The Belgian tax authorities issued a circular on June 8, 2021 with their opinion on the Belgian withholding tax treatment of negative interest rates. This is the first time the Belgian tax authorities have taken an explicit position on this issue and the circular therefore offers welcome (and expected) confirmation that such interest should not be subject to Belgian withholding tax.
The central theses
- The circular confirms that negative interest should not be regarded as income from movable assets as it does not constitute compensation for the use (application / inclusion) of capital, which is a prerequisite for movable income. Negative interest is therefore not subject to Belgian withholding tax.
- Offsetting between negative and positive interest, where only a positive balance would be subject to Belgian withholding tax, is not possible in view of the different nature of the positive and negative interest.
- The circular also states that no negative interest may be deducted when determining (other) net interest income subject to withholding tax.
- This position applies regardless of the domestic or foreign origin of the negative interest and the performance of the payer / payee.
Into the deep
While negative interest rates were known earlier, the phenomenon became even more pronounced from 2010 in the wake of the financial crisis and raised the question of whether such interest rates could be subject to withholding tax. While some tax authorities in other European countries have already taken an explicit position on this (e.g. the German tax authorities confirmed in 2015 that negative interest does not count as interest subject to withholding tax), the Belgian tax authorities have not yet taken an explicit (published) position.
The only available position was an informal decision by the Belgian central tax administration in relation to mortgage loans taken out by Belgian natural taxpayers and the payment of negative interest by the bank to these persons, which was mentioned in the Belgian press in 2016. The central tax administration at the time confirmed that such negative interest should not be regarded as interest for tax purposes and should therefore not be subject to withholding tax.
Under Belgian tax law, the term “interest” is quite broad and includes any income from loans or other claims without any indication that this interest should be earned in the hands of the obligee. At first glance, negative interest could therefore also be viewed as interest subject to withholding tax (abstraction of possible domestic or contractual relief). However, the definition should be read in conjunction with the general definition of "income from movable property" (the generic term that includes interest income) and its scope should be narrowed by considering movable income as all income from movable capital. used (aangewend / engagé), i.e. the placement or investment of funds with a third party with the intention of generating income with these funds.
Even if most practitioners were certain, based on the above, that negative interest rates for Belgian tax purposes are not to be regarded as interest and are therefore not subject to Belgian withholding tax, it is nevertheless to be welcomed that the Belgian tax authorities now expressly do so in their circular of 8 June 2021 (No. 2021 / C / 53).
The circular confirms that negative interest is not income from movable assets as it does not constitute compensation / income for the use / commitment of capital. Rather, it is the lender / depository holder who pays the negative interest and not the borrower. Negative interest is therefore not subject to Belgian withholding tax.
The circular also states that positive and negative interest are each of a different nature and therefore cannot be offset against each other to determine what would be subject to Belgian (withholding) tax; i.e. the positive (gross) interest is still fully subject to Belgian withholding tax, unless there is a reduction or exemption (note that in certain cases an equalization payment between positive interest flows is possible, but under strict conditions).
When determining the net taxable income that is subject to withholding tax, in some cases certain settlement and recovery costs may be deducted to determine the net income if the income is subject to total taxation (only relevant under the income tax system). In this regard, the circular states that negative interest cannot be considered tax deductible as this interest is not paid in connection with the collection of income from movable assets and therefore cannot be taken into account when determining the taxable amount of this income.
The position of the Belgian tax authorities applies regardless of the domestic or foreign origin of the negative interest and the ability of the payer / payee.
The circular is a welcome confirmation of the Belgian treatment of negative interest for withholding tax purposes. Note that such an attestation is not necessarily available in other jurisdictions and that the analysis may be different under certain domestic tax systems. In this case, further analyzes must be carried out in connection with cross-border payments of negative interest if the payer (deposit holder / creditor) is established abroad.