Belgian tax treatment applicable to dividends and interest paid to investment companies

According to Belgian legislation, dividends and interest paid by a Belgian company to investment companies established in Belgium or based abroad are subject to withholding tax.

However, Belgian investment companies and foreign investment companies with a permanent establishment in Belgium benefit from a special tax regime according to which their taxable basis does not include investment income, whereas the withholding tax on this income can be offset against their corporate tax. Therefore, they are entitled to a refund of the difference between this withholding tax and their final tax liability.

For foreign investment companies with no permanent establishment in Belgium, on the other hand, this withholding tax is a final taxation (except if it can be offset and reimbursed in their Residency State).

Judgment of 25 October 2012 handed down by the European Court of Justice (C-387/11)

In its judgment of 25 October 2012, the European Court of Justice decided that Belgium violates the principles of free movement of capital and freedom of establishment insofar as investment income is treated differently depending on whether it is paid to Belgian investment companies (de facto exempted) or to foreign investment companies with no permanent establishment in Belgium (actually taxed in the form of withholding tax).

Reimbursement of withholding tax – recent circular of the Belgian tax administration

Further to this case law, the tax authorities issued a circular detailing the conditions under which a restitution of the withholding tax applied to dividends paid to foreign investment companies may be granted (Ci.RH.233/623.711 of 4 March 2013).

First of all, the possibility of receiving a reimbursement is limited to dividends paid or attributed between 1 January 2007 and 31 December 2012. The administration announced that, in principle, the legislation would be adapted as from 1 January 2013 in order to remedy the failures found by the Court.

The restitution is also restricted to “regulated” investment companies based in the EEA, complying with the 85/611/EEC Directive of 20 December 1985, and to foreign companies established outside the EEA which can be compared to “regulated” investment companies of the EEA.

The administration’s commentary specifies that only withholding tax or the part of it that could not be offset or reimbursed abroad may be refunded.

Regarding legal remedies, both the debtors of the income (and withholding tax) and the beneficiaries of the dividends can file either a tax claim or a request for tax relief (the European judgment being considered as a new compelling fact). These procedures must be lodged within five years as from 1 January of the year during which the withholding tax was paid.

As for the pending proceedings, they shall receive priority consideration and the decisions shall comply with European case law.

Finally, it may be noted that, surprisingly, the circular only refers to withholding tax applied to dividends, although the judgment of the Court targets the taxation of income from capital and movable property and therefore also the payment of interest.