Belgian tax authorities and double taxation of French dividends: granting a tax credit under certain conditions

Double taxation of French dividends – new circular of 28 May 2021 – The Belgian tax administration finally allows the granting of a tax credit but only if the dividends are mentioned in the personal income tax return.

French dividends received by a Belgian resident individual are subject to an initial withholding tax in France at the current rate of 12.80% and are then taxable in Belgium at a rate of 30%.

In order to remedy this double taxation, the current Franco-Belgian tax treaty provides for a lump-sum foreign tax credit (QFIE) to be deducted from the Belgian tax under the conditions set by Belgian law, which may not be less than 15%.

Until then, the Belgian tax authorities systematically refused to grant this tax credit, considering that Belgian tax legislation no longer allowed individuals to benefit from a lump-sum foreign tax credit.

In rulings of June 16, 2017 and October 15, 2020, the Belgian Court of Cassation ruled otherwise, considering that the treaty allowing this tax credit should take precedence over Belgian tax legislation.

In a circular dated May 28, 2021 (2021/C/49), the Belgian tax authorities finally agreed with the case law of the Court of Cassation and accepted to limit the double taxation of dividends by allowing the deduction of a QFIE from Belgian tax.

For example: If you received a French dividend of €100.00 that is fully taxable in Belgium, the effective tax rate will be reduced as follows

• Estimated French withholding tax: €100.00 X 12.80% = €12.80 (1)
• Estimated Belgian tax: 87.20 € (“border” income) X 30% = 26.16 € (2)
• Estimate of the QFIE that can be deducted from the Belgian tax: 87.20 € (“border” income) X 15 % = 13.08 € (3)
• Total tax: 12.80 € (1) + 26.16 € (2) – 13.08 € (3) = 25.88 € instead of 38.96 €.

Therefore, thanks to the tax credit, the effective tax rate is reduced from 38.96% to 25.88%, i.e. a tax gain of 13.08%. The French source dividends (rate: 25.88%) are therefore less taxed than the Belgian source dividends (rate: 30%).

However, the Belgian tax authorities only accept the granting of this tax credit on the condition that the dividends have been mentioned in the personal income tax return.

In principle, only dividends received directly abroad should be declared. Until now, there was no obligation or even interest to declare dividends received in Belgium, which are subject to the withholding tax.

According to the current position of the tax authorities, if you wish to claim the tax credit, you are now required to declare all dividends, whether received in Belgium or abroad, with or without withholding tax.

However, the inability to benefit from the QFIE for dividends that have been subject to the withholding tax and that have not been mentioned in the tax return is still controversial.

In a decision of December 15, 2020, the Ghent Court of Appeal held that the rules of internal procedure and declaration could not be opposed to the obligation imposed by the Franco-Belgian tax treaty. The Court of Cassation is also expected to rule on this issue.  In the meantime, we can only advise taxpayers who wish to benefit from this tax credit to report the dividends in their tax return.

For French dividends received before 2020, the Belgian tax authorities will only allow the tax credit if the dividends have been included in the tax return or integrated in the taxable base by the tax authorities and a claim has been filed within the legal time limit of 6 months.

In view of the evolution of the case law of the Court of Cassation, many taxpayers who no longer had the possibility to lodge a claim within the six-month period, have lodged an application for an ex officio rebate for “double use” within the extended period of 5 years.

In its circular, the Belgian administration rejects the requests for automatic relief, considering that there would be no “double use” in this case, as the Franco-Belgian convention expressly provides for the taxation of these dividends in both States. This position is highly questionable and will undoubtedly also be the subject of further debate in the courts.