act containing various tax measures
09/01/2016 - The Belgian State Gazette of 28 December 2015 published the Act of 18 December 2015 containing tax and various other measures. The act contains a mixed bag of tax measures that correct cross references to other laws, correct purely formal errors or eliminate gaps in the existing legislation, ratify a number of royal decrees, etc. However, they also contain some significant substantive changes to comply with European law following a number of decisions of the European Court of Justice.
Tate & Lyle
The most important measure is the implementation of the decision of the Court of Justice of the European Union of 12 July 2012 in Tate & Lyle Investments (C-384/11, July 12, 2012). In that case the Court held that the Belgian regime on (deemed) dividends distributed by a Belgian resident company to a non-resident company, holding a participation of less than 10 per cent in the capital of the Belgian company but with a purchase value of at least €1.2 million, is not compatible with the EU freedom of capital.
Under Belgian law, Belgian corporate shareholders that hold less than 10 per cent of the share capital of a Belgian subsidiary have two advantages over non-Belgian corporate shareholders. They can credit the dividend withholding tax retained from the dividends they receive against their company income tax liability and any excess is refunded.
Moreover, if the acquisition value of the participation is higher than €2.5 million (the threshold has been raised from €1.2 million to 2.5 million), a Belgian corporate shareholder is also entitled to the participation exemption for the dividends received.
This means that a Belgian parent company that qualifies for the participation exemption effectively pays 1.6995% tax on the dividend received. Shareholders resident in another EU member state who hold the same participation are not entitled to either form of compensation. The Court held that providing a mechanism to reduce the tax impact only for Belgian resident shareholders with participations with an acquisition value in excess of €1.2 million (currently €2.5 million) but less than 10 per cent was prima facie an infringement of the free movement of capital.
The tax authorities had already reacted in 2013 by agreeing to reimburse the full withholding tax. The government did not want to go that far; instead of a reimbursement of the full withholding tax, the Act introduces a new withholding tax rate of 1.6995% (that is 5 per cent of the company income tax rate) on dividends paid to qualifying parent companies.
The following conditions apply to qualify for the reduced withholding tax rate:
- The parent company must be established in the European Economic Area, or in a State with which Belgium has concluded a double tax convention with an exchange of information provision.
- The company must have the legal form of one of the companies listed in the Parent Subsidiary Directive. If the parent company is established in a treaty country, it must have a comparable legal form to one of these companies ;
- At the time the dividend was granted or was made payable the parent company must have had full ownership of the participation under 10 per cent but with an acquisition value of EUR 2.5 million.
-It must hold the participation for an uninterrupted period of one year.
Furthermore, the parent company must provide the Belgian company with a certificate stating that it meets these conditions and to which extent the parent company is entitled to a tax credit or a reimbursement for the Belgian withholding tax in its state of residence ; the confirmation must be based on the legal provisions on 31 December of the year preceding the distribution of the dividend.
The reduced withholding tax rate will apply to dividends granted or made payable as of 7 January 2016, ten days after the publication in the Belgian State Gazette.
Pension Savings
The second measure extends the scope of tax benefits for personal pension savings to payments made to a financial institution established in the European Economic Area.
In its decision of 23 January 2014, the European Court of Justice (C-296/12, European Commission v. Belgium) decided that the Belgian tax rule that limited the tax benefit related to pension savings to financial institutions and funds established in Belgium was incompatible with the principle of free movement of services. The tax benefit is now extended to institutions and funds established in the European Economic Area.
The government is also taking the opportunity is also used to adapt the rules related to the investments pension savings funds are authorised to acquire. They cannot invest more than 75 per cent of their assets in certain shares. Within that limit they can only invest 70 per cent in shares of companies established in the European Economic Area with a market capitalization in excess of EUR 1 billion, and not more than 30% in shares of EEA companies with a market capitalization under EUR 1 billion. The threshold of EUR 1 billion is increased to EUR 3 billion.
Other measures
The Act also modifies the legal status of the conservators of the mortgage register who are civil servants but have an independents status vis-à-vis the Ministry of Finance, which meant that the State could not be liable for any mistakes by made by these civil servants. They are now integrated within the “General Administration of Patrimonial Documentation".
9 January 2016
Marc Quaghebeur
De Broeck Van Laere & Partners