Both resident and non-resident investment companies are subject to Belgian withholding taxes on Belgian-source dividends and interest. However, Belgian tax law provides for a de-facto exemption of such income in the hands of Belgian-resident investment companies with the result that these can obtain a refund of Belgian withholding taxes. For non-resident investment companies, in contrast, the de-facto exemption does not apply. So, apart from a possible reduction to tax treaty rates (often 15%), Belgian withholding taxes form a final burden.
On October 25, 2012, the Court of Justice of the European Union (CJEU) rendered its decision in the infringement case Commission vs. Belgium (C-387/11). The court held that the Belgian rules on the taxation of income from capital of non-resident investment companies with no permanent establishment in Belgium constitute an unjustified restriction on the freedom of establishment and the free movement of capital.
With its circular dated 4 March 2013 the Belgian tax authorities react to the infringement found by the CJEU, announce legislative changes effective as from 2013 and address some of the issues relating to pending and future refund claims relating to withholding taxes suffered in the period of 2007-2012.
The circular covers withholding tax on dividends that were paid or attributed in the period 2007-2012 to non-resident investment companies.
The circular states that investment companies established in the European Economic Area (EEA) qualify if they are “regulated” investment companies. This, pursuant to the tax authorities, is only the case if the non-resident investment companies are in compliance with the European UCITS Directive (originally 85/611/EEC, meanwhile Directive 2009/65/EC, which was transposed into Belgian law by law of 3 August 2012). The circular states that the compliance with the Directive can be certified by the supervisory authority competent for the non-resident investment company.
Pursuant to the circular, also for investment companies established outside the EEA the compliance with the UCITS Directive is a necessary condition. The circular states that refund claims by non-EEA investment companies will only be accepted if there exists a juridical means that allows Belgian authorities to obtain the information needed to assess whether the investment company complies in a comparable way with the criteria as laid down in the UCITS Directive. An exchange of information clause in the tax treaty may not always be sufficient to obtain the necessary information in this respect. Neither a confirmation by the foreign supervisory authority will be considered as sufficient.
In circumstances where the UCITS Directive compliance cannot be demonstrated, the tax authorities shall postpone their decision until also guidelines have been published with a view to the CJEU judgment C-384/11, Tate & Lyle Investments. This case covers another type of EU-law based refund claims, i.e. the non-application to non-resident companies of the Belgian affiliation privilege (current minimum thresholds: participation of 10% or acquisition value of 2.5mn Euro).
The non-resident investment company will have to prove that the withholding tax cannot be credited nor refunded in the state of residence because of a local tax exemption regime or because of local tax losses or insufficient taxable profits (without any carry-forward of a tax credit). Only the amount of withholding tax that cannot be credited nor refunded in the State of Residence will be considered for a refund.
It is positive that tax authorities expressly acknowledge that a refund of Belgian dividend withholding tax should be granted to UCITS compliant investment companies in the EEA and that such a refund should, under certain circumstances, even be granted for investment companies established in third states.
Still some questions remain unanswered. What about the withholding taxes on dividends paid or attributed before January 1, 2007? What will be the burden of proof for the non-EEA investment companies? And what about withholding taxes on interest?
Some of the statements of the circular are also highly questionable. It is for instance incomprehensible why the Belgian tax administration requires the non-resident investment companies to be UCITS compliant, while also Belgian regulated investment companies that are not UCITS compliant are de facto exempt from tax on Belgian dividends...
As a consequence of the circular, it is expected that the tax authorities in charge of the refund claim will by priority handle the claims filed by EEA investment companies and request the necessary information, where not yet available, in order to assess the UCITS compliant status. Once the UCITS compliant status is demonstrated, it is expected that a positive decision and refund will follow soon. Refund claims filed by investment companies not qualifying as UCITS compliant investment companies would not be automatically rejected, but a decision will be postponed until guidelines have been published in respect of the CJEU judgment on Tate & Lyle Investments.
Investment companies that have not yet filed any refund claims can still do so and request the refund of unduly paid Belgian withholding taxes for all the open tax years (the circular seems to accept at least a 5 years period allowing refund claims going back to withholding taxes paid in 2008).