Investment income earned abroad must be declared on the basis of the “montant net frontière” (net border amount). The tax authority has promised to clarify this concept in an upcoming circular.
In the meantime, the net border amount is calculated as the “montant brut” (gross amount) minus the “retenue à la source réellement prélevée” (withholding tax actually applied).
Declaring investment income earned abroad. What is the right amount to declare?
In a recent circular (2020/C/96), the Belgian tax authority revisited its position, initially set out in an internal briefing memo, on how to calculate the net border amount for Belgian taxpayers, who are required to declare the investment income they earn abroad.
What was this position?
Belgian taxpayers (natural persons) are taxed on the net border amount of investment income earned abroad: in other words, the gross amount minus foreign tax (withholding tax). Article 22 of the Belgian income tax code (CIR 1992) and the related comments stipulate that this amount represents the amount received, calculated as the gross amount net of taxes levied abroad.
Unpublished internal instruction dated 26 September 2019
In an internal instruction of 26 September 2019 (instruction 2019/I/45), the Belgian tax authority stated that the net border amount (only where the taxpayer is filing a return) is the gross amount minus foreign withholding tax, automatically capped at the rate set out in the relevant double taxation treaty (see below).
The authority’s stance on this issue had a significant financial impact. The tax authority was not considering the fact that the taxpayer might be unwilling (if the costs associated with the tax reclaim (1) or relief (2) process were excessively high relative to the income in question) or unable (if tax relief was unavailable in certain countries) to have their withholding tax capped at the rate set out in the relevant double taxation treaty. As such, the tax authority was not basing its calculations on the actual rate of tax levied abroad.
Let’s consider the impact of this instruction with a practical example involving a dividend paid out by Swiss company X.
Calculation by the tax authority (since the instruction of 26/09/2019)
| Company X listed in Switzerland | 100 | |
| Swiss withholding tax | 35 | 35% |
| Cap on Swiss withholding tax (rate set out in the double taxation treaty between Belgium and Switzerland) | 15 | 15% |
| Net border amount to declare | 85 | |
| Belgian withholding tax | 25.5 | 30% |
| Net amount after tax (received by the investor) (after all taxes are paid by the taxpayer) | 39.5 |
Factual calculation based on the Belgian income tax code
| Company X listed in Switzerland | 100 | |
| Swiss withholding tax | 35 | 35% |
| Net border amount to declare | 65 | |
| Belgian withholding tax | 19.5 | 30% |
| Net amount after tax (received by the investor) (after all taxes are paid by the taxpayer) | 45.5 |
There were a number of issues with this instruction:
- divergence from the law;
- difference in tax treatment of foreign income to be declared and foreign income received via a bank located in Belgium (in which case the withholding tax is deemed definitive and no further tax can be levied);
- unpublished briefing memo.
New circular 2020/C/96
In its circular dated 9 July 2020 (2020/C/96), the Belgian tax authority announced a return to the situation prior to 26 September 2019; the amount to declare is now once again the gross amount minus “l’impôt étranger déduit” (tax levied abroad). (3) Clarifications regarding the concepts “montant encaissé ou recueilli” (amounts received or collected) and “impôts prélevés à l’étranger” (taxes levied abroad) are expected (in a future circular).
How should taxpayers who have received a correction notice proceed?
If, based on the tax authority’s position since 26 September 2019, you have recently received a correction notice relating to tax levied on natural persons as regards the net border amount for the 2016, 2017 and 2018 tax years following the automatic exchange of tax information under the CRS (Common Reporting Standard), this information may be of use to you if you decide to challenge any additional or higher taxes you may have been charged.
(1) “Tax reclaim” is a procedure carried out at the request of the beneficiary of the income whereby they can retrospectively recover the difference between the foreign withholding tax applied and the maximum withholding tax under the relevant double taxation treaty. It is important to bear in mind that any reclaimed withholding tax is classed as investment income. Where it is received in a foreign account, it must be declared on the IPP tax return (code 1444/2444).
(2) “Tax relief” is another procedure carried out at the request of the beneficiary of the income. It enables them to have a reduced rate of foreign withholding tax, as set out in the relevant double taxation treaty, applied directly at source.
(3) It has yet to be seen whether the return to the position prior to 26 September 2019 is definitive. New circular pending.
Situation as at mid-July 2020
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