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31 July 2016
The European Commission (EC) has issued a statement confirming that it has approved Belgium's request to implement a new income tax regime for the diamond sector, based on a fixed gross profit margin percentage, known as the "Carat Tax".

The EC's announcement notes that Belgium has committed to re-examine the fixed gross profit margin percentage at least every 5 years.

Following the EC decision, the Antwerp World Diamond Centre (AWDC) is organizing an informational session to communicate the details of the new legislation to the industry.

The AWDC says it will be holding two informational sessions, which will take place in the AWDC building in Antwerp. The first will be on Friday, August 5th, and the second on Friday, September 2nd. Those wishing to attend should register with the AWDC prior to the event.

Below is the text of the European Commission's press release announcing the approval of the new income tax regime.

European Commission - Press release

State aid: Commission authorises alternative income tax regime for wholesale diamond sector in Belgium

Brussels, 29 July 2016

The European Commission has found that Belgian corporate tax provisions applicable to the wholesale diamond sector were in line with EU State aid rules. The provisions do not selectively favour certain companies and therefore involve no State aid within the meaning of EU rules.

In May 2015, Belgium notified to the Commission plans to introduce a specific income tax regime for diamond traders to address specific difficulties in the application of the general income tax regime to the sector. The Commission's assessment showed that the measure, as amended by the Belgian authorities in the meantime, is designed in such a way that it minimises the possibility of selective advantages to certain companies in the wholesale diamond sector.

Under the general Belgian corporate tax system, a taxpayer's taxable income depends in the first place on the profit registered in the accounts. For wholesale traders in rough and polished diamonds, their profit depends largely on the value of the inventory of diamonds registered in their accounts. However, since the valuation of the stones requires significant expertise, it is difficult for the Belgian tax administration to assess and correct the value of diamond inventories through tax audits. Moreover, diamonds at wholesale level are bought and sold as commodities, which adds to the complexity of tracing individual stones in traders' accounts. As a result, there is often litigation between diamond traders and the tax administration, creating legal uncertainty.

The new specific income tax regime for diamond traders in Belgium (the "Diamond Regime") seeks to address this difficulty by introducing a method to calculate the income tax base of diamond traders that does not require the tax administration to review the valuation of diamonds in the traders' accounts. Under the Diamond Regime, the calculation of a trader's gross profit is based on a fixed percentage of turnover, which also results in a fixed calculation of the value of stones purchased and the variation in the inventory during the accounting period (cost of goods sold).

The Commission has assessed the measure under EU State aid rules to ensure that it does not unduly favour diamond traders over other businesses, which are subject to the normal income tax regime in Belgium. It also assessed whether the scheme favours certain diamonds traders within the wholesale diamond sector in Belgium. The Commission found that the Diamond Regime ensures that diamond traders pay their fair share of tax, while avoiding the tax inspection difficulties related to assessment of the inventories. It is in fact expected to increase the tax paid by the wholesale diamond sector. According to Belgium's estimates, the wholesale diamond sector is likely to pay at least €50 million more income tax every year, i.e. to pay more than three times the taxes it used to pay under the normal income tax regime.

Moreover, the regular checks and safeguards under the Diamond Regime further limit the possibility of undue advantages to diamond traders due to the special tax treatment. In particular, the new regime introduces a minimum tax base set at 0.55% of the trader's turnover. Belgium has committed to re-examine the level of the applicable gross profit margin percentage under the Diamond Regime at least every 5 years.

On this basis, the Commission has concluded that the Diamond Regime involves no State aid within the meaning of EU rules.