Conflicting court decisions regarding annual tax on collective investment funds

On 5 November 2024, the Ghent Court of Appeal aligned with four landmark decisions of the Brussels Court of Appeal rendered on 25 April 2023 concerning Belgium’s annual tax on collective investment undertakings (taxe annuelle sur les organismes de placement collectif or jaarlijkse taks op collectieve beleggingsinstellingen), hereinafter referred to as the net asset tax, but also known as the subscription tax. The Ghent Court of Appeal held, broadly, that the net asset tax qualifies as a net wealth tax within the meaning of the Belgian-Luxembourg treaty and, consequently, Luxembourg SICAVs (Sociétés d'Investissement à Capital Variable, a form of undertaking for collective investment in transferable securities (UCITS)), may invoke the provisions of the treaty to avoid the imposition of the net asset tax. However, the next day, on 6 November 2024, the Liège Court of Appeal ruled in the opposite direction.

This alert discusses the conflicting judgements and the implications for taxpayers.

Background

The net asset tax is a Belgian tax levied on the net assets of collective investment vehicles that are publicly offered in Belgium. This includes UCITS and alternative investment funds that distribute shares or units to Belgian retail, professional, or institutional investors. The tax is applicable to both Belgian and foreign investment funds that meet certain criteria. It is calculated annually based on the total net assets of the relevant fund as at 31 December of the previous year.

The standard rate of the net asset tax is 0.0925%. A discounted rate of 0.01% is foreseen for shares or units which may be acquired exclusively by professional or institutional investors acting on their own account.

Fund managers are responsible for the reporting and payment of the tax.

The net asset tax has been under scrutiny by the Belgian tax authorities for a number of years, regarding its compatibility with Belgium’s bilateral tax treaties which, in accordance with the OECD model tax treaty, generally prevent the levying of net wealth tax in jurisdictions other than the jurisdiction of tax residence of the taxpayer.

Issue at stake

The courts have been asked to consider whether the net asset tax can be imposed on Luxembourg SICAVs and specifically to address two questions:

• Is the net asset tax a net wealth tax falling within the scope of tax treaties (in the case at hand, the Belgium-Luxembourg treaty) in general by virtue of the nature of the tax (ratione materiae), and the clause relating to the levying of net wealth tax in particular; and

• May a Luxembourg SICAV qualify as a tax resident falling within the scope of the Belgium-Luxembourg treaty by virtue of the nature of the entity (ratione personae), and therefore be eligible for treaty benefits?

Conflicting Supreme Court judgements

In March and April 2022, the Belgian Supreme Court (Cour de Cassation/Hof van Cassatie) rendered two contradictory decisions in respect of the first question above.

The French-speaking chamber of the Belgian Supreme Court ruled that the net asset tax is not a net wealth tax, whereas the Dutch-speaking chamber of the same court ruled that the net asset tax qualifies as a net wealth tax. Both chambers, however, reached the same conclusion, that Luxembourg SICAVs are not treaty-protected against the Belgian net asset tax because (i) the list of taxes falling within the scope of the Belgium-Luxembourg treaty is exhaustive, and the net asset tax is not expressly included in that list, and (ii) Luxembourg SICAVs do not qualify as residents that are entitled to treaty benefits.

Judgements of the courts of appeal in Brussels, Ghent, and Liège

Both Supreme Court cases were referred back to the courts of appeal of Ghent and Liège for final decisions.

The Court of Appeal of Ghent issued its decision on 5 November 2024, which aligned with four previous decisions of the Court of Appeal of Brussels. Both courts of appeal (Brussels and Ghent) ruled that:

• Luxembourg SICAVs qualify as residents for tax treaty purposes and are fully entitled to treaty benefits, including the allocation rule granting the power to levy net wealth taxes to the jurisdiction of tax residence only;

• The net asset tax qualifies as a net wealth tax for treaty purposes; and

• The list of taxes covered by the Belgian-Luxembourg treaty is exemplary and not exhaustive. As a result, the treaty concept of net wealth taxes (which may exclusively be levied in the jurisdiction of tax residence of the taxpayer) must be interpreted dynamically and includes new taxes even if the latter are not expressly mentioned in the exemplary list. Both courts held that the nature of the net asset tax is such that it falls within the scope of the treaty concept and Luxembourg taxpayers may therefore be subject to such taxes in their jurisdiction of tax residence only.

In light of the above, both the Brussels and Ghent courts of appeal concluded that the Belgian net asset tax may not be levied on investment companies that are tax residents in Luxembourg.

However, departing from the decisions rendered by the courts of appeal of Brussels and Ghent, the Liège Court of Appeal aligned itself with the French-speaking chamber of the Belgian Supreme Court and held, in a decision dated 6 November 2024, that the net asset tax does not qualify as a net wealth tax within the meaning of the Belgian-Luxembourg treaty. Consequently, according to that court, Luxembourg SICAVs cannot invoke the provisions of the treaty to avoid the imposition of the net asset tax.

Deloitte Belgium comments

Such a divergence in jurisprudence between the Belgium Supreme Court and certain courts of appeal in Belgium is exceptional, and creates legal uncertainty that is detrimental to taxpayers. The debate extends far beyond the scope of the net asset tax, to encompass the question as to whether Luxembourg SICAVs may enjoy treaty benefits from a Belgian tax perspective, potentially affecting claims for withholding tax reliefs in Belgium.

Currently, Deloitte Belgium is representing clients in a landmark case before the Belgium Supreme Court, addressing the consequences of the most recent decisions of the Brussels Court of Appeal discussed earlier. Our objective is to secure a definitive and authoritative clarification, critical for restoring legal certainty in respect of the Belgian tax (treaty) treatment of Luxembourg SICAVs. This case highlights the indispensable role of jurisprudential consistency in safeguarding the stability of cross-border tax frameworks and ensuring the equitable application of treaty benefits.