With the Belgian tax administration publishing a Circular Letter1following the decision of the European Court of Justice (CJEU) in Tate & Lyle Investments , the framework is set for qualifying foreign companies to claim back Belgian withholding tax paid on outbound dividends. In this newsletter we clarify which companies qualify for a refund and how they should proceed.
1. The CJEU's ruling in Tate & Lyle Investments2
A UK company, Tate & Lyle Investments ("TLI"), owned 5% of a Belgian company, Tate & Lyle Europe ("TLE"), a shareholding valued at over EUR 1.2 million. When receiving dividends, TLI, as a non-resident corporate shareholder (and contrary to a resident corporate shareholder), could neither benefit from the set-off and/or deduction of withholding tax, nor could benefit from the Dividends Received Deduction (DRD), allowing resident corporate shareholders holding less than 10% in the capital of the distributing company but with an purchase value of at least EUR 1.2 million (from 2010, EUR 2.5 million) to exclude 95% of the dividend received from their taxable income.
The CJEU ruled that this difference in treatment between resident and not resident corporate shareholders constituted an infringement of EU law.
2. The Circular Letter
The decision of the CJEU may be considered a "new fact" for purposes of the automatic relief rule, resulting in EU parent companies with a stake of less than 10% in a Belgian subsidiary but which has an acquisition value of at least EUR 1.2 million (from 2010, EUR 2.5 million) to be allowed to claim a refund of Belgian withholding tax on the basis thereof. The framework for that refund is set by the Circular Letter. 3
Who is entitled to a refund:
The Circular Letter stipulates that unduly collected dividend withholding tax will be refunded to foreign companies if the following cumulative conditions (some of which are debatable) are met:
- the foreign company cannot obtain a credit or refund in its state of residence;
- the company would have benefited from DRD if it would have been established in Belgium, meaning that the company, for an uninterrupted period of 1 year, should have had full ownership of shares with an acquisition value of EUR 2.5 million (EUR 1.2 million before 1 January 2010);
- the company, for an uninterrupted period of 1 year, had the full ownership of the shares at the time the dividend was granted or was made payable; and
- the company is established in another EU Member State or a country with which Belgium has concluded a tax treaty providing for exchange of information.
What will be refunded:
The amount of the refund equals the dividend withholding tax that has effectively been withheld minus:
- the amount of the credit or refund granted by the residence state of the company (if any); and
- 5% of the gross distributed dividends which are taxable under the Belgian DRD rules.
What to do in order to get a refund:
According to the Circular Letter, a refund must be requested by lodging an appeal with the local tax inspector by either the payor or the beneficiary of the dividend.4
This must be done within 6 months from the date of the notification of the tax assessment or, if no such tax assessment has been sent, from the notification of the collection of the tax (if any).
If no such notification has been made, the 6 months time limit
has not started running, and one must fall back on the ordinary
statute of limitations. According to the Circular Letter, this is
in any case 5 years from 1 January of the year in which the tax was
withheld. Even though this position can be challenged for
withholding taxes unduly paid prior to 1 January 2011 (an extended
10-year statute of limitations should then be applicable), the
taxpayer thus has an interest in moving decisively and avoid
1.Circular Letter nr. Ci.RH.233/609.568 (AAFisc 26/2013) of 28 June 2013.
2.CJEU 12 July 2013, case C-384/11 (Tate & Lyle Investments Ltd.). For a discussion of this case, we refer to our Newsletter of 20 September 2012.
3.On 25 October 2012, the CJEU already ruled (case C-387/11, Commission v. Belgium) that the Belgian tax rules on dividends received by investment companies and making a distinction between resident and non-resident investment companies constituted an unjustified restriction on the freedom of establishment and the free movement of capital. Following this court ruling, the Belgian tax administration isssued a Circular Letter (Ci.RH.233/623.711 (AAFisc Nr. 11/2013) with addendum of 13 June 2013) to react to the infringement found by the CJEU, to announce legislative changes and address some of the issues relating to pending and future refund claims. The Circular Letter discussed in this newsletter is the next step in this process.
4.Based on the wordings of the Circular Letter, alternatively, it should also be possible to file an application for tax relief within five years starting from 1January of the year in which the tax was withheld.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.