The Court of Justice of the European Union (CJEU) issued a judgment finding that a recent expansion of the Belgian stock exchange tax to transactions through a foreign intermediary was compatible with European law (i.e., the freedom of capital movement and freedom of services pursuant to the Treaty on the Functioning of the European Union (TFEU)) as well as their equivalents under the European Economic Area Agreement (EEA).
The case is: C-725/18 (30 January 2020)
Effective 1 January 2017, the scope of Belgian stock exchange tax was broadened to cover transactions that are conducted (directly or indirectly) on behalf of Belgian tax residents via a foreign intermediary or internet trading platform.
Shortly after, several actions for annulment were brought before the Belgian Constitutional Court against the expansion of the scope of the tax, as being contrary to Belgian constitutional law and European law. Specifically, it was pointed out that it could be more expensive and administratively burdensome for a Belgian tax resident to invest via a foreign intermediary. Unlike transactions conducted via an intermediary established in Belgium, for transactions conducted via a foreign intermediary, Belgian investors were left to deal with the complex declaration and payment obligations under threat of substantial fines—unless the foreign intermediary voluntarily took care of these obligations. This situation raised concerns that, among other things, the expansion was an unlawful restriction to the freedom of services (Article 56 TFEU) and the freedom of capital movements (Article 63 TFEU). Before issuing its own judgment, the Belgian Constitutional Court submitted preliminary questions to the CJEU.
Judgment of the CJEU
The CJEU concluded that the broadened scope of the stock exchange tax was compatible with European law.
The CJEU first determined that analysis of the freedom of services (Article 56 TFEU) took priority over the freedom of capital movements (Article 63 TFEU), and that the Belgian tax rules resulted in a difference in treatment that might discourage Belgian residents from using the services of a foreign intermediary because it could make it more difficult for non-Belgian service providers to offer their services to Belgian residents.
Yet, the CJEU considered this restriction on the free movement of services as justified by the overriding aims of the Belgian rules—namely, to provide for effective tax collection and fiscal supervision and to prevent the avoidance of stock exchange tax. In the justification analysis, the CJEU pointed out that proportionality was observed by the Belgian rules, referring among other items to the possibility of foreign intermediaries to appoint a Belgian fiscal representative or a party established in Belgium that (like a Belgian intermediary) that could fulfill all the stock exchange tax formalities, meaning that Belgian investors did not have to do report or pay the tax themselves.
The CJEU did not find any infringement of Article 56 TFEU because the Belgian rules offer both investors and foreign intermediaries facilities with regard to the reporting obligations of this tax and its payment, and in effect, what is necessary to achieve the legitimate objectives pursued by the rules. According to the CJEU, the Belgian tax rules were compatible with the freedom of services and the free movement of capital under European law.
Tax professionals believe the CJEU judgment is generally in line with earlier expectations because the extension of the scope of the tax was intended to create a “level playing field” for Belgian residents whether investing via a securities account with a Belgian intermediary (such as a bank) or via a foreign intermediary. However, this may not be the end of this matter. The Belgian Constitutional Court still must decide the case and assess, among other things, whether the expanded tax is also compatible with the Belgian constitutional principle of equality.
Read a February 2020 report prepared by the KPMG member firm in Belgium
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