Law & Numbers - News Tax

French SCI's income: taxable in Belgium?

07.07.2015 (Belgium)

A certain degree of uncertainty remains as to the way in which income from French SCI (real estate companies) that focus on the acquisition and holding of real estate property are to be taxed in Belgium.

Although this type of companies are provided with legal personality, they are treated as transparent societies for the purposes of the French taxation system. This means that, as it lacks from a fiscal identity, rather than having the society itself paying taxes, the society is taxed through the associates of the real estate company, taxing instead the private individuals within the company for the company’s income. Hence, the revenue perceived by the associates of the company is considered by the French tax administration as property income instead of dividends. This income is thus taxed in France.

When Belgian residents are associates of a real estate company in Belgium, the question of the particular nature and classification of this type of income arises; does it refer to the real estate income within the meaning of article 3 of the Franco-Belgian Convention on the prevention of double taxation, does it fall within the meaning of dividend under article 15 or is it a residual income as covered by article 18?

For many years, it has been held in Belgian courts that the income from real estate companies had to be treated as dividends with views to the application of the Convention on the prevention of double taxation concluded with France whereby Belgium is made the competent authority in matters concerning the taxation of the said income. Belgian residents real estate income was therefore taxed in France. Belgian residents were therefore taxed in both France and Belgium; in the former on the real estate income and, in the latter, on the same income but this time contemplated and treated as dividends.

Nevertheless, the Belgian Supreme Court judgment on the 2nd December 2004 reversed the previous jurisprudence and held that « the country where the property is situated, will be the one with authority to tax the real estate income » and that « the term of real estate income has to be understood according to the legislation of the country in question » . Thus only France has the right to tax these revenues.

Despite this judgment however, the Belgian Tax Administration has maintained its position, followed in that by certain other jurisdictions.

More recently, the Belgian Court of Appeal of Ghent and Belgian Court of Appeal of Mons have held that the position of the tax administration was not well founded, recalling that the SCI should not be considered as investment income in the sense of article 15 of the Franco-Belgian Convention, thus not subject to taxes in Belgium.

Ultimately, with these two judgments, one from the North of the country and one from the South, it could be strongly argued that the tax administration will from now on endeavor to respect its international obligations…

For more information please contact:
Rafaėl Alvarez Campa
Tax lawyer
Phone: +32 2 732 56 20

WBCJ Law firm

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