Foreign tax credits in Belgium | KPMG | GLOBAL

Belgium: Foreign tax credits, French-sourced dividends distributed to Belgian individuals

Foreign tax credits in Belgium

The Belgian Supreme Court (Cour de Cassation) issued a judgment in June 2017 when it concluded that the French withholding tax on dividends attributed to a Belgian individual resident must be (partially) credited against the Belgian tax due on those dividends.

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The court looked to the mechanism of the “flat-rate foreign tax” (quotité forfaitaire d’impôt étranger—QFIE) as provided for in the income tax treaty between Belgium and France, and even though it was repealed by Belgian law in 1988, the QFIE would nevertheless be applied pursuant to the principle that international law primes domestic law. 

In practice, this means that the Belgian individual taxpayer receiving French dividends would have the risk for double taxation substantially reduced. 

For example, assume that a dividend of €100 is paid by a French company to a Belgian resident individual shareholder. This dividend would be taxed in France at the rate of 15% (application of a provision under the tax treaty) and the amount of French tax to be collected would be €15. The Belgian withholding tax then would applied on the net amount of tax (30% on €85) resulting in a tax of €25.50. The dividend net of French and Belgian tax that the shareholder would receive would be €59.50. If, however, the QFIE mechanism is applied, the taxpayer can benefit from a tax credit of €12.75 (QFIE of 15% of the net income of €85) and would receive a net dividend amount of €72.25.

KPMG observation

Given the court’s judgment in the recent case, Belgian individual investors may benefit from requesting that tax treaty measures are applied with respect to dividends that they receive from French sources. Taxpayers also need to consider whether there are opportunities for refunds from open, prior years and if warranted, file a claim or a request for automatic relief.

 

Read a July 2017 report (French) prepared by the KPMG member firm in Belgium

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