part in an international ‘race to the bottom’ where countries bid against each other for low corporate income tax.”

When it comes to implementing EU guidelines against tax avoidance, Belgium is either slow to implement them or does so in a minimalistic, corporate-friendly way.

“The Belgian government is still not the best student in class”, Vanmeerhaeghe said. “Belgium implemented several EU guidelines, like the anti-tax avoidance directive, in a weak way, making our country lag behind in the fight against tax avoidance.”

Tax avoidance hurts people across the world by reducing government budgets for public services such as education, health care and social care. “Oxfam focuses on tax avoidance because developing countries are the biggest victims”, Vanmeerhaeghe said. “They lose an estimated $100 billion per year because multinationals avoid taxes.”

Case study in Belgian state involvement

One state-owned Belgian company, the Belgian Corporation for International Investments, known as BMI-SBI, was named in the Paradise Papers, the trove of financial documents on hideaways in offshore tax heavens that was leaked last year. Reporters from Belgian publications De Tijd, Knack and Le Soir worked together with the International Consortium of Investigative Journalists to uncover Belgian connections to offshore companies.

BMI supports foreign investments made by Belgian companies. The Belgian state owns 63% of BMI through the National Bank and the Federal Holding and Investment Company.

BMI was a shareholder of InfraAsia Development Vietnam Limited, an entity created by offshore legal service provider Appleby in the British Virgin Islands. Through its stake in InfraAsia, BMI was an investor in a harbour project in Dinh Vu, Vietnam. InfraAsia itself was a letterbox company, with no office, employees or economic activity of its own.

In BMI’s annual financial statements, InfraAsia was listed as a Vietnam-based company, and there is no mention of the British Virgin Islands. According to BMI, this was a human error and unintentional. However, leaked email exchanges with Appleby suggest that InfraAsia Development was being managed from Antwerp.

In an ironic twist, Hans D’Hondt, chairman of the Federal Public Service Finance, was on the council of BMI for 10 years. As the head of FPSF, D’Hondt overlooks the federal entities that investigate fraud, such as the STI. To the Belgian Press, D’Hondt said that the offshore arrangements were made before he became a director at BMI and that he was not aware of them.

As the Belgian state would be on the receiving end of Belgian taxes, it does not gain directly from using offshore practices. By doing so, however, the state did help other, private investors avoid paying Belgian taxes.

When BMI’s involvement was exposed, Minister of Finance Van Overtveldt told Flemish broadcaster VRT that he wanted to expose the facts “quickly and correctly”. When The Brussels Times asked what measures have been taken, his cabinet told us to look at the minutes of the Belgian Chamber of Representatives Commission on Finance and Budget meeting of 22 Nov. 2017.

During that meeting, the Chamber of Representatives asked questions about InfraAsia, BMI’s role in the tax avoidance construction, various conflicts of interest, related cases of corruption and fraud, what measures have been taken since the revelations and why the dossier has restricted access.

In general, the chamber members lamented the lack of direct action and the reluctance to share information. Left-wing politicians made pleas to create a law that will prevent this from happening again.

Following the revelations, the minister asked the Federal Holding and Investment Company and BMI for an analysis. According to him, there are many means in place to prevent investments in tax havens. Following the analysis, his cabinet will confirm and fortify those means. In the meantime, they are investigating how they can expand the ways to combat this problem.

On 31 December 2017 BMI left the Vietnamese harbour project, in which it had a stake in since 1999. Since the meeting in 2017, BMI’s offshore involvements have not been discussed by the parliamentary commission.

By Jelter Meers

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