Up Again Belgium: Government Relief and Tax

Restructuring

1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

In addition to the charter deferral of payment for business loans and the guarantee scheme for new business loans (see the Tax section below), Royal Decree No. 15 also loosens rules on claw back actions regarding new securities granted and new credit lines obtained by a debtor, to facilitate new financing to viable but suffering businesses.

The Royal Decree also explicitly stipulates that financers will be protected against liability risks, for example for allegedly contributing to an illusion of creditworthiness of a debtor.

2. Is there anything else I should look out for?

Despite the fact that Royal Decree no. 15 aims to protect companies experiencing cashflow problems, it states, that debtors must always try to pay their due debts wherever possible (to avoid a domino effect) and, moreover, that this moratorium is not intended to serve as an excuse or alibi to not pay due debts (as explicitly mentioned in the decree’s preparatory works).

Because Belgian insolvency law does not prohibit paying certain creditors at the expense of or in priority over others (as long as it is commercially justifiable), companies with liquidity shortage should consider which creditors they (partially) pay (e.g. social security debts, important suppliers or financers) and which they do not.

Tax

3. What is the position with respect to the applicability of emergency tax measures , including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

Companies with a financial year ending on 1 October up to and including 30 December 2019 must file their tax return within seven months, regardless of the date of the shareholders meeting. This period runs from the first day of the month following the balance sheet date. If a taxpayer is not in the position of filing a timely tax return, the local competent tax office may grant an additional extension.

Companies with a financial year ending on 31 December 2019 or any other day up to and including 31 January 2020, must file their tax return by 24 September 2020 at the latest.

The deadline for paying personal income tax, legal entity income tax, corporate income tax and non-resident income tax is automatically extended by two months. This measure applies for tax assessments related to assessment year 2019 issued from 12 March 2020.

An automatic extension has also been granted for the payment of VAT and payroll withholding taxes:

  • VAT payments for the monthly returns of March and April are extended to 20 June 2020 and 20 July 2020 respectively. The payment deadline relating to Q1 2020 is postponed to 20 June 2020. The same extension applies for VAT due in accordance with a “special VAT return 629” relating to Q1 2020.
  • The deadline for paying payroll withholding tax for the months of March and April is extended to 15 June 2020 and 15 July 2020. The quarterly payment for Q1 2020 is now due by 15 June 2020.

Companies that can prove that they are facing financial difficulties directly resulting from the COVID-19 pandemic may request flexible payment arrangements for payroll withholding taxes, personal income tax, legal entity income tax, corporate income tax and VAT, even if these taxes have been assessed before 12 March 2020. Such requests must be filed by 31 December 2020 at the latest.

The federal government has also introduced higher tax credit percentages for advance tax payments linked to Q3 and Q4 2020, to mitigate the tax consequences of companies and self-employed individuals facing difficulties in making sufficient advance tax payments during Q1 and Q2 2020.

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

Please see question 3 above.

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

The emergency tax measures are, to a large extent, aimed at giving more leeway to taxpayers regarding cashflow. They do not really influence the timing of envisaged legal transactions.

However, the COVID-19 crisis could have an impact in that respect. For example, companies that are suffering substantial losses this year may consider accelerating envisaged corporate reorganisations and eventually reconsidering the form of these reorganisations to offset the incurred losses against the profits realised on the reorganisation.

Given the exceptional economic circumstances, it may be expected that the arm’s length value of certain assets or business units has significantly decreased. It could, therefore, be useful to accelerate planned or envisaged intra-group transfers of assets or business units, as this would result in a lower tax burden for the seller and require less need for financing on the side of the purchaser.

On the other hand, depending on the type of corporate reorganisation, a reorganisation may negatively affect the possible application of the tax consolidation regime and the tax losses carried forward of the participating entities.

6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

The adopted measures target the healthcare sector in particular:

  • temporary application (until 31 December 2020) of the reduced VAT rate of 6% (instead of 21%) on the supply, intra-community acquisition and importing of face masks (classified under specific CN Codes) and hydroalcoholic gels.
  • Belgian implementation of the European Commission’s decision to temporarily waive customs duties (until 31 July 2020) and VAT (until 31 July 2020) for state bodies, disaster-relief agencies and charitable organisations when importing medical devices and protective equipment from third countries.
  • temporary VAT relief (until 30 June 2020) for donations of medical equipment and protective gear by VAT registered businesses to state bodies, hospitals (and other healthcare organisations), charitable organisations and other recognised organisations.

The Belgian federal government has also introduced the temporary application (until 31 December 2020) of the reduced VAT rate of 6% (instead of 12%) on restaurant and catering services (excluding the supply of beers of an actual alcoholic strength by volume exceeding 0.5% and other beverages of an actual alcoholic strength by volume exceeding 1.2%). The reduced VAT rate of 6% (instead of 21%) will also apply on non-alcoholic beverages (if  other services are sufficiently supplied).

7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

Not that we are aware of.

8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

Belgium is in a particular political situation, as it entered the COVID-19 crisis without having managed to form a government coalition pursuant to the federal elections of 26 May 2019. A minority government was given special powers in March 2020 to manage the COVID-19 crisis.

An official federal government should be formed after the crisis. This explains why the Belgian government has not expressed political commitments or policy trends that might indicate the likely focus of any tax increase in the future. Informally, the introduction of a wealth tax for individuals has been put on the table, but nothing has officially been decided yet.

Belgium has not taken any measures to broaden the tax base, such as the introduction of a digital services tax. More generally, as far as we know, Belgium has also not publicly expressed a position on the BEPS 2.0 framework.

9. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax

Belgian tax law does not allow the carry back of tax losses. However, the government is looking into a number of temporary tax measures to improve the cash position of companies, including the exceptional carry back of their 2020 tax losses to offset part of their 2019 taxable profits. These measures have not yet been approved.

Businesses may revise or update their preliminary tax assessments – see question 3 above.

Businesses may pay higher advance tax payments linked to Q3 and Q4 quarter of the taxable year to mitigate their loss of tax credit due to insufficient advance payments during Q1 and Q2.

For VAT purposes, if businesses are dealing with unpaid invoices for supplies of goods or services for which the Belgian VAT has already been paid to the Belgian state, a VAT refund could be requested. Businesses must prove that the debt has remained unpaid and that the loss of the debt is certain and indisputable.

A VAT refund request could also be introduced regarding the VAT paid on advance payments for supplies of goods or services to customers – advance payments trigger VAT becoming due to the Belgian state.

If the intended supply does not take place afterwards (e.g. following a government measure), a VAT refund could be requested.

Similarly, a VAT refund request could be introduced if the customer cancels the supply of the goods or services (termination of the contract). The VAT refund will, however, depend on the provisions of the contract with the customer.

Finance

10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

The National Bank of Belgium (NBB) announced a scheme that should help businesses, whether individuals or companies, facing financial difficulties as a result of the COVID-19 crisis.

The scheme has now been implemented and consists of:

  • granting a repayment holiday of up to six months under existing loans; and
  • a EUR50 billion guarantee scheme for eligible new loans granted until 30 September 2020.

Repayment deferral

The Belgian financial sector has committed to providing certain borrowers experiencing repayment problems due COVID-19 pandemic a loan repayment holiday until 31 October 2020 at the latest without additional costs or charges.

The B2B repayment holiday scheme applies only to non-financial companies, SMEs, nonprofits and self-employed persons that meet four conditions:

  • the company experiences payment difficulties because of a drop in business activity or revenue, recourse to partial or full unemployment or an order from the government to close as a result of the COVID-19 pandemic
  • the company is permanently established in Belgium
  • the company was not in payment default under any existing loan, tax or social security obligations on 1 February 2020 or had less than 30 days of outstanding unpaid payment obligations on 29 February 2020
  • the company has met its contractual loan obligations with all lenders during the last 12 months before 31 January 2020 and is not subject to any active credit restructuring

A repayment deferral can be requested only for loans with a fixed repayment schedule, cash credits and fixed advances. Payments under leasing or factoring agreements are not covered, but parties to such agreements can, of course, agree similar or other arrangements on an ad hoc basis.

Federal EUR50 billion guarantee scheme

The national guarantee scheme applies automatically to short-term loans of up to 12 months that are covered by the Belgian Royal Decree of 14 April 2020 and granted by lenders to eligible borrowers during the period from 1 April 2020 to 30 September 2020.

The guarantee applies only to additional financing facilities. Loans are guaranteed up to EUR50 million per company. Higher amounts require government approval. The Royal Decree also determines the distribution of losses on guaranteed loans between the eligible lenders and the government and the maximum interest rate and fees that lenders are allowed to charge.

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

Financial agreements often contain financial covenants, generally expressed as minimum ratios measuring cashflow, leverage, liquidity, solvability or the ability to service debt obligations, which allow the lender to monitor the financial situation of the borrower at set dates throughout the year and take appropriate measures should the financial condition of the borrower deteriorate.

Taking on additional indebtedness could cause a breach of one or more financial covenants under existing loan documentation, and of specific provisions limiting indebtedness and negative pledge undertakings.

A review of existing credit documentation is necessary to avoid defaults and potentially cross-defaults. This could in turn allow the lender under the existing loan documentation to exercise certain rights, such as pricing step-ups, draw stops and eventually calling an event of default, accelerating the loan and enforcing the security interests.

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

Other remedies, such as equity cures, are possible and should be considered, because they may prevent a borrower from breaching financial covenants under existing loan documentation.

How the injected equity or shareholder support (e.g. subordinated shareholder loans) will be applied will depend on the wording of the financial agreement. Some credit agreements contain pre-agreed equity cure or margin ratchet mechanisms; others may require engagement with the lenders to agree a suitable solution.

13. What practicalities do you need to consider in relation to audit requirements?

In relation to audit requirements, the management report and the annexes to the annual financial statements should contain a section outlining the likely direct and indirect consequences of the COVID-19 crisis for the company and its impact on the financial results of the company.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

The first step will be to analyse the credit documentation and prepare a draft waiver request with the proposed waivers and solutions offered. These must be reasonable in terms of what is expected to be acceptable to the lenders.

Engaging with the agent or lenders early, on an informal basis, is recommended, to explain the situation and the envisaged waiver, and to provide the necessary background information.

This information (e.g. projections and reasonable assumptions) must be structured and ready to be provided to the lenders.

Often, the waiver request will be sent as a draft to the agent or lenders, before being formally submitted after the lenders have had a chance to ask questions and comment.

It is sensible to ask for a sufficiently long period for the waiver, and to provide reasonable underlying assumptions, in order not to be forced to ask for subsequent waivers too quickly – though lenders may want to try to be able to revisit their position regularly, depending on how the situation of the borrower evolves.

15. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

If the failure to comply with the terms of the bond covenants already constitutes an event of default under the terms and conditions of the bonds, it needs to be verified whether the issuer is required to notify all bondholders on such occurrence.

It also needs to be verified whether notices are required to be delivered to any clearing system and are compliant with the relevant authority on which the bonds are listed.

Whether or not the failure to comply with the terms of the bond covenants already constitutes an event of default under the terms and conditions of the bonds, the issuer should take the necessary steps to seek a waiver or amendment of the terms and conditions (see the next question).

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

The general meeting of bondholders is authorised to amend the conditions of issue of the bonds. Among other things, it is authorised to:

  • extend one or more interest terms, agree to the reduction of the interest rate, or change the conditions of payment of the interest;
  • extend the redemption, suspend the redemption, and agree a change in the conditions under which they must be made;
  • accept that the debenture claims of bondholders be replaced by shares – this decision shall have no effect if it has not been approved by an amendment of the articles of association within three months, unless the general meeting of shareholders has given its prior approval in accordance with the rules for amendment of the articles of association; and
  • accept arrangements to provide special security in favour of the bondholders, or to amend or cancel the security already provided.

No resolution of the general meeting of bondholders to amend the terms and conditions of issue will have effect without the express consent of the issuer.

However, the general meeting of bondholders may take protective measures by a simple majority of votes without the issuer’s consent.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

The board of directors or, in case of a dual board, the supervisory board and, where appropriate, the statutory auditor, may convene a general meeting of bondholders and determine its agenda. 

The notice convening the general meeting of bondholders contains the agenda and is effected by an announcement in the Belgian Official Gazette and in a national newspaper, on paper or electronically, at least fifteen days before the meeting, or thirty days if the bonds are admitted to trading on a regulated market. 

Notices convening the meeting are sent to registered bond holders fifteen days before the meeting. This notification is made by email or by regular mail in accordance with article 2:32 of the Belgian Companies and Associations Code (BCAC).

If all the bonds are registered, this communication will be sufficient. If the issuer has a company website, as referred to in article 2:31 BCAC, the notice will also be placed on the company website. The agenda contains the items to be discussed and the proposed resolutions to be submitted to the meeting. 

Unless the articles of association of the issuer or the conditions of issue of the bonds provide otherwise, the right to participate in the general meeting of bondholders is granted, either on the basis of the registration of the bondholder in the register of registered bonds of the issuer, or on the basis of the deposit of a certificate drawn up by the recognised account holder or by the settlement institution. This certificate must establish the unavailability of the dematerialised bonds up to the date of the general meeting of bondholders. The certificate must be deposited in the places indicated in the notice convening the meeting of bondholders, within the period laid down in the articles of association, but not less than three business days and not more than six business days before the date fixed for the general meeting of bondholders.

In the absence of any mention of this in the articles of association of the company, the period will end on the third day before the date fixed for the general meeting of bondholders.

16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

No, not in the current schemes (see question 10 above).

State Aid/Subsidies

17. How can a company optimize financial support received from public bodies?

There are several layers to this question.

First, companies considering a request for public support will investigate what forms of aid are available at municipal, regional or national level, including but not limited to the scheme of the National Bank discussed in question 10 above. Public support schemes can be horizontal, sectoral, regional, or ad hoc.

Any form of public financial support to companies that is selective in nature (i.e. not available to every company), must be authorised by the European Commission under the state aid rules.

Where financial support for an economic group (not the individual entity) is less than EUR200,000 over a period of three years, it does not require EU approval.

For larger amounts, the approval may be granted automatically (e.g. where the grant is covered by a Block Exemption Regulation, or an authorised scheme).

In all other cases, the Member State is required to seek prior authorisation from the Commission.

There are many guidelines allowing aid for specific policy objectives (e.g. protection of the environment, renewable energy, or regional development) that existed before the COVID-19 crisis.

In the early stages of the COVID-19 crisis, the European Commission promptly reacted by adopting a Temporary Framework allowing Member States to grant ad hoc support to alleviate harm from the crisis.

Such COVID-19 aid could include direct grants, repayable advances, tax advantages, guarantees or loans (including where channelled through credit or financial institutions), subsidised interest rates for loans, or short-term export credit insurance.

The COVID-19 aid can also occur in form of state recapitalisation in the form of equity (issuance of new common or preferred shares) or hybrid capital instruments (i.e. profit participation rights, silent participations and convertible secured or unsecured bonds).

When granted to non-financial companies, such aid presupposes that the beneficiary would go out of business or at least face serious difficulties without the support, with no market alternative being available.

Where such recapitalisation occurs, it should be temporary and remunerated. For the duration of the recapitalisation, the beneficiary must abstain from aggressive commercial expansion, ban dividends and abstain from making acquisitions. Management remuneration must be capped.

Where companies apply for different support instruments, each of which is compatible with EU law and Commission guidelines, companies should nevertheless take into account cumulation rules that may cap the total amount of aid that a particular beneficiary may receive.

18.  Is there any legal risk attached to financial support received from a public body?

Any form of public support amounting to state aid can be challenged by competitors before the European Commission in form of a complaint or in national courts (an interim injunction). Where such support is duly authorised and in line with the substantive conditions, a challenge is unlikely to be successful.

If not, a national court can order the temporary repayment of the support received until the European Commission has ruled on its compatibility with the Single Market. Where the Commission concludes that the aid is materially incompatible with the Single Market, the beneficiary must repay the support received to the public authorities.