A recent tax ruling issued by the Belgian tax authorities confirms that a transfer of the registered office of a company from the USA to the Netherlands via Belgium should not have any tax consequences in Belgium. Although the tax rule does not set a legal precedent, the decision may open a new gateway to the European Union for companies that wish to be resident in an EU country that would otherwise not allow direct transfer of registered office from a non-EU jurisdiction.
In this article, “registered office” refers to his nationality and the laws that apply to him. There are two different theories: the model of the seat in the center of management and the model of the country of inclusion.
According to the model of the seat of the administrative center, a company is subject to the laws of the state in which its effective administrative center is located, regardless of its country of establishment. Jurisdictions using this model are Luxembourg, Germany, France and Spain.
According to the “country of incorporation” model, a company is subject to the laws of the state in which it is incorporated (that is, where its “seat” or “legal seat” is located) regardless of where it is effectively managed. According to this model, a company retains the citizenship of the country in which it was originally founded, even if it moves the center of its management to another country. Jurisdictions using this model are England, the Netherlands, and the United States.
However, in many countries that use the “country of incorporation” model, whether or not a company is taxable in those countries does not depend (at least not exclusively) on the country of incorporation. Instead, this can be determined by other independent connection factors such as: B. “central administration and control” for UK tax purposes or “effective administration” for Dutch tax purposes.
Transfer of the registered office (or re-domiciliation)
The transfer of a company’s registered office is also known as re-domiciliation. In general, the transfer of a company’s registered office will only affect the corporate law that applies to the company. The reintegration cannot have tax reasons, e.g. B. the use of the network of (non-tax) contracts and the legal framework of the target country. Sometimes relocation to a more tax-friendly jurisdiction can provide tax benefits if the company is taxable in its original jurisdiction because it was incorporated or is based there. For example, if a company is taxable in a model country based in a country of incorporation because that is where its effective management is located, resettlement in conjunction with the relocation of its effective management to another jurisdiction can reduce the administrative burden, ensuring that they comply with both company law as well as the tax system of target jurisdiction.
Whether resettlement (to or from a country) is permitted depends on the national law of that country. In this context, a case law of the European Court of Justice (including Cartesio (2008), Vale (2012) and Polbud (2018)) is relevant. In these cases, a company incorporated under the law of one EU Member State can, under certain conditions, transform into a company that is governed by the law of another EU Member State. Some EU member states that otherwise do not allow re-domiciliation (such as the Netherlands) have relied on this case law to allow cross-border conversions or divisions from and to other EU member states.
Belgium as a stepping stone
Belgium can potentially be a stepping stone for a non-EU company that wants to be resident in a specific EU country (and whose national law allows it) that does not accept residence other than an EU member state (such as the Netherlands) ).
In accordance with the new Belgian Code of Companies and Associations (CCA), Belgium recently adopted the “country of incorporation” model. Accordingly, from a Belgian point of view, the applicable company law is determined on the basis of the formal criterion of the “legal seat”. The CCA also introduced a formal procedure for cross-border transfers of a company’s registered office to and from Belgium. However, for the purposes of Belgian corporation tax, the effective management of the company remains the criterion. A new rebuttable presumption has been added, so that it is assumed that a company with a Belgian legal seat has its effective management in Belgium. This presumption can be rebutted if it can be shown that:
- The effective management of the company (within the meaning of Belgian tax law) is not in Belgium, but in another country. and
- The company is resident for tax purposes in a country other than Belgium, both under the domestic tax law in that other country and under the applicable tax treaties.
The tax rule was considering an agreement that would take advantage of the new regime in the CCA by moving a company from the US to the Netherlands via Belgium. The agreement would broadly include the following steps under the CCA (if applicable):
- First, the company would move its headquarters from the US to the Netherlands for effective management. It would be registered as a foreign company in the trade register of the Dutch Chamber of Commerce. This way it would also get a Dutch tax residence.
- Second, it would move its legal seat from the United States to Belgium. It would then be converted into a Belgian limited liability company and subject to Belgian company law.
- Third, after a two-month waiting period, as requested by the CCA, it would move its legal seat from Belgium to the Netherlands. It would eventually become a Dutch limited company.
The tax law provided that the presumption would be rebutted in these circumstances. The company in question would not be considered to be a Belgian resident company, so it could not be subject to Belgian corporation tax. It may only be subject to a few minor compliance formalities, such as: B. filing annual accounts for the financial year in which the legal seat in Belgium would be registered.
It should be noted that the above tax rule does not set any legal precedent. Each case must therefore still be considered separately. In addition, one should carefully weigh the tax and non-tax consequences of re-domiciliation in the original and destination areas of the company.
Useful for UK businesses after Brexit?
How useful will this potential re-domiciliation gateway be for pre and post-Brexit UK businesses? There are currently no provisions in UK law that allow real domiciliation (ie transfer of “registered office”) to or from the UK. Although the case law of the European Court of Justice (such as Cartesio, Vale and Polbud) binds the UK (at least before Brexit), most practitioners find that these cases are not enshrined in UK law.
Some practitioners suggest that while the European Commission can launch infringement proceedings against the UK for failure to transpose EU law, in practice it is unlikely that the UK government will introduce such provisions before the end of the Brexit transition period in the UK . Even if such provisions were incorporated into UK law, there would be no need to use Belgium as a stepping stone to the EU as a UK company could be directly resident in an EU Member State.