The Belgian UCI tax on Luxembourg funds remains a longstanding point of contention between the two countries. However, a recent ruling by the Ghent Court of Appeal has delivered significant legal and tax advantages for Luxembourg Sicavs.
In practice, Luxembourg Sicavs pay Belgian tax, known in Flemish as the ICB tax, on Undertakings for Collective Investment (UCIs) when their shares are traded in Belgium. This tax is calculated based on the total net amounts outstanding in Belgium as of 31 December of the previous year. The applicable rates are 0.0925 per cent for retail investors and 0.01 per cent for shares held by institutional investors.
A disputed tax
Luxembourg funds have consistently disputed the obligation to pay this tax, arguing that it breaches the Double Taxation Treaty (DTT) between Belgium and Luxembourg. This legal battle over the Belgian UCI tax on Luxembourg Sicavs has been ongoing for 18 years.
In March and April 2022, the issue culminated in two conflicting rulings from the Court of Cassation—one from the French-speaking chamber and one from the Dutch-speaking chamber. The French-speaking chamber ruled that the tax does not constitute a wealth tax, while the Dutch-speaking chamber disagreed but concluded that the DTT text did not explicitly cover the tax. Consequently, both cases were referred back to the Courts of Appeal in Liège and Ghent.
In November 2024, the dispute took an unexpectedly positive turn for Luxembourg funds, further bolstering the fund industry’s position.
Ghent court of appeal ruling
On 5 November 2024, the Ghent Court of Appeal ruled on the Dutch-language case. While the court was technically bound to follow the Court of Cassation’s decision, it identified several openings to examine key issues in greater depth.
The Court of Cassation had previously held that the Belgian subscription tax is not explicitly listed in Article 2, §3 of the DTT. However, it did not explicitly rule out that the tax could be classified as a wealth tax under Article 2, §1. The Ghent Court took this further and concluded that the tax does qualify as a wealth tax under Article 2, §1 and, therefore, falls within the DTT’s scope.
The Ghent Court also addressed whether Luxembourg Sicavs could be considered treaty residents eligible for the treaty’s benefits. The Brussels Court of Appeal had already ruled in 2019 that Luxembourg Sicavs qualify as treaty residents, and this decision was not contested in Cassation. The Ghent Court affirmed this precedent.
Two key principles confirmed
Despite initial scepticism, the Ghent Court confirmed two critical principles:
- The Belgian UCI tax violates the DTT between Belgium and Luxembourg.
- Luxembourg SICAVs are entitled to invoke the DTT. This includes access to reduced Belgian withholding tax rates of 15 per cent on dividends and interest.
Practical implications for recovery
The ruling has important practical implications for Luxembourg Sicavs seeking refunds of previously paid UCI tax.
UCI tax refunds are subject to a two-year limitation period after payment. For taxes paid up to March 2024, both a refund request and a court petition are required. For payments from 2025 onwards, a refund request alone suffices to interrupt the limitation period. This change follows procedural reforms introduced earlier this year.
Claims for overpaid Belgian withholding tax on dividends and interest have a five-year limitation period. Until the end of 2024, withholding tax paid since 1 January 2020 can be reclaimed via a registered notice of default.
Future developments
On 25 April 2023, the Brussels Court of Appeal issued four rulings that were entirely in favour of Luxembourg Sicavs. The Belgian tax authorities have appealed these decisions to the Court of Cassation, with a ruling from the Dutch-speaking chamber expected by the end of 2025.
It remains uncertain whether the tax authorities will also appeal the Ghent Court’s recent ruling.
These developments mark a significant victory for the Luxembourg fund industry in its protracted tax dispute with Belgium.
Dirk Coveliers is a partner at LLJ (Lallemand, Legros & Joyn) and a member of Investment Officer’s panel of experts. He also serves as editor-in-chief of the Journal of Investment Taxation.