Belgium to grant refunds to UCITS compliant corporate investment funds
Following the Court of Justice of the European Union’s decision in the case C-387/11, Commission vs. Belgium, on 25 October 2012 (please refer to our E-alert, Issue 2012-15), Belgium has decided to end its discriminatory tax treatment of dividends distributed to foreign corporate investment funds.
On 4 March 2013, the Belgian Tax Authorities have issued a set of guidelines, announcing legislative changes, effective as of 2013 and detailing the procedures that should be applicable to the claims that have been filed by foreign investment funds on the basis of European law.
On 27 December 2012, the Belgian Parliament had already adopted a new legislation foreseeing an increase in the withholding tax rates on ‘movable’ income, such as interest and dividends. This new legislation comes shortly after a first change to the WHT regime effective as of 1 January 2012. As a result of this first change, the rate was increased to 21% for interest and dividends (insofar as the latter were not already subject to a withholding tax of 25%). As of 1 January 2013, the rate is in principle increased to 25%. This new rate applies to dividends, interest and royalties alike.
In addition, the circular specifies that further legislative amendments should in principle be shortly enacted in order to eliminate the discrimination, and should be retroactively applicable as of 1 January 2013.
The Administrative Circular
The circular covers withholding tax on dividends that were paid or attributed in the period 2007-2012 to non-resident investment companies.
Investment companies established in the EEA
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.
Investment companies established in a third state
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 2.5 million Euro).
Credit or refund of the withheld tax
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.
Consequences for Luxembourg funds
The circular is a very positive step toward refunds of unduly levied withholding tax for all incorporated investment funds that are compliant with UCITS Directive.
For Luxembourg investment funds, this means that:
- Part I SICAVs that have filed tax reclaims should benefit from a positive decision in the near future. Indeed, it is expected that the Belgian Tax Authorities in charge of the claims will by priority handle the claims filed by EEA investment companies and request the necessary information, where necessary. Once the UCITS compliant status is demonstrated, it is expected that a positive decision and refund will follow soon. For SICAVs that have not done so yet, we advise to file tax reclaims as soon as possible.
- For Part II SICAVs and SICAV SIF, the situation remains unclear. Indeed, 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 C-384/11, Tate & Lyle Investments. Nevertheless, also Belgian regulated investment companies that are not UCITS compliant are de facto exempt from tax on Belgian dividends. Therefore, we believe that a discrimination exists and we advise these funds to file tax reclaims.
- Part I FCPs, Part II FCPs and FCP SIF are out of scope of the circular. Indeed, as Belgian contractual funds cannot benefit from a refund of withholding tax under domestic law, it is doubtful whether a discrimination exists. We therefore do not recommend that Luxembourg FCPs file tax reclaims in Belgium.
However, the scope of the circular remains limited and some issues will still have to be clarified by the Belgian Tax Authorities:
- The circular only refers to withholding taxes on dividends levied after 1 January 2007. However, claimants that have filed protective claims before 2012 should be entitled to refunds for taxes levied before this date, based on the applicable 5-year time limitation period.
- The question of the discriminatory tax treatment of outbound interest to foreign investment funds have not been addressed so far.
For more information, please do not hesitate to contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.