Ghent Court of Appeal ruled that the NAT violates the DTC

In its recent judgement, the Ghent Court of Appeal ruled that the Net Asset Tax (“NAT”) imposed on Luxembourg funds violates the Double Tax Convention (“DTC”) between Belgium and Luxembourg. Although this reopens the door for treaty protection, the matter remains unresolved. Until a definitive ruling by the Supreme Court is issued, it is crucial for funds to safeguard their rights by filing a reclaim to prevent the statute of limitations from expiring.
 

The Net Asset Tax

The Belgian tax on collective investment undertakings, commonly referred to as the ‘Net Asset Tax’ (NAT), was introduced in 2004 as an important tax for the funds industry. As a number of banking and insurance products are exempt from income tax on the part of the recipient (the investor), the Belgian legislator introduced a tax on the part of the institution paying the income to the investors. It concerns (sub-)funds registered for distribution in Belgium. These investment vehicles owe the NAT on the total net amounts outstanding in Belgium on a certain reference date. The rate of the NAT depends on the nature of the investor (private or institutional).

The NAT has been the object of jurisprudential disputes ever since the introduction of the tax. The discussion was held from the perspective of DTCs concluded by Belgium as many of the investment vehicles are also paying similar taxes outside Belgium. This was notably the case with respect to the Netherlands and Luxembourg. The question at hand: does the NAT constitute a tax, more in particular a tax on capital, covered by the relevant DTCs? Only when answered affirmatively, taxpayers could argue that Belgium should refrain from imposing the NAT and file a claim for the reimbursement of NAT paid.
 

Treaty protection?

In 2022, the French and Dutch chambers of the Belgian Supreme Court (Hof van Cassatie/Cour de Cassation) ruled that taxpayers could not rely on the protection of the DTC concluded with Luxembourg. Although the grounds of the two judgments differed, both outcomes were unfavorable for the taxpayers. However, the Dutch chamber of the Supreme Court ruled in favor of the taxpayers in its judgment regarding the DTC concluded with the Netherlands. This difference arises from the differing wording of taxes covered by the DTCs with the Netherlands and Luxembourg.

Following the judgement of the Dutch Chamber of the Supreme Court, the Ghent Court of Appeal ruled on the merits of the case. In its judgement of 5 November 2024, the Court of Appeal did not follow the Supreme Court’s judgement and ruled that the NAT constitutes a ‘tax on capital’ falling within the scope of the DTC with Luxembourg. Consequently, taxpayers are in principle eligible to reclaim the NAT paid from the tax authorities. Although this judgment is favorable for taxpayers, the Belgian state would most likely file an appeal with the Supreme Court, considering the financial impact of the judgement.

With this judgement, the Court of Appeal of Ghent follows the established jurisprudence of the Court of Appeal of Brussels (against which a new appeal with the Supreme Court may be expected). 

However, the situation is not entirely favorable for taxpayers as the Court of Appeal of Liège ruled on 6 November 2024 in favor of the Belgian State in another judgement, albeit based on a different reasoning/discussion than as detailed above (e.g., EU principles, non-discrimination, etc.).

Both judgements have certainly stirred up the dust around the NAT and should prompt investment vehicles to take a look at their own situation.
 

How we can help

At this point in time, it is uncertain whether taxpayers will be able to reclaim the NAT based on the Luxembourg DTC. All eyes will be on the Supreme Court, which must rule on the matter once more. However, the timeline for issuing a judgment remains uncertain. Consequently, taxpayers must be vigilant regarding the statute of limitations which will expire two years after the payment of the tax. In order to suspend the statute of limitations, taxpayers are advised to file a reclaim in order to safeguard their rights.

Although the judgement of the Court of Appeal of Ghent was limited to the NAT, its judgement may have repercussions for other taxes. In this regard, reference can be made to the yearly tax on securities accounts (“TOSA”). The question arises as to whether this tax should also be regarded as a ‘tax on capital’ under the Belgium – Luxembourg DTC (and other DTCs similar to the Belgium – Luxembourg DTC).