Belgium goes liberal

The Belgian parliament recently adopted an extremely liberal
pension and tax law, its eyes firmly set on attracting foreign and pan-European pension institutions to Belgium. So what makes Belgian pension law so unique? Jorgen Goyvaerts finds out

Belgium grasped the opportunity provided by the implementation of the European Directive 2003/41/EC on Institutions for Occupational Retirement Provisions (IORP) to design a new legal person, the ÒOrganism for the Financing of PensionsÓ (OFP). All existing Belgian pension institutions should adopt this legal personality by 1 January 2012. The OFPÕs object is strictly limited to the provision of Òretirement benefitsÓ as well as a number of supplementary social security benefits. Unlike other countries, Belgium now has a legal person specifically adapted to the execution of pension schemes. This results in a very transparent legal framework.

Governance
One of the central elements of the legislation is that a pensions institution can, to a large extent, itself decide on the most appropriate governance structure in view of its own specific requirements (such as the size and geographical scope of its operations).
The only two mandatory organs of an OFP are the general meeting and the board of trustees. All sponsoring undertakings remain members of the general meeting as long as the pension institution is entrusted with the management of its pension scheme(s).
In addition to the typical powers of a general meeting in an association, such as appointing trustees, expelling members, amending the articles of the association, the general meeting has to ratify mandatory documents related to the management of the pension scheme(s), ie the financing plan, the statement of investment policy principles and the management agreements with sponsoring undertakings.
The board of trustees is competent for all matters which are not specifically reserved to the general meeting by law or the articles of association.
In certain circumstances, the board of trustees should be jointly composed of representatives of the sponsoring undertakings and representatives of the beneficiaries of the pension scheme. Independent trustees may also become members of the board, provided the employeesÕ representatives give their consent. The law allows for other operational bodies, such as an executive committee and an investment committee, to function in addition to the board of trustees, though there is no obligation.

Prudential aspects and investment rules
Compared to those of other countries, the Belgian regulations
set low thresholds for the calculation of the technical provisions and
the solvency margins. Consequently, pensions institutions benefit from greater flexibility in asset managing of surpluses. All pensions institutions must renew their statement of investment policy principles (SIP) every three years. The SIP is subject to information and consultation
with the employeesÕ representatives and needs to be ratified by the general meeting. As in the UK, there are no quantitative investment restrictions, though investment should abide by the prudent person principle.

Tax aspects
The pension institution will (in principle) benefit from a complete tax exemption. The patrimonial taxes on the assets of pension funds (that are currently still due by the pension funds organised as a Non-lucrative Association and amount to 0.17
per cent) are not applicable to pension funds organised as an OFP. The withholding tax on income is totally reimbursed.
Finally, although the OFP is subject to corporate tax law, the taxable basis only consists of the full
amount of abnormal or gratuitous advantages received, and of disallowed expenses other than reductions on the value of shares or capital losses realised thereon. Hence, there is no taxable basis, and pension funds will virtually be exempt from corporate income tax.
It should also be noted that a pension vehicle with a registered seat in Belgium will benefit from
a wide range of double tax treaty arrangements. For example, following the tax treaty with the US
of November 2006, when a US company pays dividends to a qualifying Belgian pension fund,
no withholding tax will have to be deducted at source by the US distributor.
In addition, Belgium banned all tax restrictions on cross-border movement of pension contributions and benefits.

Foreign and pan-European pension institutions
A multinational group setting up a pan-European pension fund to manage pension schemes in different jurisdictions will only benefit from the favourable Belgian legislation if it has its registered seat in Belgium. The pension fund will then install Òsocial committeesÓ in each country, to advise the board of trustees on complying with respective domestic employment laws. Thanks to the Òsingle licence principleÓ, the OFP will be supervised by the Belgian supervising authority, the CBFA (Banking Finance and Insurance Commission), which will cooperate with the national supervising authorities.
The legislation provides the possibility for foreign pension institutions to relocate their registered seat to Belgium. This movement has already started, certain foreign institutions are seriously looking at relocating to Belgium, while others have taken the jump.
With Brussels as its international business centre and this new, dynamic legislation on pension governance and taxation, Belgium has gained an edge over traditional competitors like Ireland and Luxembourg, when it comes to attracting institutional investors.

Written by Jorgen Goyvaerts
a lead lawyer with the Employment, Pensions & Benefits in Brussels, DLA Piper