Reclaim opportunity re Belgian WHT for Luxembourg SICAVs

The double tax treaty between Belgium and Luxembourg gives the opportunity for Luxembourg residents to lower the Belgian withholding tax rate of 30% to 15% and even in some cases to 10% for Belgian sourced dividends. Regarding interest income the treaty provides a reduced rate of 15% applicable and in certain cases even a complete abolition of withholding tax instead of the regular 30%.

To be able to benefit from this reduced tax rate, the claimant has to be able to invoke the double tax treaty.

The Belgian tax administration has always taken the point of view that Luxembourg SICAVs cannot benefit from the double tax treaty because they are not subject to (income) tax (they enjoy an exemption regarding Luxembourg corporate income tax) and can therefore not be qualified as “resident of a contracting state” in the application of the treaty. The Luxembourg tax administration has always taken the point of view that Luxembourg SICAVs should enjoy double tax treaty benefits. 

However, the courts of Brussels have decided several times that Luxembourg SICAVs can be qualified as “resident of a contracting state” in the interpretation of the DTT BE/LUX since they are: (1) subject to Luxembourg withholding tax (income tax); (2) subject to the Luxembourg subscription tax (taxe d’abonnement; a wealth tax in the interpretation of the DTT) and (3) a specific land/property tax.

The decisions by the courts in Brussels were related to the discussion whether the Belgian subscription tax (taxe d’abonnement) is due by Luxembourg SICAVs which develop activities in Belgium (due on the total net amounts outstanding in Belgium). After all, the double tax treaty BE/LUX states that the power to levy wealth taxes resides with the home country.

These discussions were brought before the Belgian Court of Cassation earlier this year. 

For now, no favorable outcome has been obtained regarding the applicability of the Belgian subscription tax: the Belgian Court of Cassation ruled that the double tax treaty is not applicable regarding this Belgian subscription tax since it is not included in the – opinion of the Court – exhaustive list of the “in scope” taxes of the double tax treaty (a discussion ratione materiae). However, there isn’t a single Luxembourg SICAV that is persuaded at this moment by the Court’s reasoning and several litigations are continued with new argumentation in development.

More important for our current newsletter is the fact that the courts in Brussels decided upon the possibility for Luxembourg SICAVs to enjoy the double tax treaty ratione personae. The courts in Brussels decided that they are indeed to be considered “resident of a contracting state”.

Since the administration has lost their argumentation before the courts in Brussels, the reasonable expectation was that they would have also contested this part of the decision before the Belgian Court of Cassation, but they have not.

The only reasonable explanation at this point in time is that the Belgian tax administration has made an assessment whether to contest the argumentation ratione personae or not. The fact that the administration did not contest shows, in a certain way, the overall weakness in the administration’s own argumentation.

The absence of a decision by the Belgian Court of Cassation leaves room for further development in this regard, yet many have now understood / interpreted the absence of any argumentation against the treaty entitlement by the tax administration to be a window of opportunity: the positive arguments stated here above and the positive case law by the courts in Brussels remain uncontested at this moment.

A 5-year period is available for withholding tax reclaim procedures. If one initiates a reclaim procedure in 2022, one can effectively ask for reimbursement of withholding taxes paid as of the 1st of January 2018. If a reclaim procedure would be installed in 2023 one can go back up until withholding taxes paid as from the 1st of January 2019.

Given the amounts that can be involved by not being able to enjoy the lowered tax rates, initiating reclaim procedures should definitely be considered.

If you wish to discuss this topic, please contact: Tiberghien, Antwerp

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