THE FRENCH-BELGIAN DOUBLE TAXATION : THE COURT OF CASSATION CONDEMNS THE POSITION OF THE ADMINISTRATION

The incredible problem Belgian residents detaining interests in French companies encounter since several years is not new : while both countries are linked by a treaty to avoid double taxation (CPDI) they are still subject to such a double taxation on their dividends received in France!

To remind you, the Treaty provides, like most of that kind of treaties, that the dividends and interests are theoretically taxed in the state of residence (in this case, Belgium), at the same time allowing a withholding tax system of 15% max in favour of the state of source of the income (France).

In order to avoid the double taxation that may result from it, article 19, A, 1, of the CPDI, provides expressly that for the dividends which have been subject to the withholding tax in France and that have been received by Belgian residents, « the tax due in Belgium on the net amount of the French tax withheld will be reduced on, the one hand, with the withholding tax received at normal rate, and, on the other hand, with the fixed foreign tax credit that is deductible under the conditions fixed by the Belgian legislation, without this amount being inferior to 15 percent of the said net amount ».

So in this system the withholding tax of 15% in France is compensated with an equal taxation of 15% in Belgium.

So the treaty mechanism is perfectly neutral for the taxpayer, which is in fact the goal of the treaty, and it has shown its efficiency during many years, with the fixed foreign tax credit (FFTC) that is chargeable according to the Belgian national legislation being fixed at 15%.

At the end of the 80ies, the Belgian legislator however had unilaterally decided to reduce this FFTC to …0% (!) and, since then, the tax authority considers itself entitled to tax the dividends of French origin at the rate provided by the Belgian law, without granting the least imputation as FFTC. For this purpose the authority uses the fact that the CPDI says that the FFTC is « deductible under the conditions fixed by the Belgian legislation » as base for its reasoning, without taking into account the rest of the treaty text, nonetheless saying: « without this amount being inferior to 15 percent »!

Rather unexpectedly the courts and tribunals, who already had to deal with the problem at several occasions, have not yet sanctioned this administrative position.

Fortunately, the Court of Cassation has just quashed a judgment of the Court of Appeal of Ghent that had again agreed with the authority.

In a judgment of last June 16th, the Court, after having repeated the provisions of article 19, A, 1, of the CPDI, derived from the text that the fixed tax credit can indeed not be inferior to 15%. It then recalls the principle of prevalence of the international legislation on the Belgian national legislation, and concluded that the Belgian national regulations may not oppose the granting of the minimum tax credit provided by the Treaty that was concluded between the two countries.

This very important judgment should allow the taxpayers who profit from such dividends of French origin to lodge a complaint for the year 2017 (even if they have not yet entered their tax return, the tax return form is drawn up in such a way that it does not allow to claim the credit of 15% so that they will be obliged to lodge a complaint in order to obtain the reimbursement of the amounts overpaid).

Furthermore it is not excluded that these same taxpayers lodge an automatic claim for tax deduction for the previous five years.