The case was sent back to the Belgian referring court for a determination as to whether the applicable income tax treaty would neutralize the effect of the Belgian tax law on the free movement of capital standard.
The case is: Tate & Lyle Investments Ltd. v. Belgische Staat, C-384/11 (12 July 2012)
A UK company owned shares in a Belgian company with an acquisition value of more than €1.2 million, representing 5% of the share capital.
At the time of the Belgian company's taxable partial demerger, under Belgian tax rules, the Belgian company was deemed to have distributed the difference between the fair market value of the demerged assets and the paid-up share capital (approximately €248 million) as a dividend. The proportion of the distribution attributable to the shareholding of the UK company was then subject to a 10% withholding tax.
In similar circumstances, Belgian resident companies are able to offset this withholding tax against corporate tax liabilities, claim a refund for the excess, and ask that the “dividends received deduction” regime is applied, whereby 95% of the dividends received can be deducted from the tax base. Non-resident companies are not able to benefit from these provisions.
In a challenge initiated by the UK company, the Belgian government argued that it treats both resident and non-resident companies in the same way by imposing the 10% withholding tax on dividend distributions paid by companies resident in Belgium to their minority corporate shareholders and that it is the responsibility of the EU Member State of the dividend recipient to prevent economic double taxation.
The order of the CJEU
After considering prior case law, the CJEU issued an order in this case, that the free movement of capital standard under the EU Treaty precludes the Belgian tax law provision that taxes dividends paid to non-resident companies that hold a less-than-10% shareholding but an acquisition value of at least €1.2 million, while providing Belgian companies in the same circumstances with an opportunity to mitigate the tax burden.
Noting the contentions of both sides of this dispute—the Belgian government’s claim that the Belgium-United Kingdom income tax treaty would neutralize the discriminatory treatment by allowing a credit for the withholding tax suffered in Belgium versus the UK company’s claim that UK tax law would not recognize the dividend in question as taxable income and therefore not allow for a credit in this case—the CJEU stated that it was for the Belgian national court to decide whether the income tax treaty is to be considered or whether the treaty would neutralize the impact of the Belgian tax regime on the free movement of capital.
Therefore, the case will be returned to the Belgian referring court for resolution of the income tax treaty issue.
Read an August 2012 report [PDF 51 KB] prepared by KPMG's EU Tax Centre: CJEU order in Tate & Lyle Investments Ltd case – withholding tax on dividend distributions