Pursuant to the Act of 14 December 2005, all bearer shares, for both listed and unlisted companies, should have been recorded in the issuer's shareholders' register or deposited in a securities account with a financial institution by 31 December 2013. All bearer securities which were not converted by that date were automatically converted into dematerialised form or, if the company's articles of asso-ciation do not allow for this possibility, into registered form. Since 1 January 2012, a new 1% tax has been applicable to the conversion of bearer shares. From 1 January 2013 until 31 December 2013, the tax was 2%.
You can read more about the conversion tax in our newsletter of 23 January 2013, "Tax on the Conversion of Bearer Shares: Guidance from the Belgian Dmat Task Force".
The purpose of this newsflash is to draw your attention to a judgment handed down by the Court of Justice of the European Union (the "CJEU") on 9 October 2014 (CJEU C-299/13 Gielen). In answer to the Belgian Constitutional Court's request for a preliminary ruling of 16 May 2013, the CJEU ruled that the conversion tax is contrary to Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital (the "Directive").
Consequences of the CJEU's judgment
Case law and the interpretation of legislation by Belgian and foreign courts are not binding sources of law in Belgium. The same is true for decisions and interpretations of the CJEU. However, a Belgian court which submits a request for a preliminary ruling must comply with the CJEU's decision. As a result, the Constitutional Court, which requested the preliminary ruling, will most likely invalidate Articles 61 to 69 of the Act of 28 December 2011 (creating a tax on the conversion of bearer shares further to the Act of 14 December 2005).
In practice, the tax is paid either by a financial intermediary (if the bearer shares are converted after deposit in a securities account) or the issuer (if the bearer shares are converted by the issuing company). Once the Constitutional Court renders a decision, financial intermediaries and issuers will be able to claim reimbursement of the tax.
Act now to safeguard your rights!
It should be noted that the Constitutional Court can qualify its decision. Before the Constitutional Court renders a decision, however, it is not possible to determine the precise effects of the CJEU's judgment of 9 October 2014. Since the statute of limitations to claim reimbursement is two years, conversion taxes paid in 2013 and part of 2012 can still be claimed back. It is important to file a claim as soon as possible in order to safeguard your rights, as you may not be eligible for possible exceptions to the Constitutional Court's decision. At the end of the day, the objective is to obtain reimbursement of conversion taxes paid in 2012 and 2013, despite any restrictions imposed by the Constitutional Court.
Ms Gielen and her two children held bearer shares in Belgian limited-liability companies. On 2 July 2013, Ms Gielen initiated proceedings before the Constitutional Court, stating that the conversion tax provided for an unjustifiable difference in treatment between two groups of people, namely (i) those who had subscribed to registered shares or dematerialised shares (for which no conversion tax is due) and (ii) those who had subscribed to bearer shares (which do not qualify for the prohibition on indirect taxation provided for by Article 5(2) of the Directive).
The Constitutional Court decided to submit a request a preliminary ruling to the CJEU. According to the CJEU, Article 5(2)(a) of the Directive must be interpreted to mean that the prohibition on the indirect taxation (in any form) of shares precludes a tax on the conversion of outstanding bearer shares into dematerialised or registered form.
As for whether such a tax can be justified by Article 6(1) of the Directive, which allows the Member States to charge a duty on the transfer of securities, the CJEU has already ruled that Article 12 of Directive 69/335, the wording of which is substantially the same as that of Article 6 of the Directive, constitutes an exception to the prohibition of taxes with the same characteristics as a capital duty (Grillo Star Fallimento, C‑443/09). This provision, which, as an exception, is interpreted narrowly, cannot apply to a tax on the conversion of bearer shares, such as that at issue in Ms Gielen's case.
The CJEU concluded that Article 5(2) of the Directive precludes taxation upon the conversion of bearer securities into registered or dematerialised form, such as the tax at issue in the main proceed-ings. Such a tax cannot be justified with reference to Article 6 of the Directive.