Belgium, Prime Location for Pan-European Pension Funds - Invest in Belgium, increase your profits
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Belgium, Prime Location for Pan-European Pension Funds www.business.belgium.be Invest in Belgium, increase your profits
Table of Contents
Foreword
1. Introduction
2. Legal framework: Structure and organization of the OFP
2.1 Separate legal entity
2.2 Autonomous legal framework
2.3 Simple and flexible structure
2.4 Comply with host country social and labor legislation
2.5 Creation of the OFP and authorization to act as a pension fund
2.6 Conclusion
3. Financial framework
3.1 Conditions of operation
3.2 Qualitative rules as opposed to quantitative rules
3.3 Technical provisions
3.4 Coverage of the technical provisions
3.5 Investments
3.6 Financing plan
3.7 Statement of investment policy principles - SIP
3.8 Balance sheet of the OFP: assets and liabilities
3.9 Dynamics of the financing framework
3.10 Asset management and custody
3.11 Information to the pension plan participants and beneficiaries
3.12 Supervision
3.13 Conclusion
4. Tax regime
4.1 Corporate income tax – “zero taxation on profit”
4.2 International taxation: benefiting from double taxation treaties
4.3 VAT
4.4 Other indirect taxes
4.5 Conclusion
5. Some data
Contacts
2
The ageing of the population will boost the development of
funded pension schemes, complementary to the statutory state
pension.
This theme will enlarge the pension fund market on an
unprecedented scale. In the coming decades they will change
from net asset accumulators to institutions paying out more
than they are receiving.
The recent turbulence on the global financial markets
demonstrated the importance of pan-European pension funds.
Pension promises have a more and more profound impact on
corporate balance sheets of multinationals. The sharp decline
in the financial markets and falling interest rates has led to unexpected pension deficits and a growing
concern as to how to mitigate the volatility of coverage ratios.
Pension funds get management attention with a strong demand for centralized risk management
and control of pension assets and liabilities. Pooling enables businesses to bundle assets and liabilities
from various jurisdictions under a single licensed Pension Fund.
In line with the Single Market, recent European directives now allow cross-border pension funds to be
set up within the European Union. Today, Belgium is the only European country offering multinationals
a complete and comprehensive dedicated framework for establishing both pan-European and
international pension funds.
Belgium has already facilitated the establishment of the pan-European pension funds. Pooling is
in practice not a big bang but a step-by-step approach leading to a fully operational pan-European
pension fund.
This brochure sets out the benefits of this very effective and advantageous legal, fiscal and prudential
framework. It also points out the broad range of modern treaties for the avoidance of double taxation
which our country has concluded, thereby offering substantial savings with regard to the portfolio of
each fund.
Our situation in the heart of Europe further strengthens our position on the pension fund market.
The European headquarters of many multinationals are already located in our country. It is therefore
to be expected that they should also set up their pan-European or international pension funds here.
Belgium is positioning itself as a prime centre of shared services for international businesses and
the Belgian government is committed to facilitate an attractive and sustainable framework for long
term investors, such as pension funds.
I trust that this brochure will be a useful document for the decision-makers in the pension and
business community.
Yves Leterme
Prime Minister
3
1. Introduction
1. Introduction Furthermore, new
Furthermore, new tax
tax provisions
provisions were
were adopted
adopted
44
on 27 December
December 2006 2006 to createaanew
to create newfavourable
favorable
5 5
Belgium recently implemented
implemented the the EUEU Directive tax regime
regime ininline
linewith
withthetheEET-principle
EET-principle. Thanks to
. Thanks
1
2003/41 (the so-called
1
so-calledIORPIORPDirective)
Directive)bybyadopting
adopting a these provisions,
to these a well-designed
provisions, pension fund
a well-designed loca-
pension
a
newnewandand transparent
transparent flexible
flexible legal framework,
legal framework, which fundinlocated
ted Belgium in can
Belgium
benefit can benefit
from a “zero”
fromcorporate
a “zero”
which
promotes promotes
Belgium Belgium
as as “theas “the
prime prime location”
location” for
for in- corporate
income tax.income tax.
international
ternational and and pan-European
pan-European pension
pension funds.
funds.
The
The ActAct of
of 27
27 October
October 200620062 on
2
on the
the supervision
supervision of of 2. Legal framework : Structure and organization
IORPs
IORPs (Institutions
(Institutions forfor Occupational
Occupational Retirement
Retirement Pro-Pro- 2. Legal framework - Structure
of the OFP
vision)
vision) defines the legal structure, the organization
defines the legal structure, the organization and organization of the OFP
and the functioning
and the functioning of of pension
pension funds.
funds. 2.1. Separate legal entity
Moreover, the prudential legal framework
Moreover, the prudential legal framework applies
2.1. Separate legal entity
A pension fund established in Belgium takes6 the le-
applies the “prudent person”– principle and grants A pension fund established in Belgium takes the
the “prudent person”– principle and grants optimiza- gal form of an OFP :
optimization opportunities to the pension fund, legal form of an OFP:
tion opportunities to the pension fund, its sponsoring - Organization for Financing Pensions
its sponsoring undertakings and the pension plan - Organization for Financing Pensions
undertakings and the pension plan participants. The - Organisme voor de Financiering van Pensioenen
participants. The Act offers a flexibility which allows - Organisme voor de Financiering van Pensioenen
Act offers a flexibility which allows the pension fund to - Organisme de Financement de Pensions.
the pension fund to best respond to the specific - Organisme de Financement de Pensions.
best respond to the specific needs and wishes of the
needs and wishes of the multinational or group of
Autonomy.
Autonomy. The OFP is a separate legal entity solely
The OFP is a separate legal entity solely
multinational or group of companies.
companies. liable for its funds and obligations
liable for its funds and obligations and
and distinct
distinct from
from
7
A pension
A pension fundfund located
located in in Belgium
Belgium may may have
have the
the sponsoring
sponsoring undertakings
undertakings6..
cross-border activities
cross-border activities and
and operate several pension
operate several pension It
It isisspecifically designed
specifically to allow
designed for a flexible
to allow gover-
for a flexible
plans applicable
plans applicable to to employees
employees workingworking in different
in different nance structure and organization.
governance structure and organization.
countries (host countries). The pension fund will,
however, solely be subject to the Belgian legal and 2.2. Autonomous
2.2. Autonomous legal legal framework
framework
regulatory prudential framework. If the employees Unique. Since
Unique. Since the
the OFP
OFP is is a new legal entity, it is not
affiliated to the pension fund are working in countries applicable to
subject to laws applicable to other
otherlegal
legalentities.
entities.
belonging to the European Economic Area (EEA), the The ActAct ofof2727October
October 20062006 is transparent
is transparent and and
go-
relevant legal
legalprovisions
provisions 3 3 of their country’s social
of their country’s social and governs
verns thethe OFP’s
OFP’s structure
structure and and organization
organization but
but also
and labor laws must
labour laws must be respected. be respected.
The BelgianThe pruden-
Belgian also its activities and its functioning.
its activities and its functioning.
prudential
tial framework framework
offers, on offers,
the one on hand
the one hand a
a guarantee The Act
The Act isis available
available in
in English,
English, French, Dutch and
French, Dutch and
guarantee of solid management,
of solid management securing the interests and pen- securing the German on the website of the Belgian
German on the website of the Belgian competent Su- competent
interests and pension rights of the plan
sion rights of the plan participants and, on the other participants Supervision
pervision Authorities,
Authorities, thetheCBFA FSMA (www.fsma.be).
(www.cbfa.be). The
and, on the other hand, provides a high degree of The Act is implemented by Royal Decrees, which are
hand, provides a high degree of flexibility in the level Act is implemented by Royal Decrees, which are also
flexibility in the level of funding by sponsoring also available on the FSMA-website. Furthermore,
of funding by sponsoring undertakings. The justifica- available on the CBFA-website. Furthermore, the7
undertakings. The justification “on a case by case” the FSMA issues circulars and memoranda
tion “on a case by case” basis relates to the “specific” CBFA issues circulars and memoranda8 commenting
basis relates to the “specific” characteristics of the commenting on the practical implications of the
characteristics of the pension plans and their partici- on the practical implications of the legislation.
pension plans and their participants. legislation.
pants.
2.3. Simple and flexible structure
1
1 Directive
Directive2003/41/EC
2003/41/ECofofthe
theEuropean
EuropeanParliament
Parliament and
and of
of the
the Council on
Council on 2.3. Simple and flexible structure
the activitiesand
andsupervision
supervision
Governance.
Governance. InIn accordance
accordancewith
withthethe OECD
OECD Guideli-
Guidelines
the activities of of Institutions
Institutions for Occupational
for Occupational Retirement
Retirement Pro- 9
Provision (IORPs)
nes
for for pension
pension fundfundgovernance
governance 8 , the governance
, the governance
vision (IORPs) of 3 of 3 June
June 2003.2007.
2 Most provisions entered into force on 1 January structure of
structure of the OFP ensures an appropriate
the OFP ensures an appropriate division
division
2 Most provisions entered into force on 1 January 2007.
3 Mandatory legal provisions of the host countries (‘host country’ is the of operational responsibilities as well as oversight
of operational responsibilities as well as oversight
3 Mandatory legal provisions of the host countries (‘host country’ is the
country whose social and labor legislation applies to the relationship and supervision responsibilities.
responsibilities.
country whose social and labour legislation applies to the relationship
between the sponsoring undertaking and the plan participants), within the
between the sponsoring undertaking and the plan participants), within the 6 The Act of 27 October 2006 provides for a transitional period of 5 years
limits of EU/international law.
limits of EU/international law. (until 1 January 2012) to the benefit of already existing pension funds which,
4 Act of 27 December 2006 relating to diverse provisions.
4 Act of 27 December 2006 relating to diverse provisions. pursuant to the previously applicable legislation, took the legal form of a non-
5 EET: “exempt-exempt-taxation”: (E): tax exemption for the contributions
5 EET : “exempt-exempt-taxation” : (E) : tax exemption for the contributions profit association (vzw-asbl) or mutual fund (ovv-aam).
paid into a pension fund for the accrual of pension benefits (tax relief for the 6 Hence, safeguarding the accrued pension benefits and entitlements of
paid into a pension fund for the accrual of pension benefits (tax relief for the 7 Hence, safeguarding the accrued pension benefits and entitlements of the
contributions paid by the sponsoring undertakings and by the pension plan the pension plan participants against bankruptcy of their employer, the
contributions paid by the sponsoring undertakings and by the pension plan pension plan participants against bankruptcy of their employer, the sponso-
participants); (E): tax exemption of income generated by the contributions, sponsoring undertaking.
participants)
gains ; (E)
realized by:the
tax pension
exemption of income
fund, generated
capital gains bythe
during theaccrual
contributions,
period ring undertaking.
7 Also available on the FSMA’s website, www.fsma.be.
gains to
prior realized by the pension
the payment fund, capital
of the benefit; gains during
(T): taxation of thethe accrualbenefits
pension period 8 Also available
8 OECD on the
guidelines for CBFA’s
pensionwebsite, www.cbfa.be.adopted by the OECD
fund governance,
prior to
upon the payment
payment of theof the benefit ; (T) : taxation of the pension benefits upon
benefits. 9 OECDonguidelines
Council for pension fund governance, adopted by the OECD
28 April 2005.
payment of the benefits. Council on 28 April 2005.
4Consequently, the OFP must consist of at least
2 (at 2 bo-
least) or participants and beneficiaries
legislations applicable in the management
to the pension plans whichofit
dies : bodies:
more their pension plans by the OFP.
operates.
-a A general
general assembly
assembly The creation,
creation, composition,
composition, powerspowers and
and functio-
The sponsoring undertakings whose pension plans functioning
ning of these
of the social committee(s)
committee(s) candecided
can be be decided
upon
are operated
operated by bythetheOFP
OFParearemembers
membersofofthe thegeneral
gene- upon
by theby the parties
parties involved.
involved. No requirements
No legal legal requirements
other
assembly 9
. The
10 general assembly has
ral assembly . The general assembly has the overall the overall otherthe
than thanestablishment
the establishment of a written
of a written document
document are
supervision
supervision and and oversight responsibility and
oversight responsibility and may
may bebe are imposed
imposed by Belgian
by Belgian law. law.
granted broad powers (to be defined in
granted broad powers (to be defined in the bylaws ).the bylaws 11).
10
-- a
A board
board of of directors
directors 2.5. Creation
2.5. Creation ofof the
the OFP and authorization
OFP and authorization to act as
The OFP must have at least one operational body: a pension fund
The OFP must have at least one operational body : to act as a pension fund
the board of directors. The latter defines the Adopt bylaws. The OFP can simply be created by
the board of directors. The latter defines the general Adopt bylaws. The OFP can simply be created by
general policy of the OFP and is responsible for the adopting bylaws. One ordinary member-sponsoring
policy of the OFP and is responsible for the operatio- adopting bylaws. One ordinary member-sponsoring
operational activities of the OFP. undertaking suffices to that end. The bylaws do not
nal activities of the OFP. undertaking suffices to that end. The bylaws do not
- Other operational bodies (under the control of the need to be drafted by a notary nor do they require
Contractual Freedom. The new legal framework is need to be drafted by a notary nor do they require
board of directors) court approval. The bylaws will be published in the
based on the principles of flexibility and contractual court approval. The bylaws will be published in the
Contractual Freedom. The new legal framework is Belgian State Gazette.
freedom
based on: the
the parties setting
principles up the OFP
of flexibility andcan structure
contractual Belgian
Apply for Stateauthorization.
Gazette. Prior to commencing
it according
freedom: theto their own
parties needs
setting and
up the wishes
OFP provided
can structure Apply for authorisation. Prior
its pension fund activities, the OFP to commencing
must apply for its
the basic double structure is complied
it according to their own needs and wishes provided with. pension fund activities, the OFP must apply
IORP-authorization from the Belgian (home country) for the
the basic double structure is complied with. IORP-authorization
competent authority, from
thethe Belgian
FSMA. The(home
requestcountry)
file to
2.4. Comply with host country social competent authority, the CBFA. The request
be submitted to that end can be downloaded to file be
from
and labour
2.4. Comply with legislation
host country social and submitted
the FSMA’stowebsite.
that end can be downloaded from the
Respect
labor oflegislation
local social regulation. One or more so- CBFA’s
Amongst website.
the most important documents to be
Respect of local
called social socialmay
committees regulation.
be set up The parties
to allow the remitted to
Amongst thethe FSMA
most are: documents to be remit-
important
involved in the pension plan can
OFP to meet the requirements of the host country’sset up one or -ted
The bylaws
to the CBFA are :
more
social committees to enable the
and labour legislations OFP totomeet
applicable the
the pen- - The
the financing
bylaws plan
requirements of the
sion plans which it operates.host country’s social and labor -- The statement of investment policy principles (SIP),
the financing plan
Employee involvement. Social committees will pro- -- Athe
description
statementof of the pensionpolicy
investment plansprinciples
which the(SIP),
OFP
ve useful to involve different groups of pension plan intends to administer
- a description of the pension plans which the OFP
9 Voting rights can be determined in the bylaws.
intends to administer
10 Bylaws
10 Voting rights can be determined
or certificate in the(“statuten”
of incorporation bylaws. – “statuts”).
11 Bylaws or certificate of incorporation (“statuten” – “statuts”).
512
-- The
the management
management agreement
agreement11 workers
workers in in Belgium.
Belgium. Hence,
Hence, a multinational group
a multinational group
informationregarding
- Information regarding the
the sponsoring
sponsoring undertakings
undertakings without a company basis in Belgium may decide to
and the members
and the members of the operational bodies.
operational bodies. set up its pan-European or international pension
fund in Belgium.
Belgium.
The FSMA decides upon the application within 3
CBFA decides Adequate liabilities
Adequate covered by appropriate
liabilities covered appropriate assets.
months following remittance
remittance ofof the
the complete
completefile.
file. In respect of the pension plans which it is operating,
If the
theOFP
OFPenvisages
envisages engaging
engaging in cross-border
in cross-border acti- OFPmust
the OFP must establish
establish an adequate
an adequate amount amount of
of liabi-
activities within the EEA, the notification procedure
vities within the EEA, the notification procedure fo-13 12 liabilities (i.e. technical provisions) corresponding
lities (i.e. technical provisions) corresponding to the
foreseen
reseen bybythe
theIORP
IORPDirective
Directivemust
mustbe be complied
complied with.
with. to the financial
financial obligationsobligations whichfrom
which result result
thefrom the
pension
This notification can be introduced simultaneously
This notification can be introduced simultaneously plans. These technical provisions must be covered be
pension plans. These technical provisions must by
with the authorization
with the authorization request.
request. covered by appropriate assets
appropriate assets (cf. infra 3.3). (cf. infra 3.3).
Global management/netting. Different
Global management/netting. Different
pension
pension plans
2.6. Conclusion plans may be managed16 globally15. However, the
2.6. Conclusion may be managed globally . However, the OFP is free
The legal framework sets forth simple principles for OFP is free to decide differently and organize a
The legal framework sets forth simple principles for to decide differently and organize a ring-fencing on a
the organization and the governance structure of the ring-fencing on a voluntary basis between different
the organization and the governance structure of the voluntary basis between different pension plans.
OFP and allows parties to adapt the organization and pension plans.
OFP and allows parties to adapt the organization and Solidarity. The OFP can also determine itself the
functioning to their specific situation. Solidarity. The OFP can also determine itself the
functioning to their specific situation. degree of solidarity it wishes to apply amongst its
degree of solidarity it wishes to apply amongst its
sponsoring
sponsoring undertakings.
undertakings. These
These rules
rules need
need toto be
be
3. Financial
3. Prudentialframework
framework laid down in
laid down in the
the so-called
so-called management
management agreement.
agreement.
This
This agreement
agreementisisconcluded
concludedbetween
between the the
OFP OFP
and
3.1. Conditions
3.1 Conditions ofofoperation
operation the sponsoring undertakings and defines
and the sponsoring undertakings and defines the the rules of
When authorized by the FSMA CBFA1413 the OFP may start the
rulesOFP’s functioning.
of the The management
OFP’s functioning. agreement
The management
operating pension plans providing for retirement may allow compensation
agreement may allow (“netting”)
compensation to be (“netting”)
organized
benefits15
14
. without prejudice to
to be organized the relevant
without applicable
prejudice to thesocial and
relevant
No Belgian activity is required.
required. The Belgian law applicable
labour social and
legislations andlabor legislations
provided and provided
the minimum vested
does not
not require
requirethat
thatoneone or more
or more sponsoring
sponsoring un- the minimum
rights of the planvested rights of and
participants the plan participants
beneficiaries are
undertakings
dertakings bebe locatedininBelgium,
located Belgium,nor
northat
that at
at least and beneficiaries are safeguarded.
safeguarded.
one
one pension
pension plan
plan which
which the
the OFP
OFP operates
operates applies to
applies to
3.2 Qualitative
3.2. rules
Qualitative rules asas opposed
opposed
12 IfIf any.
11 any. The
The management
management agreement
agreement is
is concluded
concluded between
between the
the OFP
OFP to quantitative rules
to quantitative rules
and its
and its members
members sponsoring
sponsoring undertakings,
undertakings, determining its terms
determining its terms and
and The legal framework
The prudential framework ofofthe Belgian
the new legislation
Belgian legisla-
conditions of
conditions of operation
operation and
andthe
therules
rulesof of
its its
functioning. If these
functioning. rulesrules
If these are describes the rules which the OFP must respect in
tion describes the rules which the OFP must respect
defined
are in the
defined in bylaws, the law
the bylaws, thedoes
law not
doesimpose the conclusion
not impose of a mana-
the conclusion of a relation to the technical provisions, the investments
in relation to the technical provisions, the investments
gement agreement.13
management Notify the intention to accept sponsorship from a
agreement. and the management. The law sets qualitative rather
and the management. The law sets qualitative rather
12
sponsoring
Notify theundertaking established
intention to accept in another
sponsorship from EEA-member state (host
a sponsoring undertaking than quantitative rules, both for the determination of
than quantitative rules, both for the determination of
established
country). Theinnotification
another EEA-member state (host
must be addressed country).
to the home The notification
country’s com- the technical provisions and for the investments.
the technical provisions and for the investments.
must
petentbe addressed(i.e.
authorities to the home country’s
for Belgium : CBFA).competent authorities
The OFP may (i.e. for
also engage in
Belgium: FSMA).
cross-border The OFP
activities maythe
outside also engage
EEA. in cross-border
A simplified activities
notification proce- 3.3 Technical provisions
outside the EEA. A simplified notification procedure applies to that end.
3.3. Technical provisions
Cross-border activities if “fully” funded. In the
dure applies to that end.
13
Cross-border activities if “fully” funded.
event of cross-border activities, the IORP In the event
Directive
14 InIn the
the event
event of
of cross-border
cross-border activities,
activities, the
the OFP
OFP can start its
can start its activities
activities
after completing the cross-border activities notification procedure (i.e. of cross-border activities, the IORP Directive
requires that the technical provisions are fully requires
after completing the cross-border activities notification procedure (i.e.
within 2 months for cross-border activities within the EEA following the that theattechnical
funded all timesprovisions
in respectare of fully funded
the total at all
range of
within 2 months for cross-border activities within the EEA following the
principal 3 months FSMA-review and authorization period). times in respect of the total range
pension plans operated by the pension fund.of pension plans
principal 3 months CBFA-review and authorization period).
14 For non-Belgian pension plans (i.e. pension plans not applicable to operated
Prudent butby the pension
dynamic fund. funding requirement.
“fully”
15 For non-Belgian pension plans (i.e. pension plans not applicable to
salaried and self-employed workers in Belgium), the Belgian legislation Prudent butlegislator
The Belgian dynamic has “fully” funding arequirement.
not adopted quantitative
salaried and self-employed workers in Belgium), the Belgian legislation
does not impose any restrictions or conditions for the content of the approach
The Belgianinlegislator
this respect
has notbutadopted
requires a prudent
a quantitative
does not impose any restrictions or conditions for the content of the pen-
pension plans. Indeed, if the pension plan can be considered in the host calculation method, based on economical
approach in this respect but requires a prudent calcu- and
sion plans. Indeed, if the pension plan can be considered in the host EEA-
EEA-member state as a pension plan within the meaning of the IORP lation method, based on economical and actuarial as-
member state as a pension plan within the meaning of the IORP Directive
Directive (for non EEA-member states : the same definition of retirement 15 The Act only imposes as exceptions to this rule: the separate
(for non EEA-member states : the same definition of retirement benefits 16 The Act only imposes as exceptions to this rule : the separate mana-
benefits as the one used in the Directive), the OFP is authorized to operate management of pension plans applicable to salaried workers and of
as For
it. the one usedplans
pension in theapplicable
Directive), to
thesalaried
OFP is authorized to operate
workers and it. For
self-employed gement
pension ofplans
pension plans applicable
applicable to salariedworkers
to self-employed workersand
and of
thepension
separate
pension plans
persons applicable
working to salaried
in Belgium, workers
a different and of
definition self-employed persons
“retirement benefits” plans applicable
management of to self-employed
pension workers
plans which are and the separate
subject manage-
to recovery measures
working
is in to
retained Belgium, a different definition
better correspond of “retirement
to the Belgian situation. benefits” is retai- ment of pension
decided plans
upon by the which are subject to recovery measures decided
FSMA.
ned to better correspond to the Belgian situation. upon by the CBFA.
6sumptionsassumptions
actuarial which the OFP needsthe
which to be
OFP able to justify
needs .
to be (SIP) and inmay
Derivates accordance
be usedwith the assumptions
provided used to
they contribute in
Coherent.
able The. OFP must establish, as technical provi-
to justify the financing
reducing the plan.
investment risks or facilitate efficient
sions, an amount
Coherent. The OFP sufficient
must toestablish,
guaranteeas thetechnical
pension Derivates may be used The
portfolio management. provided they contribute
key message to
is again:
benefits already
provisions, in payment
an amount and the to
sufficient accrued
guaranteepen- reducing
if you canthe investment
justify risksuse
a different or facilitate efficient
of derivatives as
the
sion pension
benefits benefits
in accordance already
withina payment and the
prudent valuation reasonable
portfolio and prudentThe
management. , considering all elements,
key message it
is again : if
accrued
method. The pension benefits
calculation basisinofaccordance
the technicalwith provi-a will can
you in principle
justify a be allowed.
different use of derivatives as reaso-
prudent
sions must valuation
form part method. The calculation
of the financing plan which basis
the nable and prudent, considering all elements, it will in
of
OFP theandtechnical provisions
the sponsoring must form
undertakings partupon.
agree of the principle be allowed.
financing plan which
DC. For defined the OFP
contribution and the
pension plans,sponsoring
the pro- 3.6 Financing plan
undertakings agree upon.
visions to accrue are equal to the sum of the vested The Financing
3.6. OFP must planestablish a financing plan in
DC. For defined
pension rights ascontribution
defined by the pension plans,
plan rules and thebypro-
the agreement
The OFP mustwithestablish
all sponsoring undertakings
a financing which
plan in agree-
visions to accrue are equal to the sum of the vested commit themselves to execute it and to pay the
host countries’ social and labour legislation, if any. ment with all sponsoring undertakings which commit
pension rights as defined by the plan rules and by contributions pursuant thereto.
DB. In respect of pension plans providing for defined themselves to execute it and to pay the contributions
the host countries’ social and labor legislation, if any. The financing plan determines the calculation
benefits, for a guaranteed return or for biometrical pursuant thereto.
DB. In respect of pension plans providing for defined method of the contributions to be paid per pension
risks17, the calculation method of the technical pro- The financing plan determines the calculation
benefits, for a guaranteed return or for biometrical plan to ensure appropriate funding of the pension
visions may take into account prudent interest rates method of the contributions to be paid per pension
risks16, the calculation method of the technical liabilities and of the solvency margin, as well as to
which may e.g. consider expected investment returns. plan to ensure appropriate funding of the pension
provisions may take into account prudent interest cover all costs and expenses. It must be submitted
Flexible.
rates which Themay OFPe.g. mayconsider
define its own rules
expected and cal-
investment liabilities
to the FSMA.and of the solvency margin, as well as to
culation method provided they may be justified by
returns. cover
OFPs all costs and
which expenses.(as
themselves It must be submitted
opposed to the
the specifics
Flexible. TheofOFP the OFPmay and the its
define pension
own rulesplans and
ad- to the CBFA.undertakings) undertake to guarantee
sponsoring
ministered. The OFP thus disposes of
calculation method provided they may be justified by a high degree OFPs which themselves
the pension (aswell
obligation as opposed to thewhich
as OFPs sponsoring
cover
of flexibility
the specifics , subject
of the OFPonly to a reasonable
and the pensionjustification
plans ad- undertakings)
biometrical risksundertake to guarantee
must establish the pension
a solvency margin
basis.
ministered. The OFP thus disposes of a high degree obligation
(defined byas wellDecree).
Royal as OFPs which cover biometrical
Minimum
of flexibility=,vested
subjectpension
only to rights. The technical
a reasonable pro-
justification risks must establish a solvency margin (defined by
basis.
visions may not, however, be lower than the so-cal- Royal Decree).
Minimum
led minimum = vested
vested pension rights.
pension rights 18 The technical
defined by the 3.7 Statement of investment policy principles – SIP.
provisions
plan rules and, mayif not, however,
applicable, be lower
the host country’s than the
social The OFP
3.7. must of
Statement establish a written
investment policystatement
principles of in-
- SIP
so-called minimum vested pension rights
and labour legislation. Provided this minimum is res- defined by vestment policy principles – SIP – describing
The OFP must establish a written statement of in- the
the planthe
pected, rules
lawand,
allows if applicable,
a long-termthe viewhost country’s
in respect of investmentpolicy
vestment risk principles
measurement– SIPmethods, the risk
- describing the
social and labor legislation.
the calculation method to be applied. Provided this minimum management processes and the strategic
investment risk measurement methods, the risk asset al-
is respected, the law allows a long-term view in location, considering the nature and the
management processes and the strategic asset al-duration
respect of the calculation method to be applied. of the pension liabilities. The OFP must review this
3.4. Coverage of the technical provisions location, considering the nature and the duration of
statement at least every 3 years.
Prudent Investments. The technical provisions must the pension liabilities. The OFP must review this sta-
3.4 Coverage of the technical provisions
be covered by assets invested according to the “pru- tement at least every 3 years.
Prudent Investments. The technical provisions
dent person” principle.
must be covered by assets invested according to the
The only quantitative restriction which applies and
“prudent person” principle.
which is imposed by the IORP Directive relates to in-
The only quantitative restriction which applies and
vestments
which in the sponsoring
is imposed by the undertakings
IORP Directive (limited to
relates
5 %investments
to of the portfolio in asthe
a whole) or in theundertakings
sponsoring group (limi-
ted to 10 % of the portfolio as a
(limited to 5 % of the portfolio as a whole)whole) of sponsoring
or in the
undertakings.
group (limited to 10 % of the portfolio as a whole) of
sponsoring undertakings.
3.5. Investments
Prudent and Consistent. Assets are to be invested
3.5 Investments
prudently, in line with the investment policy as defi-
Prudent and
ned in the statement Consistent. Assets are
of investment to beprinciples
policy invested
prudently, in line with the investment policy as defined
17 Risks linked to death, disability and longevity
in the statement of investment policy principles (SIP)
18 The minimum vested pension rights of the pension plan participants
and in accordance with the assumptions used in the
as determinedplan
financing by the and
applicable host country test
a continuity social that
and labour legisla-
proves the
solvability
tion, if any. Forof the IORP
pension in the long
plans applicable run.workers in Belgium,
to salaried
these
16 arelinked
Risks determined on disability
to death, the basisand
of alongevity
maximum 6 % discount rate and
mortality tables MR/FR.
7Balance sheet of the OFP : assets and liabilities
Assets Liabilities
General rules Technical provisions17 :
• In line with the prudent person principle • Amount has to be sufficient to guarantee the pensions already
• Valued at market value in payment and the accrued pension rights
• Ensure the security, the quality, the liquidity and the profitability • In line with a prudent actuarial valuation
• Only quantitative restriction: max 5 % in sponsoring under- • No quantitative rules but prudent choice of the economical and
taking (max 10 % for a group) actuarial assumptions i.e. :
• Discount rate has to be chosen taking into account :
Investments for the coverage of the technical provisions : a)The return of the investments covering the technical
• Invested in the best interest of the plan participants and plan provisions and the future investment returns and/or
beneficiaries b)The market yields of the bonds of a Member State or other
• In line with the nature and the duration of the expected future high-quality bonds ;
retirement benefits • Biometric tables (life expectancy/mortality, disability)
• Invested mainly on regulated markets adjusted to the plan participants and beneficiaries
• Investments in derivative instruments if compliant with • The method and the assumptions remain in principle
prudential objective or if justified otherwise unchanged from one financial year to another
• Properly diversified • The chosen method and the assumptions have to safeguard
the sustainability of the commitments
• May not be lower than the minimum vested rights defined by
social and labor law
“Solvency margin” (if needed - see 3.6) :
• for the coverage of the death and disability benefits (biometrical risks)
Other investments • based on quantitative rules (may be reduced by using
• Flexibility (except 5 % in sponsoring undertaking, 10% in group) (re)insurance of the risk coverage)
• Alternative for the coverage of the so-called “solvency margin”:
guaranteed claim on the employer
Balance
3.8
3.8. Balance sheet of
Balance sheet of the
the OFP
OFP:: assets
assets and
and liabilities
liabilities The pension
The pensionplans
plansand
andtheir participants
their areare
participants a given and
a given
Summarized under the form of a balance sheet, are the key drivers for the investments, the determination
Summarized under the form of a balance sheet, these and are the key drivers for the investments, the deter-
these main principles apply in relation to the assets of the technical provisions and the funding.
main principles apply in relation to the assets and their mination of the technical provisions and the funding.
and their investments as well as to the liabilities.
investments as well as to the liabilities.
Scheme 1. Prudent management model
3.9 Dynamics of the financing framework
3.9. Dynamics of the prudential financing
The main goal of the Belgian prudential framework is
framework
the creation of a prudent and coherent management Investments
The main goal ofthe
model in which theinvestments
Belgian prudential framework
are in harmony is
with (Asset Mix)
the creation of a prudent
the characteristics of the and coherent
pension plansmanagement
and the plan
model in which the investments are
participants and in which the investments in harmony
matchwith
the
the characteristics of the pension plans
underlying technical provisions. This model grantsand the plan
participantsinand
autonomy theinmanagement
which the investments match are
policies, which the Pension Plan
&
underlying
to be prudenttechnical provisions.
and solid . Moreover, Thisthis
model grants
framework participants
autonomy
allows in the management
for significant policies,
flexibility in the levelwhich are to
of funding
insofar as the
be prudent andtechnical provisionsthis
solid. Moreover, areframework
fully covered.
al-
lows for significant flexibility in the level of funding Technical provision
Funding +
Explanatory comments
insofar as the technical on Scheme
provisions 1: covered.
are fully “Solvency margin”
• The characteristics of the pension plans and
their participants
Explanatory comments highly influence
on Scheme 1 : the funding
and the investments and determine
• The characteristics of the pension plans the technical
and their
provisions.
participants highly influence the funding and the in-
vestments and determine the technical provisions. Key is : prudence and coherence
8Average expected return over 10 years
The choice
The choiceofofthe thedemographic
demographic assumptions
assumptions (e.g.(e.g.
life
expectancy/mortality,
life expectancy/mortality, retirement
retirementage…)
age…)must be be
must in 12
line with the characteristics of the pension
in line with the characteristics of the pension plans plans and
theirtheir
and participants.
participants. 10
• The pension
• The pension plans
plans and their participants influence
%
the investments. 8
• To simplify,
• To simplify, itit is
is advisable
advisable to invest in a conservative
R E T U R N
6
way
way if the average remaining
if the average remaining duration
duration of
of the
the pension
pension
“liabilities” is short and vice
“liabilities” is short and vice versa. versa.
4
The
The use useofofALM ALM (Asset
(Asset Liability
Liability Management)
Management) tech-
techniques allows aligning the investment
niques allows aligning the investment strategy with strategy 2
with the characteristics of the pension plan and the 0 % equities 25 % equities 75 % equities
the characteristics of the pension plan and the popu- 100 % bonds 75 % bonds 25 % bonds
population (i.e. “duration”).
lation (i.e. “duration”).
• The investments influence the technical provisions.
• The investments influence the technical provisions.
The discount rate for the calculation of the technical Probability intervals
The discount rate for the calculation of the technical
provisions can be determined taking into account 5-25 % 25-50 % 50-75 % 75-95 %
provisions can be determined taking into account the
the return of the underlying investments.
return of the underlying investments.
Scheme 3. Example of expected long-term return on the basis of
This return may be set e.g. by reference to the
20
This return
following may be approach:
simplified set e.g. by reference to the fol- ALM techniques18
-lowing simplified
The returns which approach :
were achieved in the past
-- the returns which were achieved
The expected long-term consensus in the past
return (see •Global
•
Globalimpact
impacton onthe
thefunding.
funding.
- the expected
example long-term
in Scheme consensus
2); this return
model must be (see exam-
adjusted to The Belgian
Belgianlegislation
legislationoffers a high
offers degree
a high of flexi-
degree of
ple in
the Scheme
asset 2) ; the
mix and thisrelevant
model must be adjusted
financial markets.to the bility in setting
flexibility the target
in setting funding
the target level,
funding provided
level, the
provided
Aasset
moremixsophisticated
and the relevant financial
approach markets.
consists of defining technical
the technicalprovisions are covered.
provisions The OFP
are covered. Themay
OFPconsi-
may
the return
A more on the basis
sophisticated of the expected
approach consists return pattern
in defining the consider
der creating
creating a cushion
a cushion forabsorbing
for e.g. e.g. absorbing short-
short-term
generated by an
return on the ALMofstudy
basis (see example
the expected returnin pattern
Schemege-3). term return
return volatility.
volatility.
nerated by an ALM study (see example in Scheme 3). •AA pension
• pension fund
fund with
with an average remaining duration
of 15 years may consider
of 15 years may consider that that aa decrease
decrease // increase
increase
of 11%%
of in the
in the expected
expected returnreturn andin thus
and thus in the
the discount
Scheme 2. Example expected long-term consensus return discount rate results respectively in roughly
rate results respectively in roughly 15 % higher/lower 15 %
higher/lower
provisions. provisions.
LT consensus expected return on equities
(e.g. 4.5 % + 2.5 % = 7 %) 3.10 Asset management and custody
3.10 Asset management and custody
The OFP may freely appoint investment managers
The OFP may freely appoint investment managers for
LT consensus equity risk premium (e.g. 2.5 %) for the management of its portfolio.
the management of its portfolio.
The OFP may also appoint a custodian established
The OFP may also appoint a custodian established
and authorized in any EEA member state.
LT consensus expected return on fixed income investment and authorized in any EEA member state.
(e.g. 2.0 % + 2.5 % = 4.5 %)
As regards the underlying assets covering the
As regards
technical the underlying
provisions, assetslegislation
the Belgian covering the tech-
requires,
nical provisions,
as a rule, the be
that they Belgian legislation
deposited withinrequires,
the EEA.as If
LT consensus real growth (e.g. 2.5 %) a rule, that they be deposited within the EEA. If not,be
a
not, a certificate of an authorized institution must
certificate
provided toofjustify
an authorized institution must be provi-
non-EEA-deposits.
LT consensus inflation ded to justify non-EEA-deposits.
(e.g. 2.0 %)
3.11 Information to the pension plan participants
Example of above-mentioned consensus model : and beneficiaries
Asset mix : 0 % equities and 100 % bonds The Belgian legislation fully complies with the infor-
• expected LT return = 4.5%
mation obligations of the IORP Directive. It thus aims
Asset mix : 25 % equities and 75 % bonds
• expected LT return = 25% x 7.0 % + 75% x 4.5 % = 5.125% at creating more transparency.
17 For defined contribution pension plans, the provisions to accrue equal to
Asset mix : 75 % equities and 25 % bonds
19
the For
sumdefined contribution
of the social vested pension
reserves.plans, the provisions to accrue equal
• expected LT return = 75% x 7.0 % + 25% x 4.5 % = 6.375%
to
18the
Thissum of theissocial
scheme vested reserves.
only illustrative and results from underlying economical
The model to be used can be freely determined by the OFP in agreement
with the sponsoring undertakings, provided it meets the prudent person 20
andThis scheme
financial is only illustrative and results from underlying economi-
assumptions
criterion. cal and financial assumptions.
9The pension
3.11 plan participants
Information receive
to the pension planannually a is
Thisderived fromtax
special notregime
at arm’s length that
implies transactions and
the taxable
benefitparticipants
statement describing the situation of the OFP
and beneficiaries which
basis isoftothe
20 be considered as taxable income.
OFP only encompasses the following
and detailing
The Belgian the current level
legislation fully of financingwith
complies of their
the items: By only engaging in at arm’s length
accrued individual
information pension
obligations entitlements.
of the IORP Directive. It thus transactions, the OFP can avoid the addition
aims at will
The SIP creating more
also be madetransparency.
available to all plan partici- • Abnormal or of benevolent
this type ofadvantages
income. received
The
pantspension plan participants
and beneficiaries receive annually
or their representatives upon a The wording “abnormal advantages” refers to the
benefit statement describing the situation of the
their request. Belgian
• legal terminology
Non-deductible costs otherindicating incomeinwhich
than reduction
OFP
Otherand detailingcan
information thebecurrent level aiming
requested, of financing of
at provi- isvalue
derived from not at arm’s length
and capital loss on shares transactions.
their accrued
ding the pensionindividual pension entitlements.
plan participants (and beneficiaries) But duly respecting
Under Belgian the generally
tax law, certain applicable
costs made by the le-
The SIP will also be made
with accurate information regarding available
theirto all plan
benefits. fiscal at arm’s length principle, the
gal entity are not fully tax deductible or areOFP cannot
avoid
tax
participants and beneficiaries or their representatives becoming taxable on such income.
deductible, even if it concerns professional expenses.
upon their request.
3.12 Supervision Examples of such non deductible costs are : non-de-
Other information can be requested, aiming at • Non-deductible expenses
The CBFA oversees and supervises the OFP. ductible taxes, fines, non-deductible car expenses,
providing the pension plan participants (and Under Belgian tax law, certain expenses made by the
Within the CBFA, the specific division “Supervision of restaurant and representation costs, certain social
beneficiaries) with accurate information regarding legal entity are not fully tax deductible whether or not
supplementary pensions” is in charge of overseeing benefits granted to employees…
their benefits. it concerns professional expenses. Examples of such
the OFPs. This division consists of a high expertise le- The OFP should in principle be in a position
non-deductible expenses are: non-deductible taxes,
vel team of multilingual actuarial, legal, financial and
3.12 Supervision to avoid these costs.
fines, non-deductible car expenses, restaurant and
The FSMAexperts.
economic oversees The
anddivision is easily
supervises theaccessible
OFP. and representation costs, certain social benefits granted
applies the
an open discussion philosophy. • Secret commissions paid
Within FSMA, the specific division “Supervision to employees…
of supplementary pensions” is in charge of This part of the taxable
Generally, an basis is formed
OFP does by payments
not have
3.13 Conclusion
overseeing the OFPs. This division consists of a for which the non-deductible
tax reporting formalities
expenses have not been
The Belgian
high prudential
expertise level team framework sets qualitative
of multilingual actuarial,ru- complied with. In other words : payments have been
legal, grants flexibility
les andfinancial in the investment
and economic strategy,
experts. The the
division made
• Secret butcommissions
beneficiariespaid have not been identified to
determination
is of theand
easily accessible technical
appliesprovisions
an open (by e.g. ta-
discussion the
Thistax authorities.
part of the taxableSincebasis
this non-reporting prevents
is formed by payments
philosophy.
king into account the expected investment return), the for which
the the proper
tax authorities fromtax taxing
reporting
the formalities
beneficiary,have
the
funding and the involvement of the sponsoring under- not been
grantor is complied
sanctionedwith. In other words: payments
and taxed.
3.13
takingsConclusion
as well as plan participants and beneficiaries, have This
been taxmade but beneficiaries
can easily be avoided by have not been
complying
The Belgian prudential
by using, for example, framework
social committees. sets qualitative identified to the tax authorities. Since
with the tax legislation on reporting of salaries, this non-
rules and grants
The qualitative flexibility
rules for theindetermination
the investment strategy,
of the tech- reporting prevents the commissions.
fees and tax authorities from taxing
the
nical provisions do not impose stringent demandse.g.
determination of the technical provisions (by on the beneficiary, the grantor is sanctioned and taxed.
taking into account the expected investment
the sponsoring undertakings in respect of their fun- return), By complying
Investments : “zero”- with the ordinary
taxation. The OFP reporting
is not liable
the funding and the involvement of the sponsoring
ding and the level of assets to accrue within the OFP,
obligations for salaries, fees and commissions,
to capital gains tax. Likewise, (Belgian and foreign) di-
undertakings as well as plan participants and an OFP can avoid becoming taxable on secret
whereas the governance structure and compliance vidend income and interest income will not be taxed in
beneficiaries, by using, for example, committees. commissions.
with the prudent person rule guarantee a solid mana- the hands of the OFP.
The qualitative rules for the determination of the
gement securing the interests and pension rights of If Belgian withholding tax on income has been applied
technical provisions do not impose prescriptive Investments: “zero”- taxation.
the plan participants. upon payment of income to the OFP, this tax will be
demands on the sponsoring undertakings in The OFP is not liable to capital gains tax. Likewise,
credited against the corporation tax which may be
respect of their funding and the level of assets to (Belgian and foreign) dividend income and interest
4. Taxwithin
accrue regime the OFP, whereas the governance due
income(cf. supra). In those
is not taxed cases,
in the onlyofthe
hands thetax
OFP.remainder
4.1 Corporate income
structure and compliance tax –with
“zero-taxation
the prudent person which has not
If Belgian been set off
withholding taxwill
onbeincome
reimbursed. This
has been
on benefits”
rule guarantees a solid management securing the results in a favourable tax treatment
applied upon payment of income to the OFP, this taxwhere “gross in-
OFPs areand
interests subject
pensionto Belgian
rights ofcorporate income tax.
the plan participants. come” mostly
is credited becomes
against “net income”.
the corporation tax which may be
This does not, however, imply that an OFP will be The
due (cf. supra) and any excessofcredit
new income tax regime the OFP will certainly
is reimbursable.
4.
taxedTax regime
as an ordinary corporation. To the contrary, an lead a higherinflexibility
This toresults a favorable and more choices in respect
tax treatment where
OFP is taxed according to the special income tax re- of investment
“gross income” decisions. Whereas “net
mostly becomes in theincome”
past, Belgian
.
4.1
gimeCorporate
applicable toincome tax – investments
open-ended “zero-taxation funds of The newfunds
pension income taxturned
often regimetoofUCITS-investments
the OFP provides toa
on profit”
the UCITS-type . 21
higher flexibility
increase the return and of more choices inand
the investments respect of
to avoid
OFPs are subject
This special to Belgian
tax regime impliescorporate income
that the taxable tax.
basis 22
This
of thedoes not, encompasses
OFP only however, imply thethat an OFP
following itemswill: be
21 E.g. BEVEK / SICAV commonly used in Belgium.
taxed as an ordinary corporation. On the contrary, 19 E.g. BEVEK / SICAV commonly used in Belgium.
an OFP is taxed according benefits
to the special income tax 22 Theapplicable
20 The applicablecorporate
corporatetax
taxrate
rateisis33.99
33.99%% (i.e.
(i.e. 3333
%% increased
increased with
with 3%
• Abnormal or benevolent received
regime applicable to open-ended investments
The wording “abnormal or benevolent” refers to funds
the
3 % crisis
crisis surcharge),
surcharge), except
except forsecret
for the the secret commissions
commissions paid which
paid which are
are subject
of the UCITS-type . 19 subject to a tax
to a tax rate rate%.of 309 %. The latter tax is deductible, whereas the
of 309
Belgian legal terminology indicating income which
ordinary corporate tax of 33.99 % is not.
10taxes, this will
investment no longerWhereas
decisions. be necessary
in the since
past, the OFP
Belgian report,
4.4 Other information
indirect to plan participants, reporting
taxes
itself benefits
pension fundsfrom the
often same to
turned favourable tax regime. to
UCITS-investments to
Thethe
OFP competent
itself is notauthorities, etc.UCITS-taxes.
subject to the If fees for VAT-This
increase the return of the investments and to avoid exempted services are charged by a Belgian
means that the OFP’s direct investments are tax- service
4.2. International
taxes, this is no longer taxation : benefiting
necessary fromthe
since double
OFP provider,
exempt25,the exemption
whereas the OFPapplies
mayordinarily.
indirectly encounter
taxation
itself treaties
benefits from the same favorable tax regime. these
If taxes when
the service it opts
provider for participation
is located in certain
outside Belgium, the
Very extensive double taxation treaty network. Since investment question
preliminary funds whichas toare
thesubject to the
localization oftax.
their ser-
4.2 International
it is subject taxation:
to corporate income benefiting
tax, an OFP from
will, in No subscription
vices tax or stamp
for VAT-purposes needs toduty
be taxes
lookedare due
into. on a
If fees
double taxation treaties
general, be able to claim the benefits of the double Belgian OFP.
for VAT-exempted services, as defined, are charged
Since
taxationit istreaties
subject concluded
to corporate by income
Belgium. tax,Belgium
an OFP to the OFP by a service provider established in the
is,
has one of the most extensive double taxationdouble
in general, able to claim the benefits of the treaty EU but outside Belgium, no VAT should, as a general
taxation treaties concluded by Belgium.
networks. This will result in a higher “net” dividend Belgium 4.5. Conclusion
rule, be due in the EU-member state where the ser-
has one of the most extensive double taxation treaty The OFP enjoys a favorable tax regime, both for
income of the Belgian OFP versus most other coun- vice provider is established, nor would VAT be due in
networks. This will result in a higher “net” dividend direct and indirect taxes.
tries. Belgium26.
income of the Belgian OFP in comparison to most Provided the OFP avoids being taxed on non-deductible
This implies that, if the source state provides for the
other countries. costs, and to the extent foreign investments are
application of a domestic tax at source, an OFP will 4.4. Other indirect taxes
This implies that, if the source state provides for well-chosen or well-structured, the OFP can aim at
in principle be able to claim treaty exemption or re- The OFP itself is not subject to the UCITS-taxes. This
the application of a domestic tax at source, an OFP an overall “zero-taxation”.
duction of foreign withholding tax on dividends and means that the OFP’s direct investments are tax-
will in principle be able to claim treaty exemption or Thus,
27
Belgium can boast of particularly
interest, provided
reduction of foreign the treaty conditions
withholding are met. and
tax on dividends exempt , whereas
advantageous terms thewhich
OFP may indirectly
are quite encounter
unparalleled in
Belgium provided
interest, recently renewed
the treatyits double taxation
conditions are met.treaty these taxes when it opts
other for participation in certain
EEA-countries.
23
with the USA
Belgium renewed. TheitsBelgian
doubleOFP is explicitely
taxation treaty men-
with investment funds subject to the tax.
tioned in the treaty21 so that no local withholding tax
the USA in 2006 . The Belgian OFP is explicitly No subscription tax or stamp duty taxes are due on a
will be due as
mentioned on eligible
dividendsforof treaty
US resident
benefits companies
(subject Belgian
5. SomeOFP. data
if received
to meetingbythe a Belgian OFP. However,
treaty conditions this benefit of
on ‘limitations is
subject to treaty
benefits’) conditions
resulting in zerowhich imply “limitation
US withholding tax onof 4.5. Conclusion
On April 1st, 2011 there were six IORP from 3
dividends
benefits”. from US equity. countries
The of theaEuropean
OFP enjoys favourableEconomic Area
tax regime, active
both in
for di-
Belgium.
rect and indirect taxes.
4.3
4.3. VAT
VAT On the same
Provided dateavoids
the OFP 9 OPFs to located
be taxedinon
Belgium have
non-deduc-
Exempt.
Exempt. The TheVATVAT exemption
exemption applicable
applicable to the to mana-the activities in 7 countries within the European
tible costs, and to the extent foreign investments areUnion.
management
gement by UCITS of UCITS
has been has been extended
extended to the manage-to the The complete
well-chosen or list of the different
well-structured, Pan can
the OFP European
aim at
management
ment by OFPs. of OFPs. Pension Funds located
an overall “zero-taxation”. in Belgium can be consulted
Based
Based on on case
case law law ofof the
the European
European CourtCourt of of Justice,
Justice, on the Thus,
website of the FSMA
Belgium (www.fsma.be).
can boast of particularly
the exempted “management” activities 22
should
the exempted “management” activities24 should en- advantageous characteristics quite unparalleled
encompass:
compass : in other EEA-countries.
• The “financial management” of an OFP: services
• the “financial management” of an OFP : services
consisting of the management of the financial and
consisting of the management of the financial and
other assets of the OFP25 23
, as well as
other assets of the OFP , as well as
• The “administrative management”: services of
• the “administrative management” : services of ad-
administrative management for the operation of
ministrative
the OFP, to the management
extent thatfor theytheareoperation
specific to of and
the
OFP, to thefor
essential extent
the that
OFPs, they are establishment
e.g.: specific to and essen- of the
annual report, information to plan ofparticipants,
tial for the OFPs, e.g. : establishment the annual
reporting to the competent authorities, etc. If fees 21 Treaty of 27 November 2006
for VAT- exempted services are charged by a Belgian 22 For the definition of “management activities” falling within the scope of
24 Treaty of 27 November 2006 – still to be ratified.
service provider, the exemption applies ordinarily. the VAT-exemption, guidance can be found in an extensive administrative
24 For the definition of “management activities” falling within the scope
If the service provider is located outside Belgium, the Circular (N° AOIF 22/2008 – ET 113.316) of June 17, 2008
of the VAT-exemption, guidance can be found in case law, including case
preliminary question as to the localization of their 23 Asset management does not include actual financial depositary
law of the European Court of Justice (ECJ), as well as in comments dea-
services for VAT-purposes needs to be looked into. activities on the securities by the OFP.
ling with the management of UCITS (although the latter cannot be trans-
If fees for VAT-exempted services, as defined, are 24 Since the nature of the services rendered needs to be examined
posed as such since the mission and activities of both entities, OFPs and
charged to the OFP by a service provider established on a case-by-case basis, and since national legislations must also be
UCITS, differ). The notion “management” of the OFP is specific to VAT, 26 Since the nature of the services rendered needs to be examined on a
in the EU but outside Belgium, no VAT should, as a considered in light of EU law to determine the localization of the service,
which is an rule,
general autonomous
be due concept of EU-law.
in the Consequently,
EU-member definitions
state where set case-by-case
each contract basis,
and feeand
forsince national
services legislations
will require must analysis.
a separate also be consi-
the
forth service provider
for financial is established,
law purposes nor
may not necessarily be would
decisive. VAT be dered
25 As in light ofBelgium,
regards EU law tothe
determine the localization
yearly 0.01 % UCITS tax of the
(forservice, each
shareclasses
due in Belgium .
25 Asset management 24does not include actual financial depositary activities contract
intended and fee for services
for professional will require a separate analysis.
investors).
on the securities by the OFP. 27 As regards Belgium, the yearly 0.08 % or 0.01 % UCITS tax
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