The deadline for the Belgian legislator to transpose Directive 2013/34/EU of 26 June 2013 (the "Accounting Directive") into Belgian law was 20 July 2015. On 19 June, the Council of Ministers approved a preliminary draft act and a preliminary draft royal decree. These preliminary drafts are currently awaiting the advice of the Council of State. The general expectation is that more companies will be considered as SMEs once the new legal regime takes effect. This change will have important consequences, from both a corporate and a tax law perspective.
Background
The Accounting Directive, which will replace the Fourth and Seventh Directives and, as such, will provide the new basis of accounting law, is part of the Europe 2020 strategy. This strategy aims, among other things, to improve the business environment for SMEs and to promote the internationalisation of SMEs. In its implementation, the Accounting Directive emphasises the "Think Small First" principle. This principle should lead to a reduction of the administrative burden and a simplification of the financial reporting obligation, in particular for SMEs. The underlying idea is that the administrative burden on companies must be in proportion to their size.
Since the preliminary draft act and the preliminary draft royal decree are currently with the Council of State for advice, it is not yet known how the Accounting Directive will be implemented concretely. We can, however, already gain an impression of the main changes on the basis of the Accounting Directive, the amendments proposed by the Accounting Standards Commission ("ASC") and the advice of the Central Economic Council ("CEC").
Increasing the "small company" thresholds
The first major change from a corporate law perspective is the amendment of article 15, §1 of the Companies Code ("BCC"). The current article 15 BCC states that any company which exceeds at least two of the following thresholds qualifies as a "large company" and therefore cannot be considered as an SME: (i) 50 employees, (ii) EUR 7.3 million annual turnover, and (iii) EUR 3.65 million balance sheet total. In addition, a company with more than 100 employees cannot currently be considered an SME, even if its annual turnover and balance sheet total are below these thresholds.
The Accounting Directive raises the threshold for small companies: up to EUR 8 million annual turnover and up to EUR 4 million balance sheet total. The European legislator offers the Member States the possibility to increase the thresholds even further, up to a maximum of EUR 12 million (annual turnover) and EUR 6 million (balance sheet total).
In order to transpose the directive, the CEC proposes that the thresholds should be increased to EUR 9 million annual turnover and EUR 4.5 million balance sheet total.
The threshold regarding the number of employees (50) will remain unaltered, but the exclusion of companies with more than 100 employees from the definition of an SME is not in accordance with the Accounting Directive and should be removed from article 15 BCC.
Calculation of thresholds no longer on a consolidated basis for affiliated companies
A second important change under the Accounting Directive is that affiliated companies are no longer allowed to calculate their criteria on a consolidated basis, except for parent companies or unless the affiliates are incorporated for the sole purpose of avoiding certain reporting obligations for large(r) companies.
The impact of this provision should not to be underestimated. Under current legislation, an affiliated company may only be a small company when it meets the article 15, §1 BCC criteria on a consolidated basis. After the transposition of the Accounting Directive, all companies that individually meet article 15 BCC will qualify as SMEs, and consequently the number of SMEs will undoubtedly increase significantly.
It is expected that the (tax) legislator will intervene at this point to prevent affiliated companies belonging to a group whose economic power exceeds that of an SME from still enjoying the favourable SME tax regime
From "small group" to "group of limited size"
Under the current legislation, a company does not have to draw up consolidated accounts and a consolidated annual report when it is part of a "small group". A group is currently considered "small" if it does not exceed one of the thresholds of article 16 BCC: (i) 250 employees, (ii) EUR 29.2 million annual turnover, and (iii) EUR 14.6 million balance sheet total.
The Accounting Directive lowers the thresholds for small groups to: (i) 50 employees, (ii) an annual turnover of EUR 8 million (max. EUR 12 million), and (iii) a balance sheet total of EUR 4 million (max. EUR 6 million). The CEC proposes that the term "small group" should be removed from article 16 BCC and replaced with the term "group of limited size" when transposing the directive.
The CEC proposes that the thresholds for a "group of limited size" should be set at (i) 250 employees, (ii) EUR 34 million annual turnover, and (iii) EUR 17 million balance sheet total.
Introduction of "micro-undertakings"
The Accounting Directive offers Member States the possibility to implement an additional category of small companies. This category, "micro-undertakings", could become a subcategory of small companies. Micro-undertakings are companies that do not exceed the thresholds of at least two of the following three criteria at the balance sheet date: (i) a balance sheet total of EUR 350,000, (ii) a net turnover of EUR 700,000, and (iii) an average workforce during the financial year of 10 employees.
Micro-undertakings – just as much as small companies – will have to prepare annual accounts with a balance sheet and income statement, but will only have to provide a limited number of explanatory notes. Moreover, both micro-undertakings and small companies are no longer required to prepare a social balance sheet. However, the CEC states that subsidiaries that are part of a group are excluded from the definition of micro-undertakings
Company law consequences
SME status is an important starting point for the application of certain company law exemption regimes. For example, SMEs may prepare an abridged form of annual accounts (article 93 BCC), they are exempt from preparing full annual accounts (article 94 BCC) and they are exempt from appointing a statutory auditor (article 141, 2° BCC).
As a result of these amendments, more companies will undoubtedly meet the definition of an SME and therefore more companies will be able to rely on these exceptions. Unless the Belgian legislator intervenes, more companies will be able to make use of these exemptions.
Tax law consequences
The transposition of the Accounting Directive will also have an impact on tax law. The tax law advantages granted to SMEs by the Belgian legislator are in fact modelled on the corporate definition of article 15 BCC. Among other things, SMEs enjoy more flexible depreciation opportunities, a higher deduction for risk capital, an exemption for taxation purposes of 0.412% on capital gains on shares, and an exemption from the fairness tax. Furthermore, the definition of an SME also has an impact on the taxation of shareholders, since only SMEs can set up liquidation reserves (cf. Eubelius Spotlights June 2015) and the "VVPR-bis" regime (reduced withholding tax regime) applies only to contributions to an SME.
It is clear that, following the amendment of article 15 BCC, the number of SMEs will increase significantly as a consequence of both the raising of the thresholds and the abolition of the consolidation obligations. This does not mean, however, that the favourable SME tax regime will apply to all these "new" SMEs. The tax advantages will probably not be extended to companies which do not qualify as an SME on a consolidated basis but which, according to the new rules, are exempted from the consolidation obligations.
Conclusion
Implementation in Belgium has taken a while, but the transposition of the Accounting Directive into Belgian law is imminent. It remains to be seen what this transposition will bring in practice, but the most significant changes are more or less predictable: the number of SMEs will increase, and the administrative burden for current and future SMEs will decrease. It appears to be the intention of the (fiscal) legislator to change the definition of an SME in a tax-neutral way as much as possible, with the tax advantages linked to SME status not fully applying to all "new" SMEs.