On 19 October 2023, a draft law relating to miscellaneous tax measures was submitted to Belgium’s federal parliament. One of the objectives of the draft law is to realign the autonomous tax definitions for mergers and divisions with the company law definitions that were updated in June 2023 to reflect the modifications required by Directive (EU) 2019/2121 (referred to as “the EU mobility directive”) amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers, and divisions. The amendments are also intended to ensure that the transposition of the company law directive has full effect for tax purposes.
Three changes to the existing tax definitions in relation to reorganisations are proposed:
If approved, the changes would apply retroactively as from 16 June 2023 in line with the date of implementation of the EU mobility directive.
The triangular merger without the issue of new shares would only apply where both the absorbed company and the absorbing company are held by a single common shareholder or where multiple shareholders hold the same pro rata holding of shares in both companies.
This new concept is likely to be very relevant in practice as Deloitte Belgium have observed that this merger type is commonly used in neighbouring countries that have previously adopted the simplified merger procedure. The proposed change would also have the secondary effect of facilitating simplified mergers of EU companies held by a Belgian corporate shareholder.
However, questions arise as to whether the proposed changes are sufficient to safeguard the tax neutrality of these mergers in a Belgian context. Based on a strict reading of Belgian tax law, it would appear that these simplified mergers could lead to a deemed dividend distribution, triggering taxation of certain tax free reserves and potential withholding tax obligations.
Although the narrative on the objective of the legislation is very concise, we expect this to be an unintended consequence of the proposed law change.
Currently, a partial demerger may be remunerated only by the issue of shares of the beneficiary company. The second proposed modification in the draft law would provide the option also to remunerate a partial demerger with shares of the partially demerged company or with a combination of shares of both the beneficiary and partially demerged companies. Although this feature may be interesting in situations where the partial demerger is primarily intended to override existing shareholder structures, an issue of only new shares of the partially demerging entity may give rise to discussions concerning, for example, the normal or arm’s length nature of the transaction or the indirect tax consequences thereof.
The third modification is intended to extend the cross-border partial demerger with the option to issue new shares to the partially demerged company instead of its shareholder(s). The amendment would create a hybrid transaction, combining features of a partial demerger and a contribution in kind (hive-down).
The memorandum of understanding (MoU) accompanying the draft law rightfully highlights the discrepancy that this would create between domestic and cross-border transactions, although the MoU appears to confuse the domestic partial demerger (not requiring a line of business) and the domestic contribution of a line of business. From that perspective, it could be questioned whether this proposed new hybrid form would successfully pass the nondiscrimination test.
Although the draft law is a well-intentioned initiative to restore consistency between the company law and tax definitions of mergers and divisions, it appears that the wider tax ramifications of certain aspects of the proposal have not been considered. Hopefully, these anomalies will be addressed appropriately during the legislative process.
It also should be appreciated that the company law changes to cross-border restructurings continue to create many practical difficulties, such as obtaining tax certificates for companies that are subject to a tax audit, the documents to be provided to the notary public to obtain a merger certificate, and the three-month waiting period as from the date of publication of the joint merger proposal in the framework of the new creditor’s protection mechanism. The expectation is that most of these issues will be resolved with time, but meanwhile uncertainty remains a significant element of many such transactions.
Kristof is a lawyer mainly specialising in (cross-border) corporate law. He advises both individual persons as well as companies on various aspects of corporate and commercial law. He mainly focuses on advising clients with regard to national and international corporate transactions, such as mid market acquisitions and divestitures (M&A), the setting up of joint ventures, advice on corporate governance and general corporate law issues. In addition to his work as a lawyer, Kristof is also a professor corporate law at the University of Ghent. He regularly publishes articles on (Belgian and European) corporate and insolvency law for which he has been awarded with the triennial international Pierre Coppens prize for law (2014-2017) and the TPR-prize (Tijdschrift voor Privaatrecht) (2015). Kristof Maresceau acted as an expert appointed by the Belgian Minister of Justice and was actively involved in the drafting of the new Belgian Companies Code.
Jurgen is an M&A Tax Partner in Brussels with almost 20 years of experience in deal related tax work. He focuses on corporate M&A and supports clients throughout their M&A lifecycle. Next to rendering buy-side and sell-side tax due diligence, acquisition financing / structuring and deal related tax advisory services, he has successfully led the implementation of large-scale carve-outs, post-merger integrations. He has unparalleled experience in dealing with the tax aspects of complex (cross-border) restructuring projects. Jurgen also gained experience in IPO related matters and international migrations of corporate groups.