The scope of the reduced rate of withholding tax on dividends has been increased in order to reflect the Court of Justice of the European Union's 2012 decision.
On 12 July 2012, the Court of Justice of the European Union ("CJEU") rendered a judgement in the "Tate & Lyle Investments Ltd" case (384/11). As expected, the Court ruled that the free movement of capital must be interpreted as precluding Belgian withholding tax on dividends distributed to non resident receiving companies holding less than 10 per cent in capital of the distributing company (i.e., receiving companies which are not eligible for the withholding tax deduction under the Parent-Subsidiary Directive) but with sufficient acquisition value for the purposes of the Belgian partial exemption (so-called "dividends received deduction") if these companies were Belgian resident companies. On 28 December 2015, the Belgian legislator published a new tax legislation intended to address this discrimination by implementing a reduced withholding tax rate of 1.6695 per cent for dividends distributed to the involved Parent companies established within the European Economic Area ("EEA") or in countries with which Belgium has a qualifying double tax treaty or other agreement providing for a qualifying exchange of information.
Tate & Lyle Europe NV was a Belgian resident company held by Tate & Lyle Investments Ltd, a UK resident company. Tate & Lyle Investments Ltd held 5 per cent of Tate & Lyle Europe NV's share capital, representing more than EUR1.2 million acquisition value. In the context of a partial demerger, the difference between the fair market value of the demerged assets and the share capital represented by the shares was deemed a dividend under Belgian law subject to a withholding tax rate of 10 per cent. Belgian resident receiving companies in similar situations were, however, able to offset against corporate tax the withholding tax on dividends paid under the Belgian partial exemption regime (the so-called "dividends received deduction") and could therefore deduct 95 per cent of the dividends received and recover any excess withholding tax. The CJEU concluded that such regime was contrary to the principle of the free movement of capital.
Shortly after the decision, the Belgian administration issued an Administrative Circular (Ci.RH.233/609/568 of 28 June 2013) on the conditions under which non-resident taxpayers within its scope could reclaim the excess withholding tax, provided several cumulative conditions were met.
New legal provision following Tate & Lyle's decision
The newly introduced Article 269/1 of the Belgian Income Tax Code ("BITC") plans to go one step further by implementing a reduced dividend withholding tax rate for eligible foreign companies under more flexible conditions than the conditions set by the Administrative Circular of 2013.
As from 28 December 2015 (i.e., the date of entry into force of the law), dividends paid by Belgian resident companies to receiving companies established in the European Economic Area or in countries with which Belgium has a qualifying double tax treaty or other agreement providing for a qualifying exchange of information, are subject to a reduced rate of 1.6995 per cent withholding tax to the extent the Belgian withholding tax cannot be recovered by the receiving company in its state of establishment and provided the following cumulative conditions are met:
- the parent company and the Belgian subsidiary have one of the legal forms listed in the Annex to the EU Parent Subsidiary Directive or an equivalent legal form in another EEA country or an equivalent legal form to those of countries with which Belgium has concluded tax treaties;
- the parent company holds, at the moment the dividend is declared, a participation in the share capital of the Belgian subsidiary of less than 10 per cent but with an acquisition value of at least EUR2,500,000;
- the parent company has held or will hold the full ownership of the participation referred to under (ii) for an uninterrupted period of at least one year; and
- the parent company provides the Belgian subsidiary with an affidavit confirming that the required conditions are met.
This withholding tax rate of 1.6995 per cent is intended to subject foreign parent companies to an equivalent tax burden as domestic parent companies when receiving dividends from Belgian resident companies that would be eligible for the DRD regime if they were received by domestic parent companies (33.99% x 5% = 1.6995%).