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Antwerp
By Marc Goldstein
A recent government proposal to tax the diamond industry a flat rate on turnover rather than profits could possibly resolve a decades-long conflict between the industry and Belgian fiscal authorities. While the introduction of the tax would mean that diamond traders will pay higher taxes than they do now, Ari Epstein, chief executive officer (CEO) of the Antwerp World Diamond Centre (AWDC), said that “Diamantaires are willing to pay higher taxes in exchange for financial predictability and legal certainty.” The main problem with the tax-on-profit system revolved around assessing the profit of diamantaires. Tax authorities claimed traders were undervaluing their profits to reduce their taxes. Traders, on the other hand, said the authorities were interfering with their business activities by their excessive recordkeeping demands and audits. Fiscal authorities used a variety of means to value diamond inventories, track transactions and measure taxable profit, including raids on diamond offices to confiscate and inspect records. But it is a difficult industry in which to do such valuations because it is so fragmented between rough and polished, primary and secondary markets, traders and manufacturers, local and international companies and over 10,000 diamond categories.
Diamond traders argued that the aggressive auditing tactics of the fiscal authorities were so intrusive and time-consuming that many Antwerp-based companies left the trading center and moved their operations to countries with friendlier business climates. It is hoped that the more stable environment with a turnover-based tax will reverse the migration trend out of Antwerp by diamond companies. The level of the tax and the details are still to be developed by the Belgian federal government, once the European Union gives its green light to the new system. Le Soir, the major Belgian French-language newspaper, in an article published April 1, heralded the new tax with “Diamantaires: the sector rejoices to be paying more taxes!” The tax proposal for the so-called “carat tax” is expected to yield approximately $55 million to the federal government.
Didier Reynders, vice prime minister, told RTBF radio, “This is a preferential tax regime when compared to the standard companies tax revenue grid, and I implemented the same kind for the merchant navy when I was minister of finance.” The navy pays a tonnage tax — a tax on each ton imported — not on profit, so it is a similar approach to the proposed diamond tax. “The goal,” said Reynders, “is to ensure that we keep a diamond trade in our country, as we know for a fact that a great number of companies and people have already left.” The AWDC insisted that the new tax system also would make it easier for diamond traders to obtain access to financing. The more stable tax situation would give lenders more confidence in the industry because they would perceive reduced risk and that, in turn, would encourage them to extend more credit to diamond companies. That is an especially important consideration right now in Antwerp, where lending and lending sources to the industry are rapidly declining. Epstein said he is committed to promoting the new tax to AWDC members on the basis that it will provide “legal certainty and a stable fiscal environment. Because the new system is a tax on turnover instead of profits, diamond traders know precisely what to expect when they close their financial year.”
Herman Van Rompuy, former president of the European Council, told 250 attendees at a day-long financing seminar in Antwerp that “liquidity is the number one issue” for the industry. There was general consensus among the day’s panelists that it’s not the most profitable companies that benefit from banking largesse, but the most transparent ones. And, at this stage, most experts agree, diamond companies are not transparent enough. Sabine Smets, head of Belgian diamond and jewelry clients for ABN Amro, told the group that liquidity is inseparable from bankability, sustainability, profitability and transparency. Kishore Lall, managing director and global head of the diamond and jewelry group of Standard Chartered Bank, said, “There is no reason why financial statements from the diamond industry should not be like the financials of any other business.” Lall questioned whether the diamond industry was ready to sufficiently change its way of doing business in order to enable investment. Acknowledging that transparency is often viewed as a competitive disadvantage, he concluded that “If there is a move toward transparency, liquidity will follow.”Article from the Rapaport Magazine - May 2015. To subscribe click here.
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