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Carat Tax Approved by EC for Belgium; AWDC to Hold Informational Seminars

Aug 01, 2016

The European Commission (EC) in a statement issued on July, 29, 2016   summarised its ruling on Belgium’s proposal made in May 2015, on the proposed “Carat Tax”, in effect  giving its approval for the implementation of the tax.

The Antwerp World Diamond Centre (AWDC)   in an informative piece on its website defined the tax saying : “The Carat Tax is a clear-cut and predictable fiscal regime that applies to diamond trading companies. The regular corporate tax rate – or income tax rate for natural persons – will be levied on taxable income that is calculated on the basis of a lump sum margin instead of on the actual margin that is realised.”

Providing the reasoning behind the formulation of the  Carat Tax, AWDC explained further: “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 EC statement speaks of the checks and balances introduced by Belgium in the Diamond Regime. It says: “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.”

(However it is understood that a slightly higher floor rate of 0.65% will be applicable only during the first year of implementation of the Carat Tax.)

Meanwhile,  in order to explain the details of the new tax and the legal framework within which it will operate, the AWDC has organised two seminars:   on  Friday August 5 in the AWDC building on the -1 floor at 14:00; and another to be held on Friday September 2.  The seminars will be open only to those registering to participate. 

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