Recent tax developments – New measures and recent case law
With the start of the new year, we would like to draw your attention to some recent tax developments (not-exhaustive list) that may be of interest to you.
It especially concerns the (last) possibility of tax regularisation, the Belgian UBO-register, the envisaged new annual tax on securities accounts, relevant recent case law e.g. regarding a tax credit for French withholding on dividends and some other emerging topics (e.g. DAC6).
Tax regularisation of federal taxes: an ending story
Both at federal and regional level (however in the Flemish region, no longer as of 31 December 2020) there is a special procedure allowing to regularise (historical) undeclared income and capital. It concerns, for example, foreign bank accounts, securities accounts and life insurances.
By paying a one-off regularisation levy, tax penalties such as administrative fines, tax increases and late payment interest can be avoided. Moreover, such a regularisation does not only relief the tax risk, but also the risk of judicial and criminal prosecution. If the taxpayer carries out a regularization, he could thus no longer be held liable for tax fraud or (potential) related money laundering offences.
With regard to federal taxes (income tax, VAT and federal registration duties):
- For non-prescribed income and capital (the limitation period is, depending on the circumstances, 3 or 7 years) a one-off regulation levy is imposed (on the regularized income and capital) at the normal rate for the year in which the income was obtained, increased by an additional regularisation levy of 26% (as from 1 January 2021) on the relevant amount.
- For prescribed capital, a flat rate levy of 41% (as from 1 January 2021) will apply. These amounts can be increased by the additional municipal and agglomeration tax.
The new federal government stated in its coalition agreement (1 October 2020) that the possibility of federal tax regularisation of undeclared income and capital will end as of 31 December 2023.
Belgian UBO-register: additional documentation obligations
The Belgian UBO-register obligations are applicable to all Belgian companies, foundations, not-for-profit associations (NPO’s), trusts and other similar legal entities.
A recent Royal Decree (that entered into force on 11.10.2020) has imposed further obligations on the entities that have to notify their Ultimate Beneficial Owners (UBO’s).
Some of these novelties may have an impact on your client's organisation, even if the ultimate beneficiaries have already been registered in the UBO-Register. The main implications of the new Royal Decree are:
- Each entity subject to notification shall be required to provide any document demonstrating that the information contained in the UBO register is adequate, accurate and up to date. If the ultimate beneficiaries have already been registered, a deadline of 30 April 2021 is given to upload the additional information on the electronic platform of the UBO-register.
- Until recently, it was only possible for citizens to consult the registered data of (international) NPO’s and foundations if they could demonstrate a legitimate interest. For certain categories of ultimate beneficiaries, the general public can now, however, consult this information without having to demonstrate a legitimate interest. It concerns the information on the members of the board of directors, the persons authorized to represent the foundation or NPO, the persons in charge of the daily management and the founder(s) of the foundation.
- When registering the beneficial owners of a foreign trust, fiduciary or a similar legal construction, the register requires the indication of a company number. Before the registration in the UBO-register can be completed, these entities will therefore now also have to register with the Crossroads Bank for Enterprises (CBE).
We also refer to the following link for more information: UPDATE: New legislative developments on Ultimate Beneficial Owners | K law
New annual tax on securities accounts: draft law
On 5 January 2021 the new Belgian federal government published a draft law introducing a new annual tax on securities accounts (still subject to final parliamentary approval).
In short, it concerns an annual tax of 0,15% on the average value of a securities account - taking into account all securities (including cash on the securities account,) if the average value of the securities account exceeds € 1.000.000 (then the tax is due on the entire average value).
For all securities accounts
For Belgian residents, the tax on securities accounts would apply both to Belgian and foreign securities accounts.
For non-residents, on the other hand, the tax would only affect securities accounts held with a Belgian intermediary, e.g. bank incorporated under Belgian law or established in Belgium. The tax would, however, not apply if the non-resident can invoke a double tax treaty that also covers capital taxes and assigns the power to tax (moveable) property exclusively to the resident state and thus not Belgium.
Unlike the ‘old tax on securities accounts’, in principle all securities accounts will be subject to the tax regardless of the capacity of the account holder.
In other words, in principle it does not matter who is the accountholder or how the ownership is organized: a natural person, a company, a full owner, a usufructuary, an undivided property etc. This is because the (new) starting point is that the account itself is the taxable subject. This also means, however, that registered shares (i.e. nominative shares), bonds etc. that are not held on a securities accounts are not subject to the tax (except if the anti-abuse provision applies).
For natural persons, legal entities and ‘founders of a legal construction’
Also, in contrast to the ‘old tax on securities accounts’, the terms 'resident' and 'non-resident' not only encompass natural persons but also legal entities and founders of 'legal constructions’ that are in scope of the Cayman Tax.
Hence, also securities accounts of companies with legal personality and associations such as not-for-profit organisations and foundations would be taxable. Moreover, also a Belgian or foreign securities account of more than € 1.000.000 held by a founder of a foreign 'legal construction’ via such a legal construction would be in scope (then the founder will be liable for the tax declaration and payment).
The law would only provide an exemption for securities accounts held by certain financial institutions - e.g. credit institutions, insurance companies, investment funds, central counterparties, central securities depositories etc. - for which a third party (other than the financial institution) has no direct or indirect claim related to the value of the underlying securities accounts. This however, for example, implies that (Belgian) securities accounts held by an insurance company within the framework of unit-linked insurance contracts (e.g. “Tak 23”) will in principle be subject to the tax in the hands of the insurance company.
Withholding by financial intermediary, otherwise by accountholder himself
Similar to the ‘old securities tax’, in principle, Belgian banks and financial intermediaries will have to declare and withhold the tax at source.
However, Belgian residents with a taxable foreign securities accounts will in principle have to declare and pay the tax themselves, otherwise risking fines.
Broad anti-abuse measure
In line with a notice previously published in the Belgian Official Gazette of 4 November 2020, the law would also include a specific and a general anti-abuse provision that would apply retroactively as from 30 October 2020 (Moniteur Belge - Belgisch Staatsblad (fgov.be)).
(*) A note on the ‘old’ tax on securities accounts that was annulled by the Constitutional Court: some Belgian banks started an administrative and judicial procedure to reclaim the tax that they withheld and paid for their clients. It is, however, uncertain whether they will succeed in obtaining a refund.
Recent case law
Foreign tax credit for French dividends (recent case law of the Supreme Court)
At several occasions Belgian Courts have confirmed that Belgian resident individuals who received French dividends (as part of their private investment portfolio) - that have been subject to French withholding tax - can benefit from a foreign tax credit in the Belgian personal income tax amounting to 15% of the net dividend (15% on the gross amount minus foreign withholding tax actually withheld), based on article 15 and 19 (A) of the Belgian-French Double Taxation Treaty of 1964. This was recently reconfirmed by the Belgian Supreme Court (15 October 2020).
Specifically, the Treaty (as concluded in 1964) provides that Belgium has to eliminate double taxation (i) by allowing the deduction of the French withholding tax from the Belgian taxable base and (ii) by granting a so called foreign tax credit, meaning that the foreign (i.e. French) withholding tax can be credited against the Belgian income tax that is eventually due.
- On the one hand, for the application of the tax credit, the Treaty refers to Belgian domestic law and related conditions. But in 1988 the Belgian legislator changed internal (i.e. Belgian domestic) law and cancelled - for Belgian individuals that do not use the related movable assets for a professional activity - the possibility to benefit from such a foreign tax credit. Therefore the Belgian tax authorities have always taken the position that individual investors can no longer claim such tax credit, also not for French dividends.
- However, on the other hand, the Treaty also provides that the lump-sum amount of foreign tax that can be credited or deducted from the Belgian tax due, may not be less than 15% of the amount of the income after deduction of the French withholding tax (i.e. 15% of the net dividend). Based on this, some taxpayers still tried to claim the tax credit, despite the changed domestic law.
For example: if a Belgian tax resident (a natural person) receives a French dividend of € 100, after deduction of the French withholding tax (assuming the 15% Treaty rate), the taxable base for Belgian withholding tax or personal income tax is € 85. Since in Belgium the net movable income will in principle be taxed at 30%, the dividend will also be subject to € 25,5 Belgian withholding tax or personal income tax. However, the tax credit would amount to € 85 x 15%, meaning that eventually the resident would only have to pay € 12,75 Belgian tax and can reclaim € 12,75 (so keeping a net amount of € 72,25).
Whilst several Belgian Courts confirmed that the amended internal law does not hinder Belgian resident individuals to still claim the tax credit based on the Belgian-French Treaty, the Belgian tax authorities have always maintained their strict position and refused to grant the tax credit.
Recently, the Belgian Supreme Court (15 October 2020) again rejected an appeal of the Belgian State against aforementioned decision of the Brussels Court of Appeal. In particular, the Supreme Court reconfirmed that individual investors can benefit from the tax credit, as double tax treaties and international law prevail over domestic law. This decision is not only relevant for the current income year 2020, but also for future years as long as the new Belgian-French Treaty - which no longer foresees in a foreign tax credit - has not entered into force. Moreover, we believe that a refund of Belgian withholding tax can be claimed within a 5-year reclaim period.
Currently there is no official message yet from the tax authorities on whether they will adapt their position and abide with the Supreme Court’s decision. A Parliamentary question addressed to the Minister of Finance has been raised but the answer has not been published yet, though the Minister would soon officially announce his decision in favor of the taxpayers. We will keep you posted.
Exemption (in the personal income tax) for interest of foreign savings accounts
The Belgian Court of Appeal of Antwerp (21 January 2020) and Ghent (17 March 2020) ruled that the Belgian tax authorities have to grant the exemption for interest of foreign saving accounts, similar to the exemption for interest of regulated Belgian saving accounts, even if the foreign account does not provide a double interest rate structure (i.e. a basic rate plus fidelity premium).
Despite these rulings and previous EU-case law (judgements against the Belgian State), the Belgian tax authorities issued a circular letter (21 February 2020) confirming their (too) strict application of the exemption conditions. However, on 30 October 2020 also the European Commission has decided to send a letter of formal notice to the Belgian government requesting to bring the Belgian legislation and exemption conditions in line with EU law, implicitly questioning the compatibility of (certain aspects of the) the circular letter with EU law.
See also e.g. https://home.kpmg/be/nl/home/insights/2020/11/sme-vrijstelling-voor-interesten-buitenlandse-spaarboekjes-fiscus-houdt-voet-bij-stuk.html and October infringements package: key decisions (europa.eu).
The DAC6 legislation provides for the mandatory reporting of reportable cross-border arrangements by intermediaries and relevant taxpayers to the tax authorities within 30 days.
The legislation is effective as from 1 July 2020, but due to the 6-months deferral of the reporting obligations, the following deadlines apply for the submission of the first reports:
- Reportable cross-border arrangements of the transitional period, i.e. where the first step in the implementation is made between 25 June 2018 and 30 June 2020, must be reported by the latest by 28 February 2021;
- Reportable cross-border arrangements that have been made available for implementation, or are ready for implementation, or where the first step in the implementation has been made in the period between 1 July 2020 and 31 December 2020, must be reported by 30 January 2021, i.e. within 30 days starting on 1 January 2021;
- The first periodic report for marketable arrangements must be submitted by 30 April 2021.
For more information on the Belgian DAC6/MDR legislation, please visit: https://www.mytaxcompass.be/articles/posts/2020/november/belgian-dac6mdr-submission-process/ and our dedicated DAC6 website via this link.
Central Point of Contact (“CAP”)
The Belgian government has broadened the reporting obligations of Belgian financial institutions towards the Belgian Central Point of Contact of the National Bank of Belgium.
Ultimately by 31 January 2022 (this deadline may still be amended), Belgian financial institutions will have to report to this central database the amounts that are held by their clients on cash (payment) and savings accounts as well as the value of their financial contracts (e.g. a life insurance “Tak 21” or “Tak23”) with respect to 2020 and 2021. Until now only account- and contract numbers were reportable but not the actual amounts. This extended central register should allow Belgian tax authorities to access more easily information regarding the financial situation and transactions of a taxpayer within the framework of a tax investigation (regarding tax fraud).
The Brexit may also have implications for the taxation of income, gains and financial transactions regarding UK securities, e.g. for personal income tax (exemption for mergers, Cayman Tax etc.), withholding tax (exemptions) and Belgian stock exchange tax (EU passport or not).
If you have any questions or require assistance about the above subjects, please do not hesitate to contact us. We are happy to help you further.