A new and extended version of the Securities Account tax was introduced in Belgium by the Law of 17 February 2021 that entered into force on 26 February 2021. The new tax takes the form of an annual tax of 0.15% on securities accounts that exceed EUR 1 million in average value (this includes financial instruments as well as the cash balance). The tax will first be due for the reference period starting on 26 February 2021 and ending on 30 September 2021.
Resident taxpayers (which include individuals, companies, legal entities, permanent establishments and non-profit organizations) will be subject to the tax with respect to their securities accounts held with domestic and foreign financial institutions, whereas non-resident taxpayers will be subject to the tax with respect to their securities accounts held with Belgian financial institutions. The tax is also applicable in the hands of settlors of so-called legal constructions in the framework of the Belgian Cayman tax with respect to the average value in the securities accounts held by such legal construction. In addition, the tax will also be due in the hands of Belgian establishments of foreign companies – irrespective of whether the securities account is held with a Belgian or a foreign financial institution – provided that the securities account is allocated to such Belgian establishment (i.e. if it is part of the establishment’s business assets).
- A new and extended Securities Account Tax was introduced by the Law of 17 February 2021 and entered into force on 26 February 2021. The tax will first be due for the reference period starting on 26 February 2021 and ending on 30 September 2021.
- A 0.15% tax will be levied on the average value held in securities accounts (including the cash balance). The tax is only due if such average value in the account exceeds the threshold of EUR 1 million. A specific and a general anti-abuse measure was introduced to tackle avoidance of the Securities Account Tax (with retroactive effect).
- The tax will be due by resident taxpayers with respect to their securities accounts regardless of whether these are held with a Belgian or a foreign financial institution.
- Non-resident taxpayers are also targeted but only with respect to their securities accounts held with Belgian financial institutions. The Law targets individual as well as corporate taxpayers (and not-for-profit). Importantly, settlors of so-called legal constructions in the framework of the Cayman tax will also be subject to the securities tax with respect to the securities accounts held by such legal constructions. However, the Law states. It will have to be seen however, whether Belgium is entitled to tax if a Belgian establishment (which is a domestic notion and also includes a mere office or stock of goods) is not considered to be a permanent establishment under the applicable double tax treaty.
- For securities accounts held with Belgian financial institutions, the Belgian intermediary will have to withhold and pay the securities tax to the Belgian State and file the tax return. For securities accounts held with foreign financial institutions, the foreign intermediary will have the option to appoint a tax representative in Belgium that will pay the tax and carry out the relevant formalities. In the absence of such a tax representative, the account holder will need to file the return and pay the tax to the Belgian State directly.
- As the Council of State already indicated in its advice upon review of the draft bill, there are some inconsistencies in the relevant legal provisions, which raise the question as to whether this tax will pass the constitutionality test or whether it will suffer the same fate as the securities account tax 1.0 (i.e. annulment by the constitutional court).
In depth – The new annual tax on securities accounts
Following the outbreak of the COVID-19 pandemic, the Belgian Government has been looking into ways to restore the state’s budget that took a blow as a result of the many COVID-19 relief measures that were taken during the past year. One new measure that has recently been introduced is a new and significantly extended version of the Securities Account Tax (also branded the “solidarity contribution” in an attempt to avoid the connotation with the securities account tax 1.0, which was annulled by the constitutional court in 2019). This new measure was introduced by the Law of 17 February 2021, published in the Belgian Official Journal on 25 February (‘Law‘). The estimated budgetary impact is approximately EUR 420 million on an annual basis.
The new tax in a nutshell
Tax on average value in securities accounts – The new Securities Account Tax is an annual tax of 0.15% calculated on the value held in a securities account (i.e., any account on which financial instruments can be debited/credited). The taxable base is the average value of all financial instruments held in the securities account. This includes securities such as shares, depositary receipts, bonds and investment fund units (e.g., trackers/ETFs), but also targets derivatives such as options, turbos, speeders and sprinters. Importantly, the cash balance held on the account is also included in the taxable value. Financial instruments not held in a securities account, such as registered shares, are not subject to the tax.
Reference period – The average value in the securities account is calculated taking into account a reference period of 12 months, which, as a rule, starts on 1 October and ends on 30 September. The first reference period started on 26 February 2021 (first day after publication of the Law in the Belgian Official Journal) and ends on 30 September 2021. The reference period will end sooner for particular taxpayers in certain cases, e.g. on the day the account is closed or on the day the only or last account holder moves to a state with which Belgium has concluded a double tax treaty on the basis of which Belgium no longer has the taxing powers with respect to the securities account.
A reference period generally contains four reference points, i.e. 31 December, 31 March, 30 June and 30 September. The taxable value in the securities account on each of these four reference points will be added together and divided by four to obtain the average taxable value. If a securities account is opened or closed during the reference period, the average value will be calculated taking into account only the reference points during which the securities account existed.
Threshold of EUR 1 million – The tax of 0.15% will only be due provided that the average taxable value in the securities account exceeds EUR 1 million (the tax will then be due on the total average value including the EUR 1 million). This threshold is applied with respect to the securities account and not with respect to the account holder.
- For example, the Securities Account Tax will be due in case two account holders hold a securities account with an average value of EUR 1,600,000, whereas an account holder holding two securities accounts with an average value of each EUR 800,000 will not be liable for the Securities Account Tax.
The tax due is in any case limited to 10% of the difference between the taxable base and EUR 1 million. This limitation was included to avoid the value of the account dropping below the threshold of EUR 1 million as a result of the securities tax due.
- For example, the Securities Account Tax due for a securities account with an average value of EUR 1,000,100.00 would be EUR 1,500.15 (if it were not for the limitation) so that the value of the account would drop below EUR 1 million to EUR 998,599.85. As a result of the limitation, the Securities Account Tax due is 10% of EUR 100 (i.e. the difference of EUR 1,000,100.00 and EUR 1 million), or EUR 10 instead, keeping the value of the account above the threshold.
Relevance for resident and non-resident, individual and corporate taxpayers
Subscription tax – Contrary to the securities account tax 1.0, the new Law emphasizes the indirect nature of the Securities Account Tax, in the sense that it is levied on securities accounts as a subscription tax (instead of being levied on the account holder). The tax hence targets any securities account with an average value of above EUR 1 million, regardless of the number of account holders and regardless of the division of rights between account holders.
- For example, a Securities Account Tax of EUR 15,000 will be due with respect to a securities account with an average value of EUR 10 million regardless of whether the account is held by one or ten account holders.
Moreover, the tax will be due irrespective of the nature/identity of the account holder. The tax therefore concerns individual taxpayers, as well as corporate taxpayers and other legal entities subject to the legal entities tax (e.g. not-for-profit organizations). Note that the tax is non-deductible.
Liability for resident and non-resident taxpayers – The Securities Account Tax applies to resident account holders, both with respect to their Belgian and foreign securities accounts (i.e., accounts held with Belgian based financial institutions and accounts held with foreign financial institutions).
In addition, non-resident account holders are also targeted, with respect to their securities accounts held with Belgian financial institutions (the Belgian State cannot assert taxation rights with respect to any foreign securities accounts held by non-residents, as there is no Belgian nexus). One should in the latter case consider whether the relevant double tax treaty covers taxes on capital and allocates taxing power to the resident state, in which case Belgium would be prevented from levying the new tax (this is the case in the double tax treaty between Belgium and the Netherlands, for example). However, with respect to Belgian establishments of foreign companies, which are considered non-resident taxpayers for income tax purposes, the Law states that the tax is due if the securities account is allocated to the Belgian establishment (i.e., if it is part of the establishment’s business assets) and this is irrespective of whether the account is held with a Belgian or a foreign financial institution. It will have to be seen however, whether Belgium is entitled to tax if a Belgian establishment is not considered to be a permanent establishment under the applicable double tax treaty. After all, the notion of a ‘Belgian establishment’ is a purely domestic notion with a wider scope than the notion of a permanent establishment under the treaty and also includes a mere office or stock of goods for example.
Including settlors of legal constructions – Importantly, settlors of ‘legal constructions’ for the purposes of the Belgian Cayman tax (e.g., trusts and companies established in tax havens) will also be considered to be an account holder with respect to the securities accounts held by such legal constructions for purposes of the Securities Account Tax.
Exemption for financial intermediaries’ accounts – An exemption is, amongst others, made for securities accounts that are held by financial intermediaries provided that there are no third parties that have a direct or indirect claim with respect to the value in the securities account.
Branch 23-insurance contracts – The preparatory works to the Law state that securities accounts related to branch-23 (unit linked) insurance contracts are in scope of the Securities Account Tax as such accounts are not held by the insurance company for its own account but are held for the account of the policyholder that subscribed the branch-23 insurance policy. Indeed, while the units in the underlying investment funds to which the branch-23 are linked are legally owned by the insurance company, the policyholder has a receivable owed by the insurance company for the value of such units. Taking into account that the insurance company’s overall securities account will be subject to the tax, regardless of the value of the respective underlying insurance contracts, and that the insurance companies will probably recharge the cost of the tax to the policyholders based on the value of the units of the relevant policyholders, this will imply that policyholders of branch-23 insurance contracts with a value below EUR 1 million will probably indirectly suffer the tax. Since this is against the intent of the legislator, the insurance sector has heavily criticized such result.
Practical uncertainties – Considering the above and notably the fact that a securities account might be held by liable and non-liable account holders at the same time, certain situations will give rise to practical application problems:
- For example, what will be the Securities Account Tax due if a foreign securities account is held by a non-resident taxpayer and a resident taxpayer (50%/50%) with an average value of EUR 1.8 million? The non-resident account holder cannot be held liable for the Securities Account Tax with respect to the foreign securities account, but how will it be determined whether the resident taxpayer will be held liable? Should one allocate the EUR 1.8 million to the two account holders (in proportion to their rights with respect to the account), in which case the resident taxpayer will not be held liable for the tax, or should one only look at the total average value in the securities account, in which case the resident taxpayer will be held liable?
- A similar problem will arise in situations where a liable account holder holds the bare ownership of the securities account and a non-liable account holder holds a right of usufruct on such securities account.
Filing and payment obligations
Securities accounts held with a Belgian intermediary – The way in which the Securities Account Tax will be levied is very similar to the Belgian tax on stock exchange transactions, in that the tax return will be filed and the tax will be withheld and paid by the financial intermediary. This will need to be done at the latest on the 20th day of the third month following the end of the reference period (as a rule, on 20 December). In case the Belgian intermediary fails to do the necessary filing of the return or payment of the tax, the account holder(s) remains liable and will need to file the return and pay the tax (see also below with respect to securities accounts held with a foreign intermediary). The Belgian intermediary will also be under a legal obligation, as is the case with the tax on the stock exchange transactions, to issue an overview to account holders, which includes all relevant facts to determine the taxable base, at the latest on the last day of the month that follows the reference period.
Securities accounts held with a foreign intermediary – For securities accounts held with foreign intermediaries, the account holder will need to file the tax return and pay the tax, unless it can be demonstrated that another intermediary already filed the return and carried out withholding and payment of the tax. The foreign intermediary will have the option to appoint a tax representative in Belgium that is jointly liable for filing the tax return and paying the tax, but is under no obligation to do so. The tax return will need to be filed by the same deadline as determined for the electronic filing of the personal income tax return. The tax will have to be paid by 31 August of the year following the end of the reference period (i.e. by 31 August 2022 with respect to the first reference period).
Multiple account holders – In case of multiple account holders, each account holder is jointly and severally liable to make sure the tax return is filed and the tax is paid with respect to the total average value in the securities account. Each account holder can take the necessary action in terms of payment and filing obligations for the other account holders, but concertation between account holders will be necessary in order to avoid multiple reporting. It is not yet clear how the reporting will need to be done in such cases. More clarification is expected, either by Royal Decree or by administrative guidance.
Penalties and late payment interest – Penalties will apply in case of late, incomplete or lack of filing of the tax return or in case of a late or non-payment of the tax. The penalties will range between 10% and 200% of the tax due. The Law states that penalties will not be due in case of good faith. In case of late or non-payment of the tax, late payment interest will be due (in principle 7% on an annual basis).
New investigation powers – The tax authorities will be allowed to request from the account holder any information that they deem relevant to ensure that the tax is duly levied. A failure to comply with such information request or the submission of incorrect information can trigger a fine that ranges between EUR 750 and EUR 1,250 (unless in case of good faith).
Refund request – In case the amount of tax paid is higher than the amount of tax legally due, a refund request can be submitted to obtain reimbursement of the excess tax, including interest. The refund procedure will be determined by Royal Decree but the Law already provides that the request will need to be filed within a maximum of two years after the tax became due.
General anti-abuse measure in the code of miscellaneous duties and taxes – A new general anti-abuse measure is introduced in the code of miscellaneous duties and taxes (similar to the anti-abuse measure that is applicable in for example the Income Tax Code). This anti-abuse measure will not only apply in the context of the new Securities Account Tax but also in the context of any other taxes/duties in this code (e.g., the tax on stock exchange transactions and insurance premium taxes). Following the new anti-abuse measure, a legal act or series of legal acts will not be binding upon the tax authorities if they are able to demonstrate, through presumptions or otherwise, that tax abuse is present. Such tax abuse is present if the taxpayer or the person liable for the tax carries out any of the following transactions:
- a transaction by way of which it places itself outside of the scope of application of a legal provision, in breach of the purpose of such provision
- a transaction by way of which a tax benefit is claimed and the grant of such benefit would be contrary to the purpose of the legal provision
If the tax authorities are able to demonstrate the presence of such tax abuse, the taxpayer/person liable for the tax can still provide counterproof and demonstrate that other non-tax related objectives are present. If the taxpayer/person liable for the tax is not able to do so, the tax will be due as if the tax abuse had not taken place.
The preparatory works indicate that the general anti-abuse measure is applicable not only in so-called ‘top-down’ situations (where the average value on the account is purposely reduced below EUR 1 million to reduce or avoid the Securities Account Tax), but also in so-called ‘bottom-up’ situations, where the value of the securities account is purposely not increased in order to avoid the threshold of EUR 1 million being exceeded.
We expect that many discussions will arise (particularly with respect to the Securities Account Tax) if this anti-abuse measure is introduced in the way it is currently phrased (taking into account the very generic purpose of the Securities Account Tax). In any case, documenting the non-tax objectives of certain investment decisions will be crucial in order to avoid future disputes in this context as much as possible.
Specific anti-abuse measure – A specific and non-rebuttable anti-abuse measure is introduced that targets the most obvious acts that could aim at avoiding the Securities Account Tax. This measure will apply when (i) the value of a securities account is transferred to two or more securities accounts held with the same financial intermediary; and (ii) taxable securities are converted into registered financial securities (e.g., registered shares). In such cases, the transactions will not be binding upon the tax authorities without the possibility for the taxpayer/the person liable to the tax to offer counterproof. It remains to be seen whether this is considered reasonable. After all, a taxpayer may have valid non-tax related reasons to split up a securities account (e.g., preparation of inheritance planning, different investment and risk strategies, etc.).
Entry into force
Entry into force – The Law entered into force the first day after publication of the Law in the Belgian Official Journal (i.e. on 26 February 2021). One exception hereto is the entry into force of the above-mentioned anti-abuse provisions, which is determined to be 30 October 2020. The preparatory works to the Law refer to the notice that was published in the Belgian Official Journal on 4 November 2020 indicating the entry into force of the anti-abuse measure on 30 October 2020 (insofar as the annual Securities Account Tax is concerned) as a justification for the retroactive effect of the anti-abuse measure.
* * *
For further information and to discuss what this development might mean for you, please get in touch with your usual Baker McKenzie contact.