Tax operations – Belgian tax update

We have chosen the following ones as particularly relevant to tax operations of financial institutions.

1. Negative interest

On 8 June 2021, the Belgian tax authorities have issued a circular regarding the tax treatment applicable to  amounts paid as “negative interest” by an account holder of a deposit account to a credit institution (Circ. 2021/C/53).

The circular clarifies that “negative interest” i.e. the amount paid by the account holder to the credit institution, does not constitute any movable income under Article 17 of the Belgian income tax code as it does not correspond to the remuneration for the enjoyment of capital by the account holder.

Therefore, the circular confirms that negative interest are not subject to withholding tax.

Another important point to note is that for the determination of the taxable basis of taxable interest, no compensation can be made between “positive” and “negative” interest as these are different by nature. In other words, the negative interest is not deductible from the positive interest to determine the taxable basis of the movable income.

This circular applies regardless of the origin of the income (Belgian or foreign) and regardless of the capacity of the parties.

2. Belgian tax on savings income (“BTSI”)

On 10 June 2021, the Belgian tax authorities have issued a circular (Circ. 2021/C/56) regarding the Tax on Savings Income (“BTSI” - art. 19bis of the Belgian Income Tax Code).

The BTSI provides for a 30% taxation of capital gains realized by Belgian resident individuals on their investments held in some Undertaking for Collective Investments (“UCI”), that invest more than 10% (or 25% for those acquired before the 1St January 2018) in debt-related assets. Hence to determine whether a UCI is in scope of the BTSI, the asset composition of the UCI should be determined based on an asset test.

If a fund is determined to be in scope, the taxable basis will correspond to the Belgian Taxable Income per Share (“Belgian TIS”) and will thus be limited to the income deriving directly or indirectly (interest, capital gains or losses), from the return on assets invested in debts. If no Belgian TIS is made available, a “tax base by default” computed based on the above asset test applies.

The Circular ends some uncertainties regarding the application of the BTSI to fund of funds structure. Amongst the various elements included in the Circular, we pointed out:           

• the maintenance of the home country rule: this rule allows paying agents to refer to the information provided by UCIs established in a EU Member (and compliant with the rules of that country), with regard to both the determination of the percentage in debts and of the taxable part of the income;
• that - in case of Target Funds with unknown Asset Test - the percentage of investment in debts of the Target fund will be assumed to be equal to 100% only for the part this Target fund represents in the Top fund;
• but also that, if a target fund exclusively invests in assets other than debt-related assets, the cash held on an ancillary basis to cover expenses or investors exits should not be taken into consideration;   
• the application of the rounding rule to Target funds;
• the possibility to use the Asset Test of the Target Funds to determine the Belgian TIS of the Top Fund; and,
• that the capital losses will not be deductible in case of Target Funds with unknown Asset Test;
• Etc.
  
  

3. Belgian Foreign Tax credit  (the so-called “QFIE / FBB”)

On 28 Mei 2021, the tax authorities have issued another new circular (Circ. 2021/C/49) regarding the Belgian Foreign Tax Credit.

In principle, no QFIE/FBB is available on foreign source dividends under Belgian domestic law. Hence, there is no possibility to credit the foreign withholding tax against the Belgian income tax due in Belgium.  

Back in 2017, an arrest of the Belgian Supreme Court confirmed that Belgian taxpayers who receive dividends sourced in France are entitled to a foreign tax credit of 15% in accordance with the provisions of the Double tax treaty concluded between France and Belgium. The tax authorities first refused to comply with this case-law.

Further to a second arrest of the Belgian Supreme Court in 2020 in favor of the taxpayer, the tax authorities recently issued a circular (in the form of  a FAQ) by which it acknowledges that it will comply with the judgment but only for dividends effectively reported in the annual income tax return and thus not for dividends subject to the final Belgian withholding tax but not reported in the income tax return (as the reporting is then facultative). For the dividends received before 2020, it is hence to be expected that tax authorities would reject all tax reclaims with respect to the latter situation.

For the dividends received in 2020, taxpayers who wants to claim the foreign tax credit should report all French dividends subject to French withholding tax in their income tax return related to tax year 2021 to be filed before 30 June (paper form) or 15 July 2021 (online). Code 1160 for the dividends collected on a Belgian account or code 1444 for the dividends collected on a foreign account as well as Box VII, heading F named “Income to which a special tax regime is applicable” of the income tax return form will need to be duly completed.

The possibility to claim a foreign tax credit will probably end as from 2022 since Belgium and France have successfully negotiated a new double tax treaty, which is expected to be signed and ratified soon.

4. Withholding tax

A bill has been introduced to the Chamber of Representatives on 27 May 2021 containing various tax measures. One on them is related to situations where the responsibility to report and pay the Belgian withholding tax shifts to the beneficiary of the income.  

Until now, the Belgian tax authorities could (and must) seek recovery of the WHT from the beneficiary of the income (whether Belgian resident or not) if the withholding tax was unduly reimbursed or if an exemption from withholding tax had improperly been applied :

a)  on the basis of an incorrect statement; or

b) on collective or individual savings accounts that do not fulfill the requirements.

However, this drafting did not properly reflected the legislator's intention. Therefore, the text has been amended: this is only in case of an unlawful exemption from withholding tax that it must be demonstrated that this was done either on the basis of an incorrect statement or for collective or individual savings accounts that are not compliant. In case of an undue reimbursement of the withholding tax, the beneficiary of the income will always become liable to pay and report the withholding tax.

5. Tax increase in the event of late filing of tax return

Another measure we spotted in the above mentioned bill relates to tax increases that may be applied as penalties.

In the event of an incomplete or incorrect declaration, absence of a declaration or a late declaration, a tax increase can be applied by the tax administration based on Article 444 of the Belgian Income Tax Code.

The Belgian Income Tax Code previously did not specify on what basis the increase should be calculated in case of a late submission of tax returns. This ambiguity has become the source of a fairly large number of disputes concerning the applicability of a tax increase in cases of late filing.

The bill now clarifies that the tax increase will also be applicable on the part of the income that was reported in a late tax return. As the bill modifies a general measure, the tax increase will therefore be applicable for all kind of income mentioned in the Code (withholding tax, corporate tax, personal income tax,…).

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