The European Commission has formally requested Belgium to amend certain provisions of its tax legislation relating to dividend taxation, which it deems to be discriminatory and contrary to the free movement of capital.

In Belgium, dividends on quoted shares are subject to a reduced rate of withholding tax ("WHT") of 21 percent, if the shares have been issued after 1 January 1994 and if certain other conditions are met (e.g., the dividend must relate to shares that have been issued for a contribution in cash). However, for shares quoted on a foreign stock market, it is in practice almost impossible to benefit from the reduced WHT rate.

Also, the first tranche of EUR170 (subject to indexation) of dividends or interest paid by authorised cooperative companies or companies pursuing a social objective, is exempt from WHT. No such WHT exemption is provided, however, for dividends or interest paid by equivalent foreign companies.

These provisions impose a heavier tax burden on investors established in Belgium wishing to invest their capital in other member states.

The Commission's request takes the form of a reasoned opinion (which constitutes the second stage in the infringement procedure). If there is no satisfactory reply within two months, the Commission may decide to refer Belgium to the Court of Justice of the European Union.

The Belgian government has recently announced, in the framework of the budgetary discussions, that it would abolish the reduced dividend WHT of 21 percent. As a result of this abolishment, dividends paid on shares would be subject to the general dividend WHT of 25 percent. Consequently, the discrimination between dividends paid on shares quoted in Belgium and dividends paid on shares quoted on a foreign stock market would no longer exist in the future.