On 27 October 2022 the Belgian Constitutional Court issued a long-awaited judgement on the (deemed) retroactive application of the single annual tax on credit institutions that was introduced in 2016 (that replaced several bank levies that existed at that time).[1] In its judgment, the Court rules that the retroactive application of the tax on credit institutions for assessment year 2016 cannot be upheld, hence potentially opening the door for a tax reclaim by credit institutions.
A trip down memory lane: August 2016, a new annual tax on credit institutions
On 3 August 2016, the Belgian government introduced a new single annual tax on credit institutions.
The new tax aimed at bringing simplification by replacing:
- The then existing annual bank taxes (i.e. the annual subscription tax and loan-to deposit tax);
- The deduction limitation measures in the corporate income tax, i.e. a limitation on the use of tax losses, notional interest deduction and dividends received deduction (“bank tax”); and
- The financial stability contribution.
The tax base of this annual tax is formed by the amount of liabilities to customers (“debts to clients”) of the year preceding the assessment year (i.e. the financial year most recently closed), as recorded on Line 229 in table 00.20 (solo) of the Scheme A (territorial).
For the transitional year 2016 (i.e. assessment year 2016) the tax was calculated on the outstanding amount of liabilities to customers per 31 December 2015. [2]
The tax is in principle due on the first of January each year and became legally due for the first time on January 1, 2016. The tax must be paid no later than the first of July each year. For the transitional year 2016 the tax was, though, ultimately due on November 30 (based on an exceptional extension).
As a transitional measure and to avoid double taxation for the transitional year 2016, the bank levies that were already paid with respect to assessment year 2016 - i.e. the annual subscription tax, the loan-to deposit tax and financial stability contribution - could be set-off against the new annual levy.
Incompatibility with principles of equality (non-discrimination) and non-retroactivity
Several credit institutions sought repayment of the new annual tax paid in 2016 with the Belgian treasury, arguing that the retroactive application of the Law of 3 August 2016 that introduced the new single tax on credit institutions was not justified. After repayment being denied, they brought an action against the Belgian State before the court, because of a deemed incompatibility with the Belgian constitution and principle of non-retroactivity of (tax) laws. The Courts of first instance handling the cases raised several preliminary questions to the Belgian Constitutional Court (hereinafter: the Court).
The Court considers that several provisions of the Law of 3 August 2016 are retroactive, because applicable to a taxable event that had been definitively completed at the time the Law entered into force on 21 August 2016, given that the new tax already became legally due on 1 January 2016 based on the situation as per 31 December 2015.[3] Moreover, although general public interest may require that a tax measure has retroactive effect, in this case neither the parliamentary preparations, nor the explanatory memoranda accompanying the Law reasonably explain or justify why a retroactive application would be necessary to achieve the Law’s objectives or a general public interest.
Based on the above, the Court decides that the retroactive application of certain provisions within the Law of 3 August 2016 are not justified and incompatible with the principles of equality and non-discrimination as well as the general principle of non-retroactivity.[4]
KPMG observations
Most important message from the judgement of the Constitutional Court is that the retroactive application of the single annual tax on credit institutions for assessment year 2016 cannot be upheld. This implies that credit institutions[5] may claim a refund for the (new) single annual tax on credit institutions paid for assessment year 2016.
Please note that the Court has only issued a judgment with respect to the retroactive application of the annual tax on credit institutions for 2016. No judgement was made on the application of the tax as from assessment year 2017 onwards. Therefore, the annual tax on credit institutions still stands today and a potential refund may only be claimed for the transitional period in which the single levy was applied retroactively (assessment year 2016). Also, after the responses of the Court to the preliminary questions, it is now still up to the referring Court(s) of first instance to make a final judgment.
If you have been subject to the annual tax on credit institutions and believe you may be eligible to claim a refund, please do not hesitate to contact us as we are able to provide you with assistance in this matter. Also, in case of any further questions, do not hesitate to contact your KPMG adviser.
- Case 136/2022 dd. 27.10.2022.
- As from assessment year 2017, to avoid any data manipulation by year-end, the tax must be calculated on an annual average of the tax base. In practice this average has to be calculated based on the amounts of the “debts to clients” that are on a monthly basis reported to the NBB.
- The Law of 3 August 2016 entered into force on the 10th day following the day of its publication in the Belgian Official Gazette.
- It concerns, in particular, articles 2, 3, 5, 14 and 15 of the Law of 3 August 2016.
- These are the credit institutions as targeted by the annual tax on credit institutions in art 20110° Code of Miscellaneous Duties and Taxes (CMDT).
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