On 16 June 2017, the Belgian Supreme Court has reversed the current case law related to the granting of a foreign tax credit in Belgium with respect to foreign-sourced dividends received by Belgian private investors.
The case concerned French-sourced dividends which, today, are normally taxed at a rate of 15% in France before being taxed in Belgium at a rate of 30%, resulting in an overall taxation of 40,5%.
In particular, the Belgian Supreme Court decided that the foreign tax credit mechanism provided in the Double Tax Treaty concluded between Belgium and France should be available to Belgian private investors, despite the fact that such mechanism has been abolished in Belgian tax law in 1988. Since then, the tax administration and the national courts have indeed systematically refused to grant a foreign tax credit in this situation, a position which, according to the decision of the Belgian Supreme Court, is in breach with the principle of supremacy of international treaties.
The application of the foreign tax credit could result in a taxation lowered by maximum 12,7%. Practically speaking, this would be achieved by reporting the dividends in the personal income tax return before filing a complaint against it. The taxpayers could also envisage claiming the refund of taxes unduly supported on French-sourced dividends received since 2013 (i.e. 5-year statute of limitations as from the 1 January of the year during which the tax has been supported).
We note that the decision of the Court of Appeal of Ghent is still awaited and that the Double Tax Treaty between Belgium and France is being renegotiated for several years now.
- Belgian private investors and taxpayers subject to the Belgian tax on legal persons should consider claiming the benefits of the foreign tax credit on French-sourced dividends, also for dividends received since 2013;
- Financial institutions should consider informing their clients concerned about this development and possibly providing them assistance to effectively benefit from the foreign tax credit.
Of course, PwC remains available to provide its assistance on this matter.