Belgium: Cayman Tax Remains Applicable Under New Dutch-Belgian Double Taxation Treaty

The interaction of the Belgian cayman tax with the various double taxation treaties concluded by Belgium has been the subject of discussion in practice for several years. The question now arises whether anything will change for founders of Dutch entities in scope of the Belgian Cayman tax as a result of the new double taxation treaty.

The Belgian cayman tax is a transparent taxation (and reporting obligation) of income obtained through a so-called legal construction, on behalf of the founder, as if this founder had obtained the income directly. The cayman tax was already introduced in 2015, but until 31 December 2017 only applied to a limited number of EEA entities, such as the Liechtenstein Stiftung and Anstalt and the Luxembourg SPF. Dutch entities, such as the VBI (Exempt Investment Institution), for example, thus automatically fell outside the scope of the cayman tax. Since 1 January 2018, however, this has changed. On the basis of a number of generally formulated definitions, it will have to be analysed annually whether or not a Dutch entity qualifies as a legal construction, to which the cayman tax applies on behalf of a qualifying founder. For traditional Dutch BVs, this will usually not be a problem as they are subject to normal taxation in the Netherlands. Exemptions are also provided for listed companies, pension and investment funds, as well as entities with sufficient substance.

In practice, the question has already been frequently raised - in general - whether the operation of the cayman tax is compatible with double taxation treaties. In this regard, Belgium had already waived its earlier position/reservation on the application of CFC regulations in a treaty context in 2017.

In the new Dutch-Belgian double taxation treaty, there is no explicit reference in the new Belgium-Netherlands Treaty to article 5/1 ITC (article on tax transparency), contrary to what is the case in the recent French-Belgian double taxation treaty (paragraph 16 of the Protocol). In view of the provisions of Article 1 of the Dutch-Belgian double taxation treaty, as well as the provisions in the Protocol that national rules on tax fraud and tax avoidance may continue to be applied as a matter of priority, it can be assumed that the application of the cayman tax is not hindered by the new Treaty.

The recently concluded Dutch-Belgian double taxation treaty thus confirms that Belgium may transparently tax income obtained by Dutch entities qualifying as a "legal construction" according to Belgian tax rules.