Federal Public Service FINANCE TAXES AND TAX COLLECTION
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal issues in the EURO changeover process Experience of Belgium : Rounding and smoothing rules Prague, January 14 th en 15 th, 2008 Christiaan DELAERE Director of Administration of Fiscal Affaires former Chairman of Administrative Committee of Regulation 1
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Content Conversion rules Mathematical conversion Recommendations Legal conversion – acceptance Special problems related to taxes and excises 2
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion rules Principles: No prohibition, no compulsion Continuity of legal instruments All amounts in the national currency are read as they were converted in euro Art. 14 Council Regulation n° 974/98 of 3 May 1998 on the introduction of the euro If nothing is mentioned : mathematical conversion (2 digits) 3
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion rules Problem of readability: 1 EUR = 40, 3399 Belgian francs (BEF) Result : 1. 000 BEF = 24. 789, 35 EUR No more transparent amounts: • e. g. 1: minimum capital of limited companies by share: 2. 500. 000 BEF = 61. 973, 38 EUR? ? • e. g. 2: exemption of tax on interest from saving deposits: 50. 000 BEF = 1. 239, 47 EUR? ? 4
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion: 2 types 1. Mathematical conversion: used for conversion of amounts expressed in BEF towards a system expressed in EUR 2. Legal conversion: used to change amouts in the legal framework from BEF towards EUR 5
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion legal framework Basis: Council Regulation n° 1103/97 of 17 June 1997 on the introduction of the euro Contunuity of contracts and legal instruments (art. 3) Conversion rate = 6 significant figures After conversion, amounts are rounded up or rounded down to the nearest cent 1 EUR = 40, 3399 EUR decimals of BEF passed out of use in most applications EUR with 2 decimal figures is same order of magnitude as BEF 6
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations 10 recommendations for general use (private sector, public administrations, . . . ) Document issued in November 1997 by General Commission for the euro based on European Council Regulation 1103/97 of 17 June 1997 7
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 1 Since most prices in BEF are expressed in units of BEF, prices in EUR would normally be expressed with two decimal places. Recommendation 2 For (unit) prices expressed with higher precision in BEF (decimal places for BEF price), the same precision should be maintained for EUR price : as a rule 2 more decimal places for EUR price than for BEF price. e. g. 1 screw : 0, 35 BEF = 0, 0087 EUR 1 megajoule gas : 0, 22911 BEF = 0, 0056795 EUR 1 litre Super +95 : 38, 1 BEF = 0, 944 EUR 8
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 3 Amounts to be paid or recorded in accounting : after conversion from EUR to BEF to be rounded off to nearest unity <. 50 : rounding down ≥. 50 : rounding up Inversely no problem since EUR with 2 decimal places allows higher precision than BEF. Recommendation 4 Crossed conversions (from a national currency to another national currency via EUR) using computers or calculators : use highest possible precision for intermediary result. 9
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 5 Reconstitution of amount in EUR after having been converted to BEF (EUR BEF EUR) : loss of precision of ± 0, 01 EUR can not be avoided and has to be tolerated. 871, 55 EUR 35. 051 BEF 871, 54 EUR This tolerance has to be integrated in computer applications. Recommendation 6 During the 3 years transitional period, it is recommended to initiate payment in same currency (EUR or BEF) in which the amount to be paid is expressed on the invoice or the cash register receipt, in order to minimise effect of loss of precision (cf recommendation 5). 10
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 7 When elements of a mathematical operation (such as a sum) are converted and rounded off individually, it is as a rule recommended that the result is converted and rounded off also, instead of making the mathematical operation (sum) on the converted elements. E. g. 11 1246 30, 89 1754 43, 48 473 11, 73 427 10, 59 813 20, 15 398 9, 87 sum 5111 126, 71 conversion 5111 126, 70
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 8 There can however be reasons to act in the way opposite to recommendation 7, certainly when the individual elements are obviously more important than the result of the operation (sum); e. g. in statistical series. Adopted by Tax Administration for conversion of individual entries in tax declaration. 12
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 9 a Limits in (continuous) scales are ordinarily mathematically converted into EUR and rounded off. e. g. new BEF EUR scale x ≤ 500 x ≤ 12, 39 500 < x ≤ 12, 39 < x 1000 ≤ 24, 79 1000 < x 24, 79 < x ≤ 2000 ≤ 49, 58 2000 < x 49, 58 < x 13
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 9 b However, limits in discrete scales can cause problems: gaps between limits may appear. In that case it is recommended to use as the lower limit of a parcel the higher limit of the underlying parcel plus 0. 01 EUR, in order to avoid gaps. BEF scale mathematically converted new EUR scale from 0 to 500 from 0 to 12, 39 from 501 to 1000 from 12, 42 to 24, 79 from 12, 40 to 24, 79 from 1001 to 2000 from 24, 81 to 49, 58 from 24, 80 to 49, 58 from 2001 to 5000 from 49, 60 to 123, 95 from 49, 59 to 123, 95 14
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Mathematical conversion recommendations Recommendation 10 Since small differences are unavoidable when converting and rounding off amounts, and differences of 0. 01 EUR have to be tolerated (cf recommendation 5), the Belgian Accounting Standards Board issued a recommendation to enter all differences as benefits or losses on dedicated sub-accounts of the financial results accounts of the Minimum Standard Chart of Accounts. 15
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions Changes the legal instruments Objectives: obtain again rounded amounts in EUR give legal security to all parties create acceptance Mainly used in taxes 16
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions - legal framework Special laws (June 26 and 30, 2000): Commission to the King Establish limits within which He was authorized to converse amounts (transparency rules) Establish rules for the rounding off of certain amounts (principles) Has to be ratified by parliament before 31 December 2002 Executed: 83 royal decrees Thousands of amounts that are converted 17
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions - legal framework Limits within amounts could be legally rounded up and rounded down: 18
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions - Acceptance Principle: to the BENEFIT of the taxpayer Exception : fines and penalty clauses Budgetary cost price ! 35. 000 EUR Conversion laws and decrees contains only changes relating to the euro conversion; no hidden changes relating to other reasons or decisions Euro starter kits: benefits exemption of taxation 19
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions - Acceptance Tax reduction for family charges: 20
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Legal conversions - Acceptance Tax scale individual income tax : Exceptions: fines Fine 10. 000 BEF (247, 89 EUR) becomes 250, 00 EUR 21
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion: special problems related to taxes Exceptions: excise duties Round up or down until 4 digits after decimal point whether 5 th digit is more or less than 5. f. e. 278 BEF/1. 000 cigarettes is 6, 89143999 EUR and is converted in: 6, 8914 EUR 11. 900 BEF/1. 000 l. unleaded petrol is 294, 993294 EUR and is converted in: 294, 9933 EUR Excise duties are still expressed with 4 digits after decimal point 22
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion: special problems related to taxes Transitional period: from 01/01/1999 till 31/12/2001 Before: all in BEF After: all in EUR In the transitional period: choice by the taxpayer Once chosen for EUR: choice is irreversible Acounting in EUR = taxation in EUR Income tax return: choice box for BEF or EUR 23
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion: special problems related to taxes Income tax in Belgium: determined by “fiscal year” e. g. 1: revenues 1998 = fiscal year 1999 e. g. 2: revenues accounting period 01/07/2001 – 30/06/2002 = fiscal year 2002 Transitional period for income taxes in Belgium: Revenue period or accounting period ending before 01/01/2002 Taxable actions taken before 01/01/2002 Accounting of tax collection: Before 01/01/2002: in BEF As from 01/01/2002: in EUR 24
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Conversion: special problems related to taxes Income tax returns: 25
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Accountancy and statistics in taxes General rules: Data converted automatically in EUR Conversion from BEF into EUR on 31/12/2001 Consequences for the tax collector: • Accountancy transactions aand operations since 01/01/2002 exclusively in EUR • Reports, lists and statistics since the budget year 2002 in EUR Recommendations 7 and 8 are used 26
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Accountancy and statistics in taxes 2 ways of conversion: Mathematically By composing amounts on 2 levels Mathematically: applied on “isolated” amounts: Amounts not in relation of equality with other converted amounts Amounts of which accountable interpretation has no specific requirements of equality 27
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Accountancy and statistics in taxes Conversion bij composing the amounts on 2 levels: 1. On the level of individual amount (top down): • Conversion of rights and payments • From the final result toward the composing particles (recommendation 7) • Differences added to the biggest composing particle BEF personal income tax 10. 500 region Brussels municipality sum accountancy 260, 29 federal state conversion EUR 260, 29 9. 000 223, 11 500 12, 39 1. 000 24, 79 10. 500 260, 28 28 260, 29
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Accountancy and statistics in taxes Conversion by composing the amounts on 2 levels: 2. On the level of the accountancy (bottom up): • Conversion of fixed rights and incomes • Bij recomposing the amounts (recommendation 8) • Differences: accepted in the accountancy conversion EUR accountan cy BEF tax to pay 7500 185, 92 payment 1 2500 61, 97 payment 2 2500 61, 97 payment 3 2500 61, 97 sum 7500 185, 91 29
Federal Public Service FINANCE TAXES AND TAX COLLECTION Administration of Fiscal Affairs Rounding and smoothing rules QUESTIONS? ? ? 30
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