Last Friday, the European Commission (“EC”) has requested Belgium to stop taxing foreign life insurance companies more heavily on Belgian source dividends, interest and income from real estate. Belgian insurance companies are often effectively exempt or almost fully exempt (as a result of deductions and provisions that are tax deductible and no withholding tax being due or being fully refundable) while foreign insurance companies are subject to a final withholding tax ranging from 15 to 30%. This less favorable tax treatment of foreign insurance companies is possibly a discrimination that is prohibited by EU law, more specifically the free movement of capital as laid down in article 63 of the EU Treaty. Belgium has two months to respond. If it does not respond, the EC will likely send a “reasoned opinion”, which is a more elaborate and more formal request. Belgium then has another two months to respond. If it does not, or not satisfactory, the EC is likely to refer the case to the European Court of Justice. In practice, most cases are settled before they go to the ECJ.

The potential ramifications of this request are much wider than just Belgium. There are more EU member states which tax foreign life insurance companies more heavily than domestic life insurance companies. They face similar action from the EC. If you would like to informally discuss what withholding tax reclaim opportunities this development may bring to your company, please contact us.