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The Brussels IIb Regulation, a little more efficiency, harmony, recognition and cooperation for your agreements or disagreements.

Regulation 219/1111 of the Council of the EU, known as “Brussels IIb”, on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility, as well as on international child abduction, will apply from 1 August 2022, to judicial proceedings, registered authentic instruments and agreements concluded from that date in the Member States of the European Union, with the exception of Denmark.

As regards matrimonial questions, little progress has been made as it has proved impossible to reach consensus on an agreed definition of ‘marriage’.

The so-called “Rome III” Regulation  does not allow, for example, recognition of a “private” divorce decision rendered in a third State, such as a divorce pronounced before a religious court in Syria or a divorce by non-judicial mutual consent (known as “divorce without a judge”), which has existed in France since 2017 . It only permits divorces that are pronounced by a state court or by a public authority (or under the public authority’s control) to be recognized.

Article 65 of the Brussels IIb states that “authentic instruments and agreements relating to legal separation and divorce which have binding legal effect in the Member State of origin shall be recognised in the other Member States without the need for any procedure … ‘. ‘Agreement’ is defined as ‘an instrument which is not an authentic instrument, which has been concluded by the parties in matters falling within the scope of this Regulation and which has been registered by a public authority notified to the Commission for that purpose by a Member State in accordance with Article 103′.

If notaries public are notified to the Commission as relevant public authorities for that purpose, a notary who receives divorce agreements may be the competent authority to register them and his agreements may be recognised and enforced in the other Member States without further formality, subject however to respect for the public policy of the Member State where recognition is sought. (At the time of writing the lists of public authorities, available from the European e-Justice portal, have not yet been up-dated to take account of Brussels IIb).

With regard to parental responsibility, the new Regulation gives a simple definition of a child, being “any person under 18 years of age”.  It suggests giving a real and effective opportunity for the child, who is capable of forming his or her own views, to give their opinion, failing which there is a risk that any decision that concerns him or her will not be recognized.

The Regulation allows parents to choose the court to rule on parental responsibility, provided that it is closely connected to the child and serves his or her best interests.  It will no longer be necessary to resort to a formal procedure for the enforcement of the decision: a certificate from the Member State which issued the decision will permit its general availability for immediate enforcement.

An entire chapter is devoted to the issue of the abduction of children. The ‘immediate return’ mechanism must be implemented quickly, since the judge will have to give a decision within 6 weeks. The judge will not be able to refuse to return the child if the requesting parent (non-abductor) demonstrates that adequate measures have been taken to protect the child upon his or her return. Finally, the judge of the country where the child was originally resident will have the final say at the end of the procedure on the merits, as distinguished from the judge in the State of refuge.

This is a summary of some of the improvements offered by the new text, which is not perfect or complete and which does not settle certain questions, such as the free movement within the European Union of some of the consequences of divorce, such as maintenance obligations.

Interpretation of the Regulation is sometimes difficult and no doubt lawyers, academics, judges and notaries will work to clarify its meaning in practice and without ignoring the provisions of other Regulations which will remain in force, unless they have been recast in this new “Brussels IIb” Regulation.

Reducing the cost of giving …

A gift of moveable property (une donation mobilière) (often money) can be a way of giving a little financial help to someone close to you or simply a way of making them happy. See article : Rhyming estate planning with confinement

From a tax point of view, such a gift does not need to be registered, nor does it require the services of a notary. It is therefore neither subject to gift tax nor to inheritance tax provided the donor does not die within three years after the date of the gift.

If the donor does in fact die within three years of making the gift, the value of the gift will be notionally included in the estate upon the donor’s death, in order to determine the amount of inheritance tax due from his or her heirs.

However, in Belgium, inheritance tax is much higher than gift tax and as the former is progressive, the heirs may find themselves obliged to pay substantial tax on an amount from which they did not benefit (unless the donee is also a legal heir of the deceased’s estate).

Following a decision of the Constitutional Court, the Walloon and Brussels-Capital Regions have now followed the reform initiated by the Flemish Region and changed their inheritance legislation to remove the negative effect of this tax treatment of the deceased’s legal heirs.

The effect is that recipients will now have to pay any inheritance tax that falls due on the value of a gift (donation) given by a donor, who dies after 1 March 2021, themselves.

If you wish to make a gift (donation), you should therefore take into account  whether or not (in the event of decease within three years) it would be more beneficial to pay gift tax on the value of the moveable property, depending on the nature of your estate.

Alimony and the company current account

Unfortunately, ‘alimony’ or ‘maintenance’ remains at the heart of almost all family conflicts and often serves as the last bastion of, often bitter, discussions that aim to maintain a semblance of family solidarity when marital and parental ties are under strain.

This raises the thorny question of the quantum of the maintenance obligation which, in the absence of agreement, lawyers, mediators or magistrates will seek to determine by reference to the legal principles underpinning the obligation. The maintenance payer’s obligation aims, depending on the circumstances, to provide, in proportion to his or her means, for the accommodation, maintenance, health, supervision, education, training and development of a couple’s child, to maintain the ex-partner’s standard of living during separation, or indeed to cover the ex-spouse’s financial needs.

The maintenance obligation will essentially fall on the more financially well-off person, whose ability to contribute, net of any tax, must be determined.

This ability to contribute is established by taking into consideration the actual income of all kinds – professional, investment, real estate – but also all the benefits in kind and other means which ensure the standard of living of the maintenance payer, in addition to his or her ability to earn income and … not to forego it.

Thus, for a person who exercises a profession under the aegis of a company of which they are a shareholder and director, the profits of the company that are retained and not allocated in the form of remuneration or dividends should be taken into account in assessing his or her income, as well as the status of the company’s current account.

The current account reflects the day-to-day management of a company, and reveals the debts or claims between the shareholders, directors and the company.

The current account may therefore be in credit to the shareholder, if the latter has lent private funds to the company (which will be shown on the liabilities side of the balance sheet), in the form of a deferred payment if he or she has sold an asset to the company, or in the form of a provisional non-payment of dividends or a non-payment of remuneration. Conversely, the current account may be in debit if the company has lent money to the shareholder/director (which will then be shown as an asset on the balance sheet).

If the current account is in credit, the advantage may be significant for the person whose tax capacity is being determined, since he or she is likely to receive interest from the company, which is taxable through a 30% withholding tax but is also deductible for the company (subject to certain conditions).

Conversely, if the current account is in debit, he or she will claim to be in debt to the company, in the knowledge that the tax authorities will see this as a benefit in kind, i.e. a loan at a zero rate, which they will then tax as such (currently at a rate of just over 10%).

So, the company’s current account is also an element that determines the contributory capacity of the person that controls it, so as to ensure that he or she does not seek to evade a part of their maintenance obligation. For all intents and purposes, it is worth remembering that any Belgian tax resident may deduct, on a private basis, the alimony/maintenance that he or she pays, up to a maximum of 80%. The real tax impact will depend on his or her tax rate, so that the French expression “faire contre mauvaise fortune, bon cœur” (to put a brave face on misfortune) will often win the day in the search for a balance of economic interests between family and participation in a company.

The international effectiveness of adult representation mandates

The Hague Convention of 13 January 2000 on the International Protection of Adults (the “Convention”) was recently ratified by Belgium and entered into force on 1 January 2021. The Convention applies to the protection in international situations of adults who, by reason of an impairment in or insufficiency of their personal faculties, are not able to protect their own interests. The provisions of the Convention apply to powers of representation agreed after that date. They slightly modify the legal principles governing them to ensure their effectiveness across borders.

Until 31 December 2020, the effectiveness of such a power of representation depended on the recognition a particular state gave to this type of mandate. The Convention ensures that a “power of attorney”, “mandat de protection future” or similar instrument has the force of law in another Contracting State, even where that State does not have an analogous instrument in its domestic law. This provides the adult with the assurance that arrangements previously made for the management of his or her affairs will be respected in other Contracting States. A power of representation aims to anticipate possible incapacity by designating, without the intervention of a judge, one or more persons who will manage all or part of the principal’s assets and will be responsible for carrying out the principal’s personal choices or final wishes.

Since 1 January 2021, the law applicable to the existence, extent, modification and termination of such a power of representation are found in the provisions of the Convention. The Convention allows the parties to designate, in a limited but explicit way and in writing, the law of one of the following states:

• The state of which the adult is a national;
• The state of the adult’s previous habitual residence; or
• The state where the adult’s property is located with regard to such property.

It is therefore possible to apply to the management of an asset the law of the State where the asset is located.

In the absence of a choice of law, the existence, extent, modification and termination of the power of representation are governed by the law of the state where the adult has his habitual residence at the time the agreement or unilateral legal act was entered into.

The effect is that, if a power of attorney is drawn up in Belgium by an Italian residing in Belgium, in which he designates his daughter as his representative, the acts of management which the latter will perform in respect of property belonging to her father in Tuscany will be recognized in Italy because Italy has ratified the Convention. If, on the other hand, the father owns a property in Madrid, his daughter’s representative powers would be subject to the Spanish rules of private international law, since, curiously enough, Spain is not (yet) a Contracting Party to the Convention.

Split-purchase: position reversal of the General Administration of Taxes

On July 7, 2020, the federal Administration of Taxes was obliged (once again) to reconsider its position regarding the so-called “split purchases” in the Walloon and Brussels Regions, following the opinion issued by the Council of State on June 18, 2018.

It should be recalled that “split-purchase” is an estate planning technique that consists in purchasing (im)movable property in a dismembered form: the parent purchases the usufruct of the property and the child buys the bare ownership. Therefore, on the death of the parent, the usufruct is extinguished and the property becomes fully owned by the child, in principle without taxation.

Nevertheless, from a tax point of view, a legal fiction has been created (i.e. art. 9 of the Inheritance Tax Code and art. 2.7.1.0.7 of the Flemish Tax Code) according to which the property in its entirety will be presumed to form part of the usufructuary’s estate, except where it can be proved that it is a hidden gift. Thus, in order to reverse this presumption and avoid the application of the tax provisions, it is common practice for the parent to make available, prior to the purchase and via a (registrable) donation, the funds necessary to acquire the property.

Previously, the federal tax authorities allowed the presumption to be reversed, provided that (i) either the previous donation of the funds had been registered (necessarily implying the levying of the 3% gift tax in the Flemish and Brussels Regions and 3.3% in the Walloon Region for direct line donations) prior to the acquisition of the property, or (ii) the taxpayer could demonstrate the absence of a link between the donation and the (im)movable purchase. This position has been taken over by the tax administration of the Flemish Region (VLABEL) and extended, in 2016, to split transfers of (portfolio-) securities and cash investments.

However, on 12 June 2018, the Council of State called VLABEL to order, pointing out that it is irrelevant as to how the purchaser of bare ownership had obtained the funds intended for its acquisition. The question of whether or not the gift had been registered in advance was therefore irrelevant. VLABEL therefore had to revise its position.

In this respect, the federal tax authorities asserted on July 7 that in order to provide proof to the contrary, it was sufficient for the bare owner to demonstrate that the donation took place prior to the signature of the purchase deed, no more and no less. Minor precision in the Brussels and Walloon Regions: if the sale agreement provides for the payment of a sum (deposit, guarantee, etc.), it is necessary to provide evidence that the donation was made before the date of the sale agreement, even if the acquisition was made under a suspensive condition. This proof can be brought by any legal means, to the exclusion of any proof originating from the parties themselves, such as the oath or the claims of the parties (thus an “attached pact” does not seem sufficient).

However, in the Flemish Region, this latter condition does not seem to be required, so that it would be sufficient for the donation to take place before the notarial act of sale is signed.

The new position of the federal tax administration applies to all split purchases made after 1 August 2020.

How to keep a gift as a gift… or how to prevent it from being reclassified as an endowment ?

The difference between a gift and an endowment (donation) is often questioned. Although these notions might seem semantically very close, they are nonetheless quite different, at least in terms of taxation or even regarding certain civil aspects.

In fact, when a donation is recorded, it is subject to payment of fees varying from 3 to 7% in Brussels and in Flemish Region and from 3.30% to 7.70% in Walloon Region, taking into account the family link between the donor and the beneficiary. Donations that have not been registered are not subject to any taxation provided that the donor does not pass away within 3 years of the donation.

Moreover, from a civil point of view, the donation is not without consequences either, since, in principle and unless otherwise provided for, it will be deemed, on behalf of the donor’s children, as an advance upon their share, which will be deducted from what will be due to them at the time of the death of the donor.

Therefore, this gesture is not trivial.

As for customary gifts, they are not taken into account from a civil point of view at the time of the death of the ‘offeror’ nor are they taxed at the time they are given, or later, unless they are subject to re-qualification by the tax authorities… In addition, unlike the gift between spouses, which is revocable at any time with no necessary justification, a customary gift remains irrevocable.

While there is no absolute legal rule to differentiate gifts from donations, the following are some practical elements which should help you to avoid such re-qualification:

• In order for a ‘gift’ to be considered as such, it should only represent a  modest and proportionate diminution of the gift-giver’s wealth. Hence, it is generally considered acceptable to give up to 1% of one’s assets as a gift annually. Beyond that, it could be perceived as a donation.
• The gift might be an object, a work of art, an envelope, a bank transfer… provided that it is related to an event justifying such a reward (a birthday, a child birth, a wedding, a graduation, a Christmas present, etc.). Finally, in case of money and bank transfer, it must be clearly stated that it is a gift, for instance by mentioning “congratulations on your wedding”, or by sending a letter expressing this particular intention.

Should you still have any doubts about the rewards you intend to grant, do not hesitate of taking some advice from FLINN in view of avoiding any possible misinterpretation.

Rhyming estate planning with confinement

FLINN can help you make good resolutions – Estate Planning seminar 11/02 at 6 pm

FLINN is pleased to invite you, on February 11th, to a seminar on some estate planning tools, taking into account the latest reforms in inheritance law.

To say that Belgium and its regions sometimes impose high inheritance taxes is no secret for anyone, but to anticipate them, so as to reduce, neutralize or extinguish them, is something that is within everyone’s reach. Working on such arrangements need not be very complicated and sometimes doing nothing is best … but forewarned is forearmed.

At the beginning of the year 2020, to help you make (and achieve!) your good resolutions, we offer you some estate planning tools to use between family members, partners, friends and acquaintances … We will try to familiarize you with certain techniques that you may already know but which the legislator has modified or adapted and with certain new tools, such as the global agreement on succession which, during the lifetime of the future deceased (!), aims to stabilise what he or she has achieved throughout his or her life, restore harmony to families or, potentially, to keep his or her promises and wishes alive.
If you are interested in attending this seminar, please register using our REGISTRATION FORM

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