The Belgian Tax on Stock Exchange Transactions – imposed on the transfer of tradable securities and certain other transactions – was introduced in 1913 and is one of the oldest taxes in Belgium. From inception, this tax has been subject to many changes. These were mainly driven by developments on financial markets, EU case-law and budgetary constraints. The scope of application has been significantly expanded from 1 January 2017, for budgetary reasons and in order to create a level playing field between Belgian and foreign professional intermediaries. As a result, from 2017 the tax also applies to transactions that are concluded or executed outside Belgium through a non-Belgian financial intermediary, provided that the ordering party is a Belgian tax resident. This legislative amendment has had a significant impact on Belgian residents (individuals and corporates) who carry out taxable transactions via a foreign bank account or who trade via a foreign internet platform. The complexities involved as well as the seemingly extraterritorial reach of the tax have resulted in a host of practical and legal issues.
If a transaction is carried out by a foreign intermediary with a Belgian resident giving the order, it is the ordering party (i.e. ‘the investor’) who is liable to TSET.
Whilst the extended scope is aimed to create a level playing field between Belgian banks and foreign banks, some provisions and obligations under this extended TSET may be considered (i) discriminatory (unconstitutional) and (ii) in breach of the EU freedom of services. In particular, imposing Belgian residents (bi)monthly reporting and payment obligations where the TSET obligations are not assumed by the foreign intermediary, combined with the (increased) fines upon non-compliance, may constitute a burden that is disproportionate to the amount of TSET actually due.
Action for Annulment before the Belgian Federal Constitutional Court
Alleging an unlawful difference in treatment, a Belgian taxpayer contested the legality of the TSET before the Belgian Federal Constitutional Court. According to the plaintiff, the broader scope results in an unequal treatment between Belgian investors, depending on whether they use a professional intermediary established in Belgium or elsewhere. Therefore these articles would be contrary to (i) the principle of equality guaranteed by articles 10, 11 and 172 of the Belgian Constitution and (ii) those constitutional provisions read in conjunction with article 56 TFEU and article 36 of the EEA Agreement, which establish the freedom to provide services, or with article 63 TFEU and article 40 of the EEA Agreement on the free movement of capital.
In a first (preliminary) decision, the Belgian Federal Constitutional Court ruled that the alleged infringements are serious however, before issuing its own judgment on the merits, on 22 November 2018 the Constitutional Court submitted three preliminary questions with the CJEU (Court of Justice of the European Union).
Preliminary ruling by the European Court of Justice
To start with, the CJEU held that an analysis of the freedom of services (art. 56 TFEU and art. 36 EEA Agreement) had priority over the freedom of capital movements (art. 63 TFEU). It is settled CJEU case law that if a national measure concerns both the freedom of services and the free movement of capital, the Court will in principle examine the measure in dispute in relation to only one of those two freedoms, if it appears (in the circumstances of the case) that one of them is entirely secondary in relation to the other and may be considered together with it. Given that (i) the TSET only applies if a professional intermediary is involved in the transaction and (ii) the uncertainty to the restrictions arises because investors become liable to declare and pay TSET if they use a non-resident intermediary, it predominantly concerns the freedom to provide services.
According to the CJEU it is clear that the national legislation at issue imposes additional liabilities and obligations on resident investors who decide to use the services of a non-resident intermediary. Therefore, the national legislation at issue constitutes a restriction on the freedom to provide services. The Belgian regulation establishes a difference in treatment among investors, that can dissuade Belgian investors from using the services of non-resident service providers. Conversely, it is also more difficult for foreign intermediaries to offer their financial intermediation services in Belgium.
However, pursuant to the Court’s long-standing case-law in tax and other matters, a restriction of the freedom to provide services may be justified by overriding reasons in the public interest.
For the case at hand, the CJEU indeed concludes that the extended scope and related implementation measures can be reasonably justified in light of ensuring effectiveness of tax collection, fiscal supervision and prevention of TSET avoidance. Moreover, the Belgian legislation at stake is considered appropriate for attaining the objectives it pursues and does not go beyond what is necessary, i.e. the measures are also proportionate given the objectives.
Second judgment (4 June 2020): TSET also compatible with Belgian Constitution
Although the CJEU had ruled that the TSET was compatible with EU/EEA freedoms, some actors still hoped that the Constitutional Court would abolish the extended scope of TSET based on the non-respect of the Belgian constitutional principle of equality. Yet, the Constitutional Court also ruled on 4 June 2020, in line with the CJEU reasoning, that imposing TSET on transactions abroad and the measures to facilitate the collection of tax are compatible with the Belgian Constitution besides the European freedoms.
The plaintiff mainly argued that it was more risky, expensive and administratively burdensome for a Belgian tax resident to invest via a foreign intermediary, compared to investing via a Belgian intermediary. Investors themselves are liable for all formalities and risk significant administrative fines, which will often be out of proportion as only limited tax amounts are due, whilst this is not the case for transactions concluded through a Belgian financial intermediary. Yet Belgian residents investing through an intermediary established outside Belgium are in a comparable situation with residents investing through an intermediary established in Belgium (which has also been confirmed by the CJEU). So pursuant to the plaintiff, there was an infringement of Belgian Constitution (articles 10, 11 and 172 BC).
The Belgian Constitutional Court starts with the consideration that the principles of equality and non-discrimination do not exclude a difference in treatment between categories of persons, as far as this difference is based on an objective criterion and is reasonably justified. The latter needs to be assessed taking into account the objectives and consequences of the contested measure. In this respect, the Court also reminds that it is settled case-law that the legislator has a wide margin of discretion, since fiscal measures are an essential part of social-economic policy. The social choices that have to be made in collecting and deploying resources are therefore a matter of legislator’s discretion. The Court may therefore only reject such a policy choice, as well as the grounds on which it is based, if it is based on a manifest error or if it is manifestly unreasonable (i.e. marginal testing).
First, taking the above into consideration and in line with the CJEU judgment of 30 January 2020, the Belgian Constitutional Court rules that there is indeed a difference in treatment. This difference is however based on an objective criterion, namely the place of establishment of the intermediary called upon by the Belgian resident giving the order. This criterion is relevant since it relates to the obligation for each Belgian resident to pay TSET on his stock exchange transactions.
Secondly, the dual purpose of the legislator, namely avoiding unequal competition between intermediaries established in and outside Belgium as well as increasing legal certainty, should be considered as legitimate.
Thirdly, the legislator has foreseen several facilities or options for Belgian residents that conclude or execute a (taxable) transaction abroad, to mitigate the adverse consequences as much as possible (see also above on the CJEU’s ruling of 30 January 2020).
This article is an abridged version of the article, written by Lars Vanneste and
Kevin Hellinckx in Tijdschrift Beleggingsfiscaliteit – Revue Fiscalité des Placements – Tax Clicking. You can read the full version of the article, with an assessment of the Court’s judgement, in edition no. 13.
Lars Vanneste, Tax advisor, assistant University of Ghent
Kevin Hellinckx, KPMG Tax & Legal Advisers