UK and International Tax news

Belgian WHT And Refund Claims By Foreign UCITS

Sunday 21st April 2013

In a recent CJEU case [Commission v Belgium C-387/11], the EC sought a declaration from the Court that, by maintaining different rules for the taxation of income from capital and movable property according to whether it is earned by Belgian investment companies or foreign investment companies, the Kingdom of Belgium had failed to fulfil its obligations under Arts 49 TFEU and 63 TFEU and Arts 31 and 40 of the Agreement on the EEA of 2 May 1992.

The EC had previously sent a formal notice to the Belgian authorities on 17 October 2008 but the Belgian authorities did not respond to that letter. The EC subsequently sent a reasoned opinion dated 4 June 2010, requiring that Member State to comply with those articles within two months of receipt of that opinion.  As it was not satisfied with the reply given by the Belgian authorities on 17 September 2010, the EC sought the above referred declaration.

It is noted that the UK was also granted leave to intervene in support of the form of order sought by the Kingdom of Belgium.

Belgian tax legislation makes subject to withholding tax dividends and interest distributed by a company established in Belgium to both investment companies which are resident in Belgium and investment companies which have their seat in another Member State. However, as regards dividends and interest distributed to investment companies established in Belgium, they are exempt from corporation tax as income from capital and movable property, per Art 185a ITC 1992.

In addition, per Article 304(2) ITC 1992, it is possible to set off the withholding tax against the corporation tax payable by those investment companies, or even to receive the difference between the amount of the withholding tax retained at source and the tax actually payable provided that that difference is equal to or greater than EUR 2.50. The same applies to non-resident investment companies, but which are subject to the tax on non‑residents per Art 233 ITC 1992, which have a permanent establishment in Belgium. 

Given that the Belgian tax legislation provided for less favourable tax treatment of income from capital and movable property received by non‑resident investment companies with no permanent establishment in Belgium in comparison with income earned by resident investment companies or non‑resident companies with a permanent establishment in Belgium, the CJEU held that the Kingdom of Belgium had failed to fulfil its obligations under Articles 49 and 63 TFEU, and Articles 31 and 40 of the Agreement on the EEA of 2 May 1992.

Following the CJEU’s decision, the Belgian tax authorities have recently published a circular letter setting out the procedure and the conditions subject to which foreign UCITS can obtain a refund of Belgian dividend withholding tax levied in violation of EU law. The circular letter provides welcome guidance and confirms that:

(a)                A withholding tax refund can be obtained by foreign UCITS with no permanent establishment in Belgium for dividends paid or attributed from 1 January 2007 until 31 December 2012. This takes into account the fact that Belgian legislation is expected to be amended with effect as of 1 January 2013 to bring it in line with EU law.

(b)               UCITS established in the EEA can qualify for a refund insofar as they are regulated in accordance with Directive 2009/65/EC. This can be certified by the competent supervisory authority.

(c)                UCITS established in a third country can qualify for a refund insofar as they fulfill all the same criteria as a UCIT governed by Directive 2009/65/EC, and they have their main establishment in a jurisdiction with which Belgium has a double taxation treaty providing for exchange of information with a view to the administration or application of the internal legislation of the contracting states.

(d)               A refund will only be granted  by the Belgian tax authorities to the extent that in its state of residence the applicant UCIT has not been able to obtain an effective credit or refund for the Belgian withholding tax levied,(either on the basis of a double taxation treaty or on the basis of domestic law, and

(e)                Applicant UCITS must file refund requests within five years from 1 January of the year in which the Belgian dividend withholding tax was paid.

It is understood that refund claims filed by UCITS which do not fulfil all of the same criteria as those governed by UCITS Directive 2009/65/EC are to be put on hold until the Belgian authorities have issued administrative guidance on the consequences of the CJEU decision in the Tate & Lyle case [C-364/11] which considered the discriminatory tax treatment of non resident corporate portfolio investors.

If you require further advice on or assistance with preparing and submitting tax reclaims, please contact Keith Rushen on +44 (0)20 7486 2378.

Contact Us