Court favours legalistic interpretation of beneficial ownership in IRD implementation

On 12 August 2025, the Court of First Instance of Brussels (“the court”) rendered a milestone judgement (Dutch I French) in favour of the taxpayer, ruling that the beneficiary requirement in Belgium’s domestic implementation of the withholding tax exemption in the EU interest and royalties directive (IRD) should be interpreted in a legalistic manner, and not in an economic manner as endorsed by the Court of Justice of the European Union (CJEU) in 2019 in joined cases C‑115/16, C‑118/16, C‑119/16, and C‑299/16 (frequently referred to as “the Danish cases”).

In the Danish cases, the CJEU clarified that the beneficial owner must be an entity that, not only from a legal but also from an economic perspective, enjoys the interest and is therefore free to decide how to use it. The Belgian court has deviated from this case law, by concluding that it is sufficient for the recipient to have a mere legal right to the income and thus in substance accepting that the exemption may apply provided that the recipient does not operate as an agent.

The detail of the judgement touches upon the principal discussion as to whether and to what extent taxpayers may be denied benefits available to them as a result of a more lenient implementation of an EU directive, on the basis of the broader scope of that directive.

In the meantime, the Belgian state has lodged an appeal against the decision. It will therefore be necessary to monitor further developments, as well as whether other courts will adopt the same position, and any possible legislative initiatives.

Belgium’s implementation of the IRD

The withholding tax exemption for interest payments to EU related parties (articles 1.1 and 1.4 of the IRD) was transposed in article 107, §6 of the Royal Decree to the Belgian Income Tax Code (RD/BITC). 

Contrary to the wording of the IRD, which requires the recipient of the income to be the “beneficial owner,” article 107, §6 of the RD/BITC refers to the concept of the “beneficiary” of the income.

Considering the above, discussion arises as to whether the Belgian implementation of the IRD embeds a beneficial ownership requirement. According to the Belgian tax authorities, it does, as being a European-inspired legal provision and therefore to be interpreted in accordance with the case law of the CJEU (i.e., the Danish cases). The taxpayer disagreed on the grounds that the Belgian implementation does not explicitly refer to the notion of beneficial ownership but only to beneficiary, and is to be interpreted in a mere domestic manner. The difference in interpretation (economic versus legalistic) is important in practice, since an economic test is typically much broader, and allows tax authorities to more easily challenge financing structures. 

Decision of the court

From the difference in wording between the IRD and its Belgian implementation, the court deduced that:

• It was the intention of the Belgian legislator to adopt a terminology divergent from the IRD; and
• The concept of beneficiary should therefore be interpreted to have its ordinary meaning, and on that basis (and disregarding the French wording of the same implementation) the beneficiary concept should be conceived as the person who has a legal right to the income, in the specific case of interest. 

The court subsequently also did not uphold the argument of the Belgian tax authorities that the domestic implementation provision should be interpreted in a manner compliant with the directive. The court ruled that the obligation to refer to the content of an EU directive is limited by general legal principles, and that a directive-compliant interpretation would not only be against the law but also violate the legitimate expectation principle. 

The court also dismissed the Belgian tax authorities’ arguments as to the applicability of the general principle of abuse of EU law (as defined in the Danish cases) as well as the domestic general anti-abuse provision. The reasons given by the court included the clear deviating wording of the domestic implementation of the IRD (beneficiary as opposed to ultimate beneficiary) and the fact that no double non-taxation was at stake, since the recipient of the interest was subject to corporate income tax in Luxembourg and thus the “at least once taxation in Europe” objective had been achieved.

Closing remarks

The Belgian tax authorities have decided to lodge an appeal against the decision. Given the principal character of the discussion, and the increased focus on anti-abuse, it is expected that they will continue to defend their position in existing and emerging disputes on this topic.