Background: The CJEU has ruled, in the case of Commission v. Belgium (C-378/11), that Belgian withholding tax on dividends and interest paid to foreign investment companies, amounted to discriminatory taxation. Refunds of tax may now be due.
Under Belgian tax law, Belgian investment companies are not effectively taxed on their Belgian-sourced interest and dividend income. Any Belgian withholding tax ("WHT") incurred on such interest and dividend income is fully refundable. If Belgian-sourced interest and dividend income is paid to a foreign investment company, the Belgian WHT incurred is not refundable and constitutes, from a Belgian perspective, a final tax.
The Commission considered that this restricted the free movement of capital and the freedom of establishment and made a formal request to Belgium to change the law. In the absence of a satisfactory response from Belgium, the Commission referred the matter to the Court of Justice of the European Union ("CJEU"). The CJEU has now confirmed that the Belgian WHT regime, which results in discriminatory taxation of foreign investment companies, restricts the free movement of capital and the freedom of establishment.
Who can reclaim Belgian WHT?
In principle, all foreign EU investment companies which have received Belgian-source interest and dividend income on which Belgian WHT was incurred. In addition, foreign EU pension funds which have suffered from the same type of discrimination can also reclaim Belgian WHT.
How to reclaim WHT?
Non-residents can recover Belgian WHT in two ways:
- A request for an ex officio detaxation
A request for an ex officio detaxation is possible within five years from 1 January of the tax year in which a "new fact" has occurred which has resulted in tax being paid which was not due. A decision or order of the CJEU qualifies as such a new fact.
- A tax complaint
A distinction should be made:
- WHT imposed before 1 January 2011:
In principle, a tax complaint must be filed within six months after the date of the notice of assessment or the date of "collection of the tax" (if the tax is levied by means other than a notice of assessment).
For non-residents who do not file Belgian tax returns, WHT is typically applied at source and consequently, no notice of assessment is sent by the Belgian tax authorities.
Importantly, the Belgian tax authorities seem to have recently accepted that the mere levy of WHT does not constitute a "collection of tax" which triggers the start of the six-month statute of limitation for filing a tax complaint (assuming there is no notice of assessment). Consequently, taxpayers should be able to rely in any event on the statute of limitations of five years and probably even on the statute of limitations of 10 years to recover WHT.
- WHT imposed from 1 January 2011:
The Belgian legislator has very recently clarified the applicable statute of limitations for recovering WHT imposed from 1 January 2011.
If no notice of assessment is issued for WHT levied at source, the right to recover WHT paid to the Belgian Treasury lapses after five years starting on 1 January of the year in which the WHT has been paid.
We strongly recommend foreign EU investment companies and pension funds, which have incurred Belgian WHT on Belgian-sourced interest and dividend income over the last 10 years, to file tax complaints to recover that WHT.