Last week, the Belgian tax authorities published a practice note commenting on the scope of application of the Belgian Tax on Savings Income (or “Reynders Tax”).
Capital Gains Tax. As a recall, the Belgian Tax on Savings Income (“BTSI”), also referred to as the Reynders Tax, (the main provision of which being “art. 19bis” of the Belgian Income Tax Code) provides for a 30% taxation of capital gains realised by Belgian resident individuals on some funds.
Tax Base. When the Belgian Taxable Income per Share (“Belgian TIS”) computation is properly performed, the taxable amount of income is limited to the income deriving directly or indirectly, in the form of interest, capital gains or losses, from the return on assets invested in debts (capped by the capital gain realised by the investor on the units of the fund). A “tax base by default” applies otherwise.
Three Conditions. In order to determine whether or not a fund falls within the scope of application of the BTSI, the following elements should be examined:
- the category of funds concerned;
- the asset composition (determination of the % of assets invested in debts pursuant to the “Belgian Asset Test”);
- the distribution policy.
Category of Funds Concerned: doubts. From the Act of 30 July 2013 until the Act of 25 December 2017, the BTS applied to any undertaking for collective investment in transferable securities (“UCITS”) regardless of whether or not they have the EU passport. However, in the absence of any definition of “UCITS” in tax law, the exact range of funds falling within the scope of the BTS was debated.
Practice Note of 25 October 2013: only UCITS-like. This issue had been partially solved thanks to the publication of a practice note of 25 October 2013 where the tax authorities opted for a “regulatory” interpretation to assess the “in” or “out of scope” character of a fund.
The tax authorities considered that only the following were in scope of the BTS (free translation), “the undertakings for collective investments as defined in art. 3 (1) of the Act of 3 August 2012, being ‘undertakings, Belgian or foreign, whose sole object is the collective investment of funds’, which place the funds they collect in one of the asset classes referred to in art. 7 (1) 1° or 2°, Act of 3 August 2012, namely:
- investments that meet the requirements of Directive 2009/65/EC;
- financial instruments and liquidity.”
Other types of undertakings for collective investments such as private equity funds were considered out of scope.
Addendum of 8 April 2016: all UCI. In an addendum of 8 April 2016 (FR/NL), the Belgian tax authorities decided however that (free translation) “a generalisation is required in order to favour an equal treatment of all funds, regardless of their legal form and of how they are offered to investors” so that the “category of funds” was not relevant anymore. This interpretation took effect as from 1 July 2016.
Program Law of 25 December 2017: no, only UCITS-like before 2018. The situation became clearer with the Program Law of 25 December 2017 which replaced the term UCITS by UCI. This law change – and this is important – is applicable to income paid or attributed in relation to units acquired as from 1st January 2018.
Nevertheless, the Belgian Tax Administration considered that this law change was only a confirmation of the previous situation and that, since 1st July 2016, units of UCITS (as broadly defined following the addendum to the Practice Note) acquired before 1st January 2018 were also potentially in scope of the BTSI.
Parliamentary Question: the Minister of Finances confirms. The Minister of Finances did not agree with this approach. In his answer to a parliamentary question (dd. 13 February 2019), he recalled that, according to the explanatory statement, the objective of the law change was to include AIFs which do not exclusively invest in ‘transferable securities’ as defined in the Royal Decree of 12 November 2012. These ‘transferable securities’ include instruments which are negotiable and money market instruments which can be ceded in a short time frame and with a limited cost. In other words, funds which hold investments which are rather illiquid, which should include many private equity and hedge funds, do not exclusively hold such ‘transferable securities’ and are consequently out of scope of the BTSI for units acquired before 1 January 2018.
Practice Note of 25 September 2019: the tax authorities bow. A practice note now confirms the Minister’s position (FR/NL): “a fund whose investments are relatively illiquid so that it could never be considered for a passport, or so that the fund is closed and it is not possible for it to respond at any time to a request to redeem the investor’s participation rights, is part of the group of UCIs that” enter in the scope of art. 19bis BITC as from 01/01/2018 for units acquired before 1 January 2018. Before 2018, these funds were thus out of scope.
It should also be noted that the practice note clarifies how donations of funds units within the scope as from 1 January 2018 are to be treated.
- The practice note mentions that “taxpayers who would have been subject to income tax in respect of units of UCITS-like funds acquired before 2018 and which, – in light of the foregoing – are outside the scope of art. 19bis, CIR 92, may lodge a claim for the refund of the tax paid”. This statement raises eyebrows since taxpayers who declared the income on their annual tax returns (in the absence of Belgian paying agent levying the withholding tax) only have 6 months from the receipt of their assessment notice to file such claims. In many cases thus, this administrative recourse won’t be available anymore!
- Another recourse can apply when a Belgian paying agent (usually a bank) withheld the Belgian withholding tax. In such case, the statute of limitations is set at 5 years.
- Finally, ex-officio relief could also potentially apply considering the Belgian tax authorities clearly recognise that the Addendum of 8 April 2016 was illegal.