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Tuesday, 24 May 2022

Luxembourg treaty exemption for the Annual Tax on Securities Accounts at risk?

Dirk Coveliers

Counsel
Antwerp

Yannick Cools

Associate
Antwerp

The Annual Tax on Securities Accounts (hereafter: "ATSA") is applicable (among other things) to securities accounts held in Belgium, even if they are held by non-Belgian residents/account holder.

Both the legislator and the administration had recognized the possible effects of a double taxation treaty, so that the securities accounts and their foreign account holders would not be subject to tax (a limitation of Belgium's taxing powers).

A central condition was of course that a double tax treaty was available that could effectively be invoked by the holder of the securities account and that the treaty also covered aspects of wealth taxation.

In the administrative FAQ (last amended as per 27 January 2022), an overview was included which made a classification per jurisdiction as to whether the ATSA could be levied in Belgium or not. This division was made based on an analysis of whether or not the applicable double tax treaty applied to wealth taxes. When applying double tax treaties, the ATSA is recognised as a wealth tax by both the legislator and the administration.

Based on the still current version of the administrative FAQ, the treaty with Luxembourg can still be found as a double treaty preventing application of the ATSA.

The analysis was that Luxembourg grants exclusive taxing rights on wealth to the State of residence: thus the treaty prevents the application of the ATSA to securities accounts held in Belgium by Luxembourg residents (natural persons, legal persons, ...).

Until recently, there was no discussion of this principle.

However, two recent judgments of the Belgian Court of Cassation with regard to the so-called annual tax on collective investment undertakings (also referred to as "subscription tax") have called this reasoning into question.

"The Belgian administration now appears to want to revise its position and thus make securities accounts held in Belgium by Luxembourg residents subject to tax"

In first instance, the French-speaking chamber of the Court of Cassation ruled on 25 March 2022 that the annual tax on collective investment undertakings did not constitute a wealth tax, so that the treaty with Luxembourg did not prevent it from being levied. However, in view of the Court's considerations, the outcome of this judgment can be strongly criticized.

On 21 April 2022, the Dutch-speaking Chamber of the Court of Cassation rendered a second judgment, this time qualifying the annual tax on collective investment undertakings as wealth tax (…), but stating that the treaty with Luxembourg only contained an exhaustive list of which types of wealth taxes were covered by the treaty. Since the annual tax on collective investment undertakings is not included in this exhaustive list, Belgium could indeed proceed to taxation, at least according to the Court.

Although the Dutch-language judgment is certainly not without criticism and counterarguments can be found, there are now two judgments on short notice that allow Belgium's taxing power, at least with respect to the annual tax on collective investment undertakings.

The ATSA shows great similarities with the annual tax on collective investment undertakings, which has led to fears for some time that an inference would be drawn from the aforementioned decisions from the Court of Cassation. After all, the ATSA is not on the - in the opinion of the Court of Cassation - exhaustive list of the double taxation treaty Belgium-Luxembourg.

The latter now appears to be the case. The Belgian administration now appears to want to revise its position and thus make securities accounts held in Belgium by Luxembourg residents subject to tax. This is clearly in contradiction with its previous position as stated in the FAQ.

This change of administrative position does not only affect the Luxembourg individual holding a securities account in Belgium, but also any legal person (e.g. the popular soparfi) or any other institution (e.g. a Luxembourg insurance company in the framework of its branch-23 insurance activities) holding securities accounts in Belgium.

Obviously, this raises new issues, especially as the first reference period has already ended (30 September 2021) and the second reference period has already been exceeded by half.

Moreover, the Dutch-language case has been referred to the Court of Appeal in Ghent. Consequently, the Belgian tax administration is acting prematurely.

Of course, we are always at your disposal for further questions and/or comments.

Dirk Coveliers

Counsel
Antwerp

Yannick Cools

Associate
Antwerp
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