Investment vehicles which either benefit from exemption from corporate tax or from a deviating reduced tax base
The majority of the Belgian corporate (statutory) investment vehicles subject to a regulated financial regime (either UCITS or AIF) can benefit from a reduced corporate tax base. Investment income is not included in their corporate income tax base. In the CJEU decision of 25 October 2012 (C-387/11), the CJEU considered Belgian WHT legislation to be contrary to EU-law. Even though Belgium sourced dividends paid to both Belgian and foreign investment funds might be subject to Belgian WHT, the total tax burden on these dividends received by a qualifying Belgian investment fund was virtually nil, as the qualifying Belgian investment fund was allowed to credit WHT against the limited corporate tax base of the fund, and a refund of the excess amount could be received. On the other hand, the Belgian WHT on dividends paid to a foreign investment fund formed the total and final tax burden for these foreign entities. The CJEU’s decision resulted in the possibility for foreign investment funds to request a reimbursement of Belgian WHT on Belgian dividends.
Further to the CJEU decision named, Belgian legislation was amended by the Law of 30 July 2013. As from tax year 2014 (i.e. financial years ending on 31 December 2013 and further), WHT on Belgian dividends paid to Belgian investment companies qualifying for the limited tax base (article 185bis ITC) can no longer be set off against the corporate tax of the Belgian investment company. This eliminates the discrimination between Belgian and foreign investment companies. Hence, as of said tax year, WHT on Belgian dividends can no longer be reclaimed by foreign funds on that basis.
However, there still are situations in which - in our opinion - foreign EEA-based investment fund vehicles would be entitled to reclaim WHT on Belgian dividends.
If a foreign EEA-based opaque investment vehicle subject to a tax regime deviating from the general corporate income tax regime holds minimum 10% in a Belgian company, it does not qualify for exemption of Belgian WHT. The foreign EEA-based investment company will therefore suffer 30% WHT, or a lower rate if such lower rate is available on the basis of a double tax treaty (provided the foreign investment vehicle is entitled to treaty benefits). However, a Belgian Sicav or qualifying Belgian private equity fund (subject to the limited tax base of article 185bis ITC) would qualify for the WHT-exemption if it holds at least 10% of the shares of the Belgian company. Consequently, discrimination persists in such a situation, and it should be possible to claim a refund based on EU law. This has already been confirmed by the Court of appeal of Brussels in a decision of 13 March 2019.
Investment companies not benefitting from a deviating tax regime
Subject to a number of conditions (such as plurality of investments; plurality of investors and the company holds exclusively assets in view of making investments and trying to achieve profits and gains for its investors), Belgian “investment companies” which are not subject to a regulated financial regime, and are (therefore) not subject to a deviating tax regime, are entitled to apply 100% “dividends received deduction” and to 100% exemption of realized capital gains relating to shares qualifying for the “taxation requirement”, without having to meet any minimum threshold with respect to the shares. Although Belgian dividend distributions collected by investment companies are subject to Belgian WHT (if the participation is below 10%), such companies do not pay any tax on Belgian dividends at the end of the day. The dividends are 100% exempt, and WHT will generally be creditable, and reimbursable if the WHT exceeds the final corporate tax liability.
Consequently, foreign companies subject to the common tax rules in their residence State, and which would qualify as an “investment company” if located in Belgium (cfr. plurality of investments and plurality of investors etc.) should in our opinion have a case to claim back the Belgian WHT. Please note that if the foreign company is compliant with the rules implementing the EU Directive 2011/61, this aspect should further substantiate the argumentation in favour of the reclaim of WHT.
Qualifying pension funds
Belgian qualifying pension funds also benefit from the same limited tax base as e.g. Belgian Sicavs (Article 185bis ITC). When the Belgian legislation was amended by the Law of 30 July 2013 further to the CJEU’s decision of 25 October 2012, the limitation of setting off Belgian WHT on Belgian dividends was not inserted into the law concerning Belgian qualifying pension funds. We assume that the rationale behind this different treatment of Belgian qualifying pension funds is the fact that, subject to a number of conditions and formalities, dividend distributions by Belgian companies to foreign pension funds benefit from an exemption from WHT tax on the basis of Belgian domestic law (a limited number of Belgian double tax treaties also provide a treaty-exemption; we do not expand further this topic here). For the application of the domestic exemption from WHT, it is required that theforeign entity has an exclusive non-profit purpose to collect and hold funds destined to pay out pensions and retirement schemes. Moreover, it is also required for the domestic exemption that the foreign pension fund is exempt from income taxation in its residence State. If the shares have not been held in full ownership during at least 60 days, a rebuttable presumption applies that the transactions are abusive and therefore the exemption is not applicable.
First of all, where a foreign pension funds has collected Belgian dividends and incurred Belgian WHT because the exemption was overlooked, it should be entitled to reclaim WHT within five years, starting on January 1st of the year during which the WHT was paid to the Belgian Treasury.
In our opinion, the conditions of the exemption from WHT provided by domestic law imply that foreign (EEA-based) qualifying pension funds which do not qualify for the exemption provided by Belgian domestic law (e.g. because they are not fully exempt from income tax on the Belgian dividend distributions) are still being discriminated against. In such situations, it would be worthwhile to reclaim WHT on the basis of a similar EU-law based argumentation as the argumentation that was applied by the CJEU in the decision of 25 October 2012. Similar arguments could in our opinion be invoked if a qualifying foreign pension fund incurs Belgian WHT on interest paid out by a Belgian debtor.
If you wish to discuss this topic, please contact: Tiberghien, Antwerp
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