BRUSSELS — As if Belgium’s tax authorities don’t get enough flak already, the country has now irked leading international governments which accuse it of creaming €1.7 billion from the proceeds generated by frozen Russian assets.
Western allies are critical because they say the amount ― which Belgium is claiming because the body that holds nearly all of the assets happens to be based in Brussels ― isn’t going directly to help Ukraine. The EU, with the support of the U.S., is in the process of approving a plan to use profits from invested assets to send aid to the war-torn country.
Belgium admitted that it is taking the tax but that it will still send the money to Ukraine. That doesn’t seem to wash with some governments of the G7 group of leading economies.
“Western officials of the coalition supporting Ukraine are growing increasingly frustrated with Belgium’s proposal to withhold 25 percent of the windfall profits from Russian sovereign assets under its own domestic taxation authorities,” a government official from a country in the G7 told POLITICO, hours before a meeting of the group’s finance ministers in Washington on Wednesday.
The official spoke on condition they — and the country they represent — remain anonymous.
Accounting trick
People living in Belgium have a notorious relationship with tax authorities. While the corporate tax rate is slightly higher than the European average, its income tax burden is one of the highest in the EU. At an average of 40.35% for a single worker without children, it compares with 24.81% in the U.S. and 23.64% in the U.K, according to the OECD.
Belgium is expected to levy over €1.7 billion in 2024 as corporate tax on the profits of immobilized Russian assets that are held by Euroclear, a securities depository based in Brussels.
After being contacted by POLITICO, the Belgian government hit back at the other governments. It said while it was true that it was collecting the tax, it was planning on sending the money to Ukraine anyway.
“Nothing goes to the Belgian Treasury,” a Belgian government official said. “49 percent of this amount goes to military equipment. Among other things, there is the €200 million to the Czech initiative [to purchase weapons for Ukraine],”
“Further spending goes to the reception of Ukrainian refugees, humanitarian and medical aid, reconstruction aid.”
This isn’t enough to assuage the objections of the other governments however, who are wary of an accounting trick.
The tax revenues are “at risk of being double-counted in their [Belgium’s] overall EU contributions” to Ukraine, the G7 government official said.
This is something the Belgian government denies, saying that the money comes on top of existing funding to Kyiv.
Urgently needed
EU countries are expected to approve over the coming weeks the plan to use the profits generated by the assets — worth between €2.5-3 billion per year — to finance weapons and humanitarian aid to Ukraine.
The EU proposal already doesn’t cover €5 billion of profits generated in 2022 and 2023, as experts warned that backdating the seizure would have been a legal minefield.
“All profits received from the moment Russian assets were frozen and eventually the assets themselves should go where they are most urgently needed — to ensure Ukraine‘s victory on the battlefield and its reconstruction,” Lithuanian Foreign Minister Gabrielius Landsbergis told POLITICO.
“This is money that Ukraine desperately needs, and needs it now,” the official from the G7 country said.
Into the open
The use of the profits is separate from a wider idea backed by Washington to confiscate over €250 billion of Russian frozen assets in their entirety, not just the profits.
The problem for the U.S. is that the vast majority of the assets are kept in Belgium ― America holds only negligible amounts ― so any confiscation move would need European, and ultimately Belgian, approval.
The G7 is split over the issue, with the U.K. and Canada edging closer to the U.S. stance and European members ― Germany, France and Italy ― shying away from the debate over confiscation.
Until now, these tensions were confined to closed-door meetings. But they are now spilling in the open, with allies angrily pointing fingers.
An EU diplomat suggested that the U.S. should focus on its domestic issues, instead of pressuring its European allies to make a move fraught with legal, financial and political difficulties.