We have recently received 4 important questions from our clients. Each question addresses a specific theme, and so, for your convenience, we provide our answers in this article.
Which European sustainability rules does my company have to comply with up to now?
Since the launch of the European Green Deal, the European Union has not been sitting idle. In 2021, the Sustainable Finance Disclosure Regulation (SFDR) entered into force, directly imposing specific obligations on financial market participants. However, legislation impacting non-financial entities has also been launched. The most noteworthy initiatives to date are the Taxonomy Regulation and the Corporate Sustainability Reporting Directive (CSRD).
The Taxonomy Regulation encompasses a classification system of activities (and the criteria they must meet) in order to determine an entity’s ‘degree of sustainability’ based on turnover, opex and capex. Today, large listed companies with over 500 employees already have to comply with (certain aspects of) this Taxonomy Regulation. In the future, non-listed large companies (also falling under the scope of the CSRD) will have to comply as well.
The CSRD requires companies to extensively report non-financial data – and more specifically, information about their sustainability policy – in their annual report. The CSRD was adopted at the end of 2022; the large listed companies mentioned above have to comply as of financial year 2024. As of financial year 2025, all ‘large’ companies will have to comply. The European Sustainability Reporting Standards (ESRS) are still in draft. The sector-agnostic standards are expected to be approved in mid-2023.
The European legislation will not only have an important impact on the companies directly within the scope, but there will be an inevitable and increasing ‘trickle down’ effect on the smaller companies that are part of their value chain.
I want to buy out my partner’s shares. How do I go about it?
Have you ever heard of an OBO (Owner Buy Out)? This operation allows one (or more) shareholder of a company to buy-back 100% of his (their) shares in the company by setting up an acquisition holding company with the support of third-party investors. The purpose of an OBO may be to finance the exit of a shareholder and/or bring third parties (employees, investment funds, etc.) into the company’s capital with a view to ensuring its long-term development.
An OBO can be carried out without using your own funds, thanks to a contribution in kind of your shares to the acquisition holding company. This contribution is remunerated by shares of the holding company and the case may be through a current account in the holding company books. The partner’s acquired shares are fully paid thanks to a bank loan and by the cash injection from the third-party(ies) as equity investors.
The advantages for the outgoing shareholder are numerous. Provided that the operation is part of the normal management of his private assets, the outgoing shareholder will benefit from (among other things) a tax exemption on the capital gain made.
For new shareholders, it is essential to provide for and organise – in the holding company’s articles of association and through a shareholders’ agreement – the terms and conditions relating (in particular) to governance and the liquidity of the shares. These documents not only define the rights and duties of each party, but they also facilitate the establishment of a common vision.
Want to know more? Contact Sébastien Paulet, an expert in the Financial Advisory team.
Until when can I bring my company’s articles of association in line with the new code?
The new Companies and Associations Code came into effect in May 2019. At that time, a ‘transitional period’ of a good 4 years was provided, during which all companies were required to adapt their articles of association to the new code. This period is set to expire on 31 December 2023.
Failure to update the articles of association as per 31 December can jeopardise director’s liability – and yet many companies have not yet taken any action.
For some company forms – such as the public limited liability company (naamloze vennootschap (NV)/société anonyme (SA)) – the required adjustments are minimal (unless one of the new management models in the NV/SA is elected). Nevertheless, these companies too must update their articles of association.
The articles of association of other company forms – such as the limited liability company (besloten vennootschap/société à responsabilité limitée – the former bvba/sprl) – must be adapted more extensively, because, in this case, the innovations are more substantial and comprehensive (e.g., abolition of the capital concept).
There are also company forms that are actually changing fundamentally. The cooperative company (coöperatieve vennootschap/société coopérative), for example, may from now on only be used by companies for which the ‘cooperative philosophy’ is central. Finally, there are company forms that will disappear entirely. The partnership limited by shares (commanditaire vennootschap op aandelen/société en commandite par actions) is an example hereof. These last 2 categories of companies risk facing serious legal consequences if they do not take action promptly.
Whatever legal form your company has, it is high time to take a look at the articles of association – if you have not already done so – and amend them if necessary. It will be 31 December before you know it!
Does my company have to pay the 15% international minimum tax?
Under EU Directive 2022/2523, EU Member States are required to introduce a regime to ensure a global minimum level of taxation for multinationals by 31 December 2023.
The effective tax rate is to be assessed per year and per jurisdiction. Where the effective tax rate is less than 15%, an additional tax is to be calculated accordingly. In principle, the state of residence of the parent company of the group is obliged to levy the top-up tax. However, Member States may decide that the state in which the lowest taxed entity is established levies the worldwide tax. Belgium seems to prefer this option.
About the EU Directive 2022/2523
Why such a directive?
Directive 2022/2523 transposes into European law an agreement initiated by the OECD – and endorsed by nearly 140 countries – on the tax challenges of the digital economy. This agreement follows the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) published in 2013.
What are its objectives?
The directive’s main objective is to prevent large international companies from shifting their profits to low-tax countries in order to partially escape corporate tax. It aims to ensure harmonisation within the EU of the global rules against base erosion (GloBe) agreed at OECD level.
What is its scope?
National or multinational groups with an annual worldwide consolidated turnover of at least EUR 750 million for at least 2 of the 4 years preceding the income year in question are subject to the directive. Exceptions have been made for international organisations, non-profit organisations, and certain pension or investment funds.
Are there any exclusions?
The directive provides for no top-up tax to be levied if, during the tax year concerned, the following conditions are cumulatively met:
The average eligible turnover of all constituent entities located in the jurisdiction is less than EUR 10 million; and
The average qualifying profit or loss of all constituent entities located in the jurisdiction is less than EUR 1 million.
The average is calculated on the basis of the eligible turnover and the average qualifying profit or loss of the income year and the previous 2 years.
What does this directive mean for your company?
In determining the amount of the top-up tax, account will be taken of the payroll and tangible fixed assets established in the tax jurisdiction. Therefore, the presence of real substance in the jurisdiction will reduce the amount of top-up tax to be levied.
Is your company based in the EU and subject to the country-by-country reporting requirement? If so, determine whether or not you fall within the scope of the directive and, if so, plan for the 15% worldwide minimum tax.
The minimum tax will have a significant impact on the companies concerned, both in terms of corporate tax and in terms of administration and compliance. We recommend that they verify now whether their processes and data systems can provide the required information quickly and efficiently.
Want to know more? Contact the experts of our Tax team.