Reclaim opportunities on Belgian annual tax and withholding tax for Luxembourg SICAV

In November 2018, the Court of Appeal of Brussels ruled that the BAT is not applicable to a Luxembourg SICAV as Belgium does not have taxing rights on the Luxembourg SICAV’s wealth under the double tax treaty (DTT) between the two countries. Furthermore, the decision confirmed that a Luxembourg SICAV qualifies as a person within the definition of the DTT, thus, opening the doors for potential withholding tax (WHT) reclaims based on the DTT.

Following unsuccessful attempts of reclaims based on EU laws and the Treaty on the Functioning of the European Union, Luxembourg SICAVs could leverage on such decisions to reclaim the BAT based on the DTT provision. In addition, this decision supports the arguments that Luxembourg SICAVs should be in a position to reclaim WHT up to the DTT rate. This would require a case-by-case analysis.

In 2011, a Luxembourg SICAV decided to rely on Article 22 of the DTT to argue that wealth can only be taxed in the country of residence of a person and successfully challenged the application of the BAT before the Tribunal of First Instance of Brussels. The judgment was appealed by the Belgian tax authorities and the Court of Appeal of Brussels decided to question the Court of Justice of the European Union on the compatibility of the BAT in view of EU laws and principles, without success.

On 29 November 2018, the Court of Appeal of Brussels rendered its decision. In a nutshell, it concluded the following:

1. A Luxembourg SICAV falls within the personal scope of the DTT (art. 1);
2. The Belgian BAT meets the definition of taxes covered under the DTT (art. 2);
3. The Belgian State does not have the taxing rights on capital since the Luxembourg SICAV may be taxed only in its country of residence and does not have any permanent establishment (PE) in Belgium (art. 22); and
4. The Court upheld the judgment of the Tribunal of First Instance of Brussels, which had ordered the Belgian State to reimburse the Belgian BAT levied on the Luxembourg SICAV with an interest of 7% p.a.

At this stage, the Belgian State still has the possibility to file an appeal before the Supreme Court to challenge this decision.

In the meantime, Luxembourg SICAVs distributing in Belgium may file reclaims for excess of the BAT paid to safeguard their rights. Since the statute of limitation is five years, the Luxembourg SICAVs may file such refund request for the BAT paid as from 2015. Interest at 7% on a reclaim amount will start to accrue as soon as the reclaim is duly lodged.

Beyond the decisions of the Court of Appeal concerning a Luxembourg SICAV, we believe that the Court’s reasoning also implies to the entitlement of Luxembourg FCPs to claim a tax refund.

Collective investment vehicles of jurisdictions other than Luxembourg may benefit exceptionally from the positive development, depending on the bilateral treaty with Belgium and the fund’s tax treatment in its state of residence (case-by-case analysis required). Also, EU/EEA laws may provide some protection, although several arguments were rejected by the Court of Justice of the European Union (C-48/15).

Interestingly, the decision on BAT may provide an opportunity for Luxembourg SICAVs to initiate WHT reclaim procedures on Belgian sourced income, e.g. dividends based on the DTT as it was confirmed that Luxembourg SICAVs fall within the personal scope under art. 1 of the DTT and may, therefore, be entitled to preferential WHT rates on dividends, interest and royalty under the DTT subject to a case by case analysis.

We can assist you in filing BAT reclaims in Belgium to safeguard your rights until the Supreme Court renders its decision, if the Belgian State decides to appeal as well as WHT reclaims based on the BAT decision.

We would also be pleased to assess the financial viability of a reclaim for your funds, contact us.