In May the Belgian government accepted a decision issued by the European Court of Justice (ECJ) in which the Court stated that the Belgian dividends received deduction (DRD) regime is incompatible with an article of the EC Parent-Subsidiary Directive because it does not refrain from taxing dividends in some situations.
The government has now issued an administrative circular letter pointing out its position on the effects of this decision confirming the content of a previous draft circular letter on the matter. In particular, the government decided that (current and carried forward) “excess” DRD that relates to dividends from companies resident in Belgium or another EU/EEA Member State may be claimed, provided the conditions for the DRD were met at the time the dividends were received.
The final circular confirms this position and includes the following clarifications: The carry-forward of “excess” DRD only applies to dividends from companies resident in the European Community, including Belgium (as from 1992, when the Parent-Subsidiary Directive became effective) and the European Economic Area for dividends paid as from 1 January 1994.
No “excess” DRD is granted for dividends derived from companies resident outside the EEA. The treatment of such dividends is currently before a Belgian national court after the ECJ has not decided on this issue in another case.
DRD (and “excess DRD”) may be claimed provided the minimum participation requirement in Belgian national law was met at the time the dividends were received (5% or 10% as from tax year 2004, or an acquisition value of at least 1.2 million euros). However, the circular does not impose the more severe minimum participation requirements of the Parent-Subsidiary Directive (a gradual reduction to 10% for dividends received as from 1 January 2009).
Concerning the order of application of current-year DRD, Belgian taxpayers are allowed to first deduct the DRD related to non-EEA dividends (if and to the extent there is a Belgian taxable basis) and then deduct and possibly carry forward any “excess” DRD related to EEA dividends.