Belgian-regulated investment funds: tax-on-tax

Written by Olivier Hermand 21 October 2016


On 20 October 2016, the Belgian Constitutional Court rendered a decision confirming the non-discriminatory character of the requirement for Belgian-regulated investment funds (such as SICAV/SICAF and the new FIIS), Regulated Real Estate Companies (RRECs) and Pension Funds organised as OFPs to report corporate income tax expenses/provisions as disallowed expenses in their corporate income tax returns, resulting in a so-called “tax-on-tax” situation.

Background

As you may know, Belgian-regulated investment funds, RRECs and OFPs are subject to a special corporate income tax basis as defined in art. 185bis of the Belgian Income Tax Code (“ITC 92”), limited to (i) the abnormal or gratuitous benefits received, (ii) the non-deductible expenses (excluding the reductions in value on shares and capital losses realised on shares) and (iii) the secret commissions tax. According to art. 198, §1, 1° ITC 92, corporate income tax that has been provisioned/booked for accounting purposes should be reported as a non-deductible expense. Under the general corporate income tax regime, this non-deductible expense assures that the corporate income tax basis is calculated based on the accounting result before taxes. However, as entities subject to the special tax regime of art. 185bis ITC 92 are not taxable on their accounting result, this leads to a tax-on-tax situation.

Note that the Belgian Supreme Court had previously decided that the provisioned tax due should not be included in the taxable basis of (the former) Belgian Coordination Centres (whose special taxable basis was identical to the taxable basis of art. 185bis ITC 92, but based on another legal provision). However, according to the position of the tax authorities and recent lower case law, this position regarding Belgian Coordination Centres cannot by analogy be applied to the case at hand.

Belgian Constitutional Court decision of 20 October 2016

On 12 June 2015, the Court of First Instance of Antwerp referred to the Belgian Constitutional Court for a preliminary ruling, which has now resulted in the non-discriminatory character being confirmed.

We recommend that the entities in scope of the special tax regime verify whether they are currently already reporting corporate income tax as disallowed expenses and assess the need to adjust their current position in the corporate income tax returns.

Download the decision: