On July 9, 2020, the Belgian Tax Administration published the Circular 2020/C/96 with respect to the determination of taxable income in case of collection of foreign movable income.
It confirms that, in case of collection of a foreign movable income, the taxable amount is determined by deducting the foreign tax effectively withheld from the foreign income. In other words, only the “actual” net frontier income must be taken into account. In a correlative way, refunds of foreign taxes pursuant to the application of reduced double tax treaty rates are also considered as foreign movable income by nature (same nature as the principal amount).
This confirmation is welcome since the internal Administrative Instruction 2019/I/45 of September 29, 2019 seemed to contradict this position. This instruction indeed mentioned that, in case of foreign movable income collected abroad, the deductible amount of foreign tax could not exceed the amount of tax that should have been withheld according to the tax rate provided for by the applicable double tax treaties. In other words, investors receiving foreign movable income abroad should have declared the amount of movable income after deduction of the foreign tax that should have been withheld according to the reduced double tax treaty rates (i.e. the “theoretical” net frontier income, as if reduced double tax treaty rates were in every case effective). This instruction was subject to criticism as it would have resulted in the taxation of movable income not yet collected. In addition, it would have created a discrimination between movable income collected abroad and movable income collected through a Belgian intermediary.
The Circular however mentions that, further to the international exchange of information (CRS), clarifications regarding the determination of the taxable base in case of perception of foreign movable income are required and that such clarifications will be provided by way of another circular to be published. As a consequence, although it is reinstating the principles applied prior to the internal administrative instruction 2019/I/45, the circular may only offer short-term respite both to taxpayers who perceive foreign movable income abroad and to Belgian financial institutions liable for Belgian withholding tax.
