Belgium: Tax treatment of dividends under treaty provisions, CJEU judgment

Belgium: Tax treatment of dividends under treaty

The Court of Justice of the European Union (CJEU) issued a judgment concluding that the freedom of capital does not preclude an EU Member State from treating dividends received from another EU Member State less favorably than those received from a third country, as a result of an obligation arising from a tax treaty concluded with the third country.

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The case is: Riskin and Timmermans (C-176/15, 30 June 2016). 


Depending on the terms of an applicable tax treaty, Belgian law may allow taxpayers to credit the withholding tax levied at source by a third state from the Belgian tax payable on foreign dividends, whereas Belgian law makes that credit subject to additional conditions in the case of dividends paid by companies established in another EU Member State.

In the instant case, the Belgium-Poland income tax treaty provides that—subject to the applicable provisions of its domestic law—Belgium may choose to eliminate double taxation of dividends by granting a tax credit corresponding to the Polish tax levied at-source. However, Belgian law provides that, in such situations, foreign tax may be credited only to the extent that the income is derived from the conduct of a professional activity in Belgium. As a result, Belgian taxpayers (such as the individuals in this case) who received dividends from Poland cannot benefit from a tax credit when the participation is not held in the context of a business activity. On the other hand, tax treaties concluded with certain third countries, such as with the United States, do not refer to Belgian law, and in such situations, Belgium grants a tax credit unconditionally. Thus, dividends received from certain third countries (e.g., the United States) are treated more favorably than dividends received from another Member State (e.g., Poland).

CJEU judgment

The CJEU first acknowledged the existence of a restriction to the free movement of capital, since Belgian residents who invest in some countries (like the United States) are treated more favorably than those who invest in countries like Poland, when such investment is not linked to a professional activity in Belgium. However, the CJEU found that this restriction was justified since the situations in question are not comparable.

The CJEU stated that the benefits granted by a tax treaty are an integral part of all rules under the treaty and contribute to the overall balance of mutual relations between the two contracting countries. Given the more favorable provision included in the Belgium-United States income tax treaty is the result of the negotiations between the two countries, this provision cannot be seen separately from the remaining treaty. Therefore, the benefit of this provision can be granted only to Belgian residents falling within the scope of that treaty. For this reason, Belgium does not have to extend this benefit to dividends from other countries. According to the CJEU, Belgian residents who receive dividends from EU Member States, such as Poland, are not in a situation that is objectively comparable to that of Belgian residents who receive dividends from a third State; therefore, this difference of treatment does not constitute a restriction prohibited by EU law.


Read a July 2016 report prepared by the KPMG member firm in the Netherlands

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