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Reimbursements Offered for Withholding Taxes
The Belgian tax authorities have been convicted by the European Court of Justice for unjustified collection of withholding taxes on dividend distributions. The judgment is based on the fact that Belgian companies can compensate paid withholding taxes on dividends with corporate income taxes while other European companies do not have this opportunity.The European Court of Justice has argued that this regulation is not in line with the European regulations on the free movement of capital. Taxand Belgium explains the background proceedings which led to this action.
This judgement concerns the case of Tate & Lyle Investment, a UK company who held a participation in the Belgian company named Tate & Lyle Europe NV.
After a demerger of Tate & Lyle Europe NV and the corresponding transfer of assets to a new Belgian company, i.e. Tate & Lyle Services NV, it is stipulated that - according to Belgian law- the payments to the shareholders must be seen as dividend income. A withholding tax on dividends of 10% on the payment is applicable in this case. The discrimination lies in the fact that Tate & Lyle Investment is liable to pay 10% of withholding taxes on its participation in Tate & Lyle Europe NV and that it cannot benefit from any compensation via Belgian corporate income tax since they do not have a Belgian corporate tax filing obligation.
According to Belgian legislation, in certain cases dividend income is exempt from Belgian corporate income tax for 95% (i.e. so called dividend received deduction). Belgian companies liable to file a Belgian corporate income tax return, need to include a dividend received in their taxable basis and can exclude this amount via this specific deduction for 95%.
In practice, this implies that (in some cases) Belgian companies pay dividend withholding taxes on dividends received. Via the Belgian corporate income tax return, they are however liable to pay 33.99% of corporate income taxes on this income. Because of the 95% dividend received deduction, corporate income taxes will be negligible and a reimbursement of the dividend withholding taxes can be claimed since this dividend withholding tax is deductible from the corporate income taxes and even refundable.
This tax regulation was not applicable for non-resident companies, which is in opposition to European Law.
In the case at hand, the criteria were met for the 95% dividend received deduction. However, since the company at hand was a Belgian non-resident no compensation was possible. With this jurisprudence, non Belgian companies have an interesting tool to claim a reimbursement of withholding taxes on dividends. Businesses in this position should be prepared to progress legal proceedings to file a tax claim with the Belgian tax authorities.