On April 20th, 2020, the Belgian Tax Administration issued the circular 2020/C/55 further detailing the tax treatment of spin-off transactions according to article 264, first paragraph, 4° of the BITC 92.
As a reminder, the so-called spin-off transactions are not demerger transactions nor transactions assimilated to a demerger, as defined by article 2, §1, 6°/1 of the BITC.
Indeed, in the case of a spin-off transaction, the distributing company receives shares further to the transfer of a branch of business before distributing the shares received to its shareholders (two-step transaction) while, in the case of a demerger transaction as defined by the BITC, the shares of the beneficiary company are directly attributed to the shareholders of the demerging company as a consequence of the demerger (one-step transaction).
The tax provisions applicable to demerger transactions do consequently not apply to spin-off transactions.
The Law of April 28th, 2019 has however introduced an exemption from Belgian withholding tax regarding dividends in kind distributed to Belgian resident shareholders further to a spin-off transaction, as far as the conditions raised by the aforementioned Law are met.
The Tax Administration mentions that documents issued to the investors (prospectus) might constitute a relevant element to assess whether the conditions of article 264, first paragraph, 4° of the BITC 92 are met. This provides some comfort regarding the fact that one can rely on these documents to determine whether the Belgian withholding tax exemption conditions are met.
The conditions to be met for the dividend to be exempt from Belgian withholding tax are the following ones:
- The beneficiary must be a Belgian resident private individual;
- The dividend must be allocated under the form of shares (newly created or already existing) of the beneficiary company;
- The distributing company must have received the distributed shares, issued by the beneficiary company, further to the transfer of a branch of business;
- Both the shares of the distributing company and the shares distributed further to the spin-off must be listed on an European stock exchange in accordance with Directive 2001/34/EC or on a non-European stock exchange with equivalent admission conditions;
- The transfer of the branch of business and the distribution of shares received further to the transfer must be part of the same restructuring operation;
- The transaction must take place in a country with which Belgium has concluded a double tax treaty agreement providing for the exchange of information for tax purposes;
- The spin-off transaction must be considered as tax-neutral in the State where it takes place.
Beneficiaries of the Belgian withholding tax exemption provided by article 264, first paragraph, 4°
The circular mentions, as first condition to be met, that the beneficiary must be a Belgian private individual (article 264, first paragraph, 4° indeed mentions that the beneficiary must be an inhabitant of the Kingdom i.e. a natural person according to article 2, §1er, 1° of the BITC).
As a consequence, the dividend should remain taxable in case the beneficiary pertains to another category of investor (Belgian company or non-resident investors for instance) exempt from Belgian withholding tax on its foreign dividends having not fulfilled the formalism obligations in order to benefit from the Belgian withholding tax exemption available.
Notion of spin-off
As mentioned above, the withholding tax exemption is only applicable if the distributing company has received the distributed shares, issued by the beneficiary company, further to the transfer of a branch of business.
The circular provides more clarity regarding the way that condition has to be understood and indicates that the decisive element is whether such a transfer of branch of business has effectively taken place whether or not an explicit reference is made to the notion of transfer of branch of business in the issued documents regarding the restructuring operation.
The two steps of the transaction are part of the same restructuring operation
Regarding the condition that the transfer of the branch of business and the distribution of shares received further to the transfer must be part of the same restructuring operation, the circular specifies that
- the fact that the two transactions (i.e. the transfer of a branch of business in exchange of securities and the distribution to the shareholders of the securities received) are part of the same decision or are globally presented to the investors in the same document constitute an indicia that the transactions are part of the same restructuring operation;
- the fact that the restructuring operation is presented as being processed in different steps does not result in the disqualification of the unique character of the transaction.
Regarding the tax neutrality condition, the circular states that the tax neutrality of the transaction should be considered globally i.e. the transaction should be considered tax neutral in the country of the distributing company and in the country of the beneficiary company. Furthermore, the attribution of securities to the shareholders should not be taxed in the state of the distributing company.