Belgian tax authorities convicted (again) for double taxation of french dividends

1. What preceded

For many years, private investors holding French shares faced double taxation on dividends obtained from these French shares. 

Initially, a French withholding tax is withheld at a rate of 12.8% (since 2018). Belgian withholding tax amounting to 30% is then also deducted from the balance. In this way, from a gross dividend of EUR 100, only EUR 61.04 is finally left (the total tax burden is therefore EUR 38.96 : EUR 12.8 + EUR 26.16).

However, in the double taxation treaty entered into between Belgium and France back in 1964, arrangements were made to avoid such double taxation. Specifically, it was agreed that Belgium would have to credit a fixed part of the Foreign Tax, the so-called FBB, against the Belgian withholding tax. The FBB is at least 15% of the net amount of the dividend (regardless of the actual French withholding tax withheld). In practice, for the above-mentioned example, this would mean that the Belgian withholding tax of EUR 26.16 (EUR 87.2 x 30%) would be reduced by an FBB of 15% or EUR 13.08 (EUR 87.2 x 15%). As a result, the tax burden on French dividends falls from 38.96% to 25.88% (12.8 + (26.16 – 13.08)), ultimately making it even lower than the 30% tax burden on Belgian dividends.

However, the FBB credit was abolished for private investors in 1988. Several investors refused to accept this abolition and relied directly on the aforementioned double taxation treaty to do so. A real procedural battle followed.

In two judgments of 2017 and 2020, the Supreme Court confirmed that, as a matter of principle, private investors are entitled to the FBB credit and that, because of the primacy of international law over national law, a rule of Belgian domestic law that would abolish this right cannot be taken into account.

In a Circular letter of 2021, the finance minister subsequently announced that his administration would abide by this jurisprudence, albeit with the necessary (debatable) reservations. Thus, the Circular letter revealed that the FBB credit would be allowed only on condition that the dividends in question were declared in the personal income tax return under the appropriate headings.

For dividends received in a foreign account, this condition does not normally pose a problem. After all, such dividends have to be declared in the tax return under code 1444-11/2444-78. 

For dividends received in a Belgian account, however, this condition is not self-evident. Because of the intervention of a Belgian bank, Belgian withholding tax will be deducted from these dividends. This levy is discharging, which means that there is no obligation to declare these dividends in the tax return. 

Since the period to file an objection in the personal income tax (at that time 6 months counting from the third working day from the date of sending the assessment notice) had mostly expired, it was opted in this situation to file an objection in the withholding tax. After all, the time limit for this is 5 years from 1 January of the year in which the withholding tax was withheld. 

However, such an objection was invariably rejected. Indeed, the tax administration was of the opinion that the FBB is at most creditable against personal income tax and not at all against withholding tax (which is a different tax). This explains the finance minister’s aforementioned position that a taxpayer would only be entitled to the FBB credit if he declared his French dividends in his tax return.

2. The Supreme Court agrees with the taxpayer

This position too has now been rejected by the Supreme Court in two recent judgments. In these judgments, the Court again referred to the primacy of the Belgian-French double taxation treaty under which Belgium is obliged to deduct a minimum creditable amount of FBB from the tax due in Belgium, regardless of the method of taxation of the tax due in Belgium.

3. Practical tips for the private investor

This case law is initially positive for taxpayers who have already initiated proceedings in the past to enforce the FBB credit.

For those who have taken a wait-and-see approach so far, in certain cases it is not too late to still take action.

• For French dividends received last year, the right to the FBB credit can simply be exercised via the tax return. The net amount of the dividends (i.e. amount after deduction of the French withholding tax) should be entered under code 1444-11/2444-78 (box VII, A.2.b.1). In addition, these dividends should be reported in box VII, F (income subject to special tax regime).
  
• For French dividends received during the years 2020 to 2022, an objection in the withholding tax can still be filed this year.
  
• For French dividends received during the years 2018 and 2019, the ex officio exemption procedure may possibly provide a solution provided the dividends in question were declared in the tax return.

4. New double taxation treaty on the horizon

For the future, it should be taken into account that a new Belgian-French double tax treaty was signed on 9 November 2021. This new treaty no longer provides for an FBB credit. For the time being, however, this new treaty has not yet entered into force. 

Until its entry into force, private investors will therefore still be able to take advantage of the old treaty.

If you would like assistance or more information on this subject, please do not hesitate to contact our specialists: +32 (0)2 747 40 07 or info@be.andersen.com.