On 11 May 2016 the Belgian Constitutional Court annulled with retroactive effect the legal provision in the Belgian Income Tax Code which excluded dividends from public and certain institutional regulated real estate companies (RREC) from the scope of any withholding tax exemption.
On 11 May 2016 the Belgian Constitutional Court annulled with retroactive effect the legal provision in the Belgian Income Tax Code which excluded dividends from public and certain institutional regulated real estate companies (RREC) from the scope of any withholding tax exemption. As a consequence of this decision, qualifying foreign pension funds are entitled to obtain a refund for dividends received from RRECs for the period as of July 16, 2014. Also other non-resident investors in a RREC might be able to get a refund of Belgian dividend withholding tax.
Background and facts
The regime of the Belgian Regulated Real Estate Company (RREC; in French: société immobilière réglementée or SIR; in Dutch: gereglementeerde vastgoedvennootschap or GVV) has been introduced as of 16 July 2014. It has complemented the already existing regime of the Belgian Real Estate Investment Fund (REIF; in French: société d'investissement à capital fixe en immobilière or SICAFI; in Dutch vastgoedbeleggingsvennootschap met vast kapitaal or vastgoedbevak).
A withholding tax (WHT) exemption was explicitly excluded for dividends distributed by RRECs by article 266, § 2, 4° Belgian Income Tax Code (BITC). In contrast, dividends distributed by REIFs were (and are) not subject to Belgian withholding tax on dividends if distributed to non-resident pension funds (article 106 §2 Royal Decree/BITC), parent companies (article 106 §6 RD/BITC) and non-residents in general (article 106 §7 RD/BITC), provided certain conditions were met.
On May 11, 2016, the Belgian Constitutional Court annulled article 266, §2, 4° BITC with retroactive effect, as it created a discrimination between RRECs and REIFs in violation of the Belgian constitution.
Already aware of such discrimination before the Belgian Constitutional Court could render its judgment, the Belgian legislator had repealed article 266, §2, 4° BITC, however only ex nunc, i.e. as from 7 January 2016.
Impact of the judgment of the Belgian Constitutional Court
In the first place, the Constitutional Court’s decision has as a consequence that qualifying foreign pension funds are entitled to claim a refund of withholding tax on dividends paid by RRECs as of 16 July 2014. Qualifying foreign pension funds are those defined by article 106 §2 RD/BITC:
For non-residents, other than qualifying foreign pension funds, article 106 §7 RD/BITC explicitly determines an exemption from dividend withholding tax only for dividends paid by specific investment companies (including REIFs), i.e. not for dividends from RRECs. Given however the Constitutional Court’s statement that a different tax treatment of RRECs and REIFS constitutes an unconstitutional discrimination, one could argue that the exemption from withholding tax by article 106 §7 RD/BITC for REIFs should also be applied to dividends paid by RRECs.
Action points to be taken with respect to withholding tax on dividends from RRECs:
In all cases, the applicable statute of limitation period is five years, counted as of 1 January of the year in which the dividend WHT was remitted to the Belgian state. For dividends paid in the year 2014, a refund of withholding tax therefore needs to be duly requested by end of 2018.
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