Belgium’s stock tax may be incompatible with EU law

ABelgian law aimed at preventing resident investors from escaping a tax on stock exchange transactions conducted through overseas accounts may be incompatible with European Union legislation.

A local court decided it could not rule on whether the tax is compatible with the bloc’s rules and instead November 8 pushed the matter up to the EU’s top court to decide.

The suit, now high-profile and closely followed by traders, called for the annulment of the legal provisions extending the tax to transactions performed by foreign brokers in, for instance, the Netherlands or Luxemburg.

Belgian residents—who perform stock exchange transactions through intermediaries located abroad—are required to submit monthly returns detailing the orders. They are also expected to compute and pay the tax, an arduous task, tax professionals say. Belgium’s Constitutional Court referred three prejudicial questions on Belgium’s tax on stock change transactions to the Court of Justice of the European Union. National courts refer prejudicial questions to the EU high court when they want the EU Court to advise on the compatibility of domestic legislation with EU law before issuing a ruling in the case at the national level.

If the EU court finds that the expanded tax indeed goes against EU law, this would be a huge boon to resident investors who have had to file monthly returns itemising transactions orders and themselves compute and pay the tax.

But it would also be a blow to Belgium’s government, which expanded the scope of the tax to prevent investors from circumventing the levy by opening securities accounts with financial institutions located abroad, and estimated that the expanded scope would boost budgetary coffers by €30mn ($34mn) in 2017.

A practitioner told Bloomberg Tax that the government will have to reimburse those millions of euros to lo- cal investors if the EU court finds the expanded tax violates EU law.

“If the European Court of Justice considers that the extension of the tax to transactions carried out through foreign accounts constitutes a violation of EU law, the Belgian Constitutional Court should in principle annul the tax with retroactive effect, which would concretely imply that Belgian residents with foreign accounts who have paid the tax could claim it back,” Denis-Emmanuel Philippe, a lawyer at the Bloom law firm, told Bloomberg Tax in a November 9 e-mail.

When Belgium’s centre-right government extended the 0.35% tax to stock exchange transactions performed abroad on behalf of Belgian clients in 2017, practitioners told Bloomberg Tax that the expansion created extra red tape for residents with brokerage accounts that might be considered a violation of EU rules on the free movement of capital and services.

A spokesperson for Belgian Finance Minister Johan Van Overtveldt declined to comment citing the ongoing legal proceedings.