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Antwerp
By Marc Goldstein
If there’s one topic that should spark discussion about the future of the Antwerp Diamond Mile as a major diamond center, it’s undoubtedly the soon-to-be-implemented new Carat Tax law. If approved by the European Commission, the law would tax diamond firms’ turnover at .55 percent, rather than taxing profit, as is the current practice. Diamond companies believe this law would create a level playing field against other major diamond trading centers. It is expected that the European Union (EU) will green-light the new tax rate. It would implement a standard 34 percent tax, which would be calculated as follows: turnover times .55 percent times .34 percent. But no one in the industry has been willing to comment on the impending law — at least officially. Even the generally forthcoming Antwerp World Diamond Centre (AWDC) has remained silent. It seems that no one wants to risk jeopardizing the future of the law. Off the record, however, some people are talking. There is a behind-the-scenes story that is emerging about this law that could really change the economic balance in Antwerp’s diamond industry. It would bring some comfort to those who never ceased believing in Antwerp as a major diamond center, but saw many companies move to countries with more attractive tax policies. Speaking to Rapaport Magazine, Ferry Comhair, spokesperson of the Minister of Finance, Johan Van Overtveldt, explained, “The law will ensure that the fiscal contribution by the diamond sector will be substantially higher than before. This fits within the strategy of this government to strive for more fiscal justice. On the other hand, it brings about more legal certainty for a sector that is very important to our country. And this could benefit its competitive advantage.” Comhair was optimistic as to the EU ruling. “In view of good governance, the government has indeed transferred the draft law to the European Commission, who will now examine whether the state aid rules are being respected. The government currently has no indications to assume that this wouldn’t be the case.”
Not all diamantaires favor the new tax, but most are happy that it will restore peace. One diamond manufacturer said, “The counterpart is that it won’t be possible to write off expenses anymore, given that the tax basis is becoming a simple flat percentage of the turnover. At first glance, it may seem it would leave a lot of money for us. But if you take everything into account, such as social security, etc., or the 25 percent tax on dividends, we’re going to be paying the same kind of global tax on our revenue, and even more than before.” Another source concurs, saying that the government projections suggest that with the advent of the Carat Tax, the diamond industry as a whole is expected to pay 2 to 2.5 times more tax than before. The turnover tax is expected to be applied even during business slowdowns. When business is bad, diamantaires will most probably have to reduce their turnover, something that the banking industry had been asking for over a decade now without any success. Several diamantaires noted that while the law may be fortunate for the industry as a whole, it represents another step in the direction of favoring the most profitable companies. Comhair noted, “The sector is characterized by specific valuation and supply conditions. The government has therefore found a system that can resolve these fiscal issues and that will indeed ensure that the sector’s contributions to the government will be substantially higher — more precisely an extra 50 million euros per year.”
According to the majority of diamantaires, one of the major breakthroughs will be that the never-ending discussion about inventory valuation will be, hopefully, decided once and for all. “So far, to assess our taxable profit, the story was always the same: Turnover minus expenses and minus the variation of inventory. And the latter was where things were completely shady. Assessing the value of a stock of diamonds requires an expertise that the fiscal authorities never attained and furthermore it has never been their jobs,” insisted a trader. “With this new law, exit the need for any kind of such valuations,” he added. “There would be a choir of diamantaire voices speaking with a united voice that it would mark the end of the dramatic detrimental images of police and fiscal agents raiding the Diamond Mile!”
The law will also mandate compliance with existing laws. Comhair warned, “The Carat Tax also contains a specific anti-abuse provision, allowing that the application of the Carat Tax can be excluded whenever transactions are not in conformity with the market practices. Failure by a diamond trader to comply with the regulatory obligations, such as antimoney-laundering obligations, including customer identification, annual reports, etc., is especially retained as one of the elements that could indicate unusual and unconventional transactions in the diamond trade.” At the end of the day, this endeavor will undoubtedly help restore the position of Antwerp on the map. It would institute the critical element of transparency, as well as remove a major obstacle to business. The industry may have a lot to say very soon. Article from the Rapaport Magazine - July 2015. To subscribe click here.
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