Scope of tax on stock exchange transactions | KPMG | BE

Belgian government broadens scope of tax on stock exchange transactions

Scope of tax on stock exchange transactions

Within the framework of different budgetary measures, the Belgian government has significantly broadened the scope of the tax on stock exchange transactions (hereafter « TST »). This legislative amendment will have an impact on Belgian residents (both individuals as corporates) who have a non-Belgian bank account on which certain securities transactions are carried out and on Belgian residents who trade via a foreign internet platform.

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1. Current regime of the TST

1.1. Concerned transactions

The TST applies to certain secondary market transactions (sale, purchase, exchange) on Belgian or foreign “public funds”, i.e. securities which, by their nature, can be publicly traded, such as shares, bonds, units of collective investment funds, certificates,... The TST applies to both listed and non-listed securities.

Up to January 1st, 2017 the TST was only applicable to secondary market transactions, concluded or carried out with intervention of a professional intermediary established in Belgium, i.e. Belgian financial institutions and Belgian branches of foreign financial institutions.

1.2. Debtors

In respect of the transactions concluded or carried out in Belgium, the TST is due by the aforementioned professional intermediaries established in Belgium, who deduct the amount of TST from sums due to the Belgian client.

2. New regime of the TST

2.1. Concerned transactions

As of January 1st, 2017 the transactions carried out by intermediaries established abroad will equally be subjected to the TST, provided that the purchase or sale order is given – directly or indirectly - to the intermediary established abroad by:

  • A natural person having its habitual residence in Belgium;
  • A legal entity from its registered office or permanent establishment in Belgium.

The new TST not only targets transactions carried out by foreign banks, but also transactions over the internet by foreign entities offering, from abroad, a platform for Belgian investors.

Moreover, it is not relevant if the foreign professional intermediary, which carries out the purchase or sale, has any establishment in Belgium.

2.2. Debtors

Henceforth, if the transaction is carried out by a professional intermediary abroad, the ordering party shall be deemed liable for the TST, unless he provides evidence of payment of the tax (by either the bank or a fiscal representative).

3. Consequences for foreign banks

Up to 2017, the TST was triggered by the intervention of a Belgian professional intermediary. As from 2017, the TST will be triggered in case the order is given by a Belgian natural person or legal entity (cfr. supra).

In accordance with the new Belgian legislation, the TST shall from now on be due if a foreign, non-Belgian bank carries out a qualifying secondary market transaction on behalf of a Belgian client. Although, as a rule, the Belgian client will be liable for the TST, foreign banks may, for commercial motives, opt to take over the reporting and paying responsibility of their clients by doing the reporting and payment of TST themselves or by appointing a fiscal representative. Anyway, the Belgian client will depend on the information provided by the foreign bank in order to be able to comply with his/her TST obligations in case the reporting and payment of the TST would not be done by the bank.

KPMG Comments

The new TST rules give rise to a number of practical questions and concerns:

  • TST applies on transactions abroad in case a Belgian resident gives a direct or indirect order to an intermediary abroad. The law does however not define what is meant by an indirect order. In a large interpretation also transactions within the framework of a discretionary asset management could be targeted. This would be in line with the aim to create a level playing field between Belgian banks and foreign banks and seems also to be the interpretation of the Belgian central tax authorities. Based on a strict reading of the law, however, it could be criticized that a general mandate by a Belgian resident (instead of an – indirect - order for a specific transaction) would be sufficient for the TST to become due.
  • The extension of the TST could also be criticized on more fundamental grounds. Although the Belgian legislator aims to create a level playing field between Belgian banks and foreign banks, at least some provisions and obligations under the new TST may be considered disproportional and in breach of the EU freedom of services. For example imposing the Belgian resident monthly reporting and payment obligations in case the TST is not paid by the foreign intermediary, combined with the increased fines upon non-compliance, may not be in proportion to the amount of TST due. 
  • An obvious discrimination arises in case of redemption of capitalizing shares of investment companies. Upon redemption of shares of investment companies investing for more than 25% in bonds and debt receivables, the Belgian individual investor is subject to an income tax of 30%. When the redemption is executed by a Belgian bank, the income tax is levied by way of a withholding tax. When the redemption is executed by a non-Belgian bank, the Belgian individual investor has to declare the redemption gain in his personal income tax return and pay income tax upon assessment. Currently, the TST provisions foresee that the Belgian withholding tax in this case can be deducted from the tax base of the TST upon redemption. However no (explicit) deduction from the TST base is foreseen for the income tax paid by the Belgian individual investor when the redemption is executed by a non-Belgian bank.
  • Questions may also arise in respect of the territoriality principle. The new TST may be imposed on transactions on non-Belgian securities that are completely carried out abroad, the only link with Belgium being the Belgian resident giving the (indirect) order. This implies that the TST could easily result in double taxation.
  • A weak point of the extended TST is that the Belgian law – based on the territoriality principle - cannot be imposed on foreign intermediaries that have no presence in Belgium. For example the obligation to provide to the Belgian resident a specific order statement (“borderel”) upon each transaction seems also to apply to foreign intermediaries (with increased fines of at least EUR 1.000 in case of non-compliance), while it is hard to see how foreign intermediaries can be forced to comply with this obligation.
  • Nevertheless, it is expected that foreign banks with a large Belgian clientele will spontaneously comply and take over the reporting and paying responsibility of their Belgian clients for commercial reasons. Still it is questionable whether foreign banks can be penalized for any non-compliance (e.g. timely payment of TST, wrong qualification of transactions,…). It looks like in the end the Belgian client will remain responsible for any non-compliance of his/her foreign bank and may be imposed (increased) fines of EUR 50 per week of delay in payment of the TST. The latter observation brings us back to our question whether (at least part of) the new TST legislation imposes disproportional obligations to a Belgian resident which may result in a forbidden discrimination of services provided to Belgian residents by foreign banks compared to Belgian banks.

© 2017 KPMG Tax and Legal Advisers, a Belgian Civil Cooperative Company with Limited Liability (burg. CVBA/SCRL civile) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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