After having been sentenced in 2013 for ‘discriminatory’ tax treatment, the since then modified prima facie non-discriminatory legislation comes back before the CJEU, as a ‘restrictive’ measure this time.
On a side note, the question arises whether some other Belgian provisions might actually constitute equally applicable measures with restrictive effects infringing some of the EU freedoms.
Discrimination:
- To date, the vast majority of direct tax CJEU decisions were decided on the grounds of discrimination. In most of these cases, the direct tax provision in question that was determined to be unlawful was struck down on the grounds that it unjustifiably distinguished between taxpayers that were, in the eyes of the CJEU, comparable.
- Typically, before 2014, the exemption of a first threshold of interest was only applicable to deposits held by individuals with a Belgian bank, hence clearly discriminatory (C-383/10).
Restriction:
- This time is different as the exemption of a first threshold of interest is, since the Act of 25 April 2014, also applicable to deposits held by individuals with a Foreign bank.
- Although the Belgian legislation does not discriminate between domestic and cross-border situations, the Belgian legislation might well constitute a prohibited restriction to EU freedoms as foreign bank accounts must comply with Belgian rules.
In particular, the Court of First Instance of Brugge requested the Court of Justice, on 9 November 2015 (C-580/15) whether section 21 (5) ITC infringes the free movement of services and the free movement of capital inasmuch as the provision in question, although applicable without distinction to domestic and foreign credit institutions, requires compliance with conditions similar to those included in section 2 of the Royal Decree implementing the 1992 Income Tax Code (KB/ITC) which are de facto specific to the Belgian market and consequently amount to a serious obstacle to foreign financial institutions offering their services in Belgium.
Other equally applicable measures with restrictive effects?
On a side note, the question arises whether some other Belgian provisions might actually constitute equally applicable measures with restrictive effects infringing some of the EU freedoms.
As a matter of examples, think about the following cases:
- The reduced withholding tax rate of 15% for income of so-called ‘Leterme government bonds’, i.e. government bonds ‘underwritten during the period from 24 November 2011 to 2 December 2011 and issued on 4 December 2011’ (section 534 ITC), which is supposed to apply equally to foreign government bonds and to Belgian ones (although it is pretty hard to find comparable foreign government bonds).
Institutionalising this type of legislative process would render the EU freedoms ineffective in the absence of a ‘restrictive effect’ analysis. - Less obvious cases are the exemption applicable to reimbursement of capital (of share premiums, participating units) or the deferred tax charge upon redemption of own shares, applicable solely when the conditions of the ‘Belgian Companies Code’ are complied with (section 18, 2° and 2°bis , 2°ter and 184 ITC).
Even if, according to the Belgian tax administration, ‘similar foreign rules’ are also valid, the fact remains that it might still be considered as a (too) restrictive measure, in the light of the objective pursued by the Belgian legislator. - Last but not least, think about the tax treatment of contributions paid to a savings pension. The Belgian legislation was sentenced in 2014 (C-296/12) for “discriminatory” tax treatment (at the time, a tax reduction was applicable only in respect of payments to institutions and funds established in Belgium). The legislation has been modified as per the Act of 18 December 2015 so as to apply, under the same conditions, to foreign institutions and funds. A similar case thus as the one discussed under this flash.
