The ECJ has held that a difference in treatment between Belgian investment companies and nonresident investment companies without a permanent establishment in Belgium constitutes an infringement of the free movement of capital and freedom of establishment.
Belgian legislation provides for withholding tax to be levied on dividends and interest distributed by a company established in Belgium to investment companies, regardless of residence. The rate of withholding tax is the same for all such companies. However, there is a difference in the taxation of income from capital and movable property according to whether the investment company has a permanent establishment in Belgium or not. Resident companies and non-residents with a permanent establishment in Belgium are eligible for an exemption which limits their taxation to certain exceptional cases. Additionally they are subject to a mechanism which neutralises the tax deducted at source by allowing set off against the company’s tax liability, including separate levies that may be charged. Any surplus withholding tax not utilised in this way can be refunded, subject to de minimis provisions. The exemption and set-off system is not available to non-resident investment companies without a permanent establishment in Belgium. The withholding tax levied on income that such entities receive from their Belgian investments therefore constitutes definitive taxation.
The Court found that the Belgian tax system infringed EU law by treating non-resident investment companies less favourably than those resident or with a permanent establishment in Belgium and that this treatment may act as a deterrent to non-resident investment companies wishing to invest in Belgium.