Interest paid to a non-resident director company. The Belgian legislation according to which certain interest payments made to a director, which is a foreign company, are to be classified as dividends, whereas such interest payments are not reclassified as dividends if they are made to a director which is a Belgian company, is contrary to European law.
At the beginning of the year, the European Court of Justice (ECJ) ruled that Belgian companies managed by a non- resident director company are subject to tax treatment that is less advantageous than that accorded to companies managed by a Belgian director company. This constitutes a restriction on the freedom of establishment.
The reclassification of interest payments as dividends has a direct impact on the tax payable by the Belgian company because, unlike interest, dividend payments are not tax deductible and therefore must be reintegrated into the taxable base. The reclassification of interest payments as dividends may also deprive the company of the benefit of reduced corporate tax rates.
This kind of dividends have to be added to the dividends voted by the company's general shareholders' meeting and may thus lead to an exceeding of the limit of 13% of the paid-up capital at the beginning of the taxable period. Companies are not allowed to exceed this limit if they want to claim reduced rates.
The ECJ ruled that this restriction cannot be justified on the ground of prevention of abusive practices. Interest payments are reclassified when the total of the interest-bearing loans is higher than the paid-up capital plus taxed reserves. Situations in which the loan concerned may not be considered as a purely artificial arrangement, can thus entail a reclassification.
VAT deduction on passenger cars. The Belgian VAT administration published a decision according to which  the 50% limitation on the deduction of VAT with respect to passenger cars no longer applies to certain taxpayers. Taxpayers concerned by this decision are basically those who on a regular basis rent temporarily passenger cars to customers.
Previously the tax authorities only allowed a full deduction to professional car leasing or rental companies operating with the general public. Under the new rules, the full deduction applies only on rental cars exclusively and not for e.g. the company cars used by the director or staff. Taxpayers affected by this decision include Belgian car dealers and garages, as well as companies that rent cars to affiliated companies.