Capital gains
Capital gains, i.e. on shares, are in principle taxable in the state of residence. In case of emigration of a shareholder-individual to the other state, the new treaty, like the current treaty, contains a special regime whereby the emigration country will keep its taxing rights. In fact, this concerns the Netherlands, as an exit tax (a so-called 'conservatory assessment') applies in case of emigration of a so-called 'substantial shareholder' (i.e. a substantial shareholding assumes a participation of at least 5%) abroad. Currently, this provision does not affect migrations in the opposite direction, as Belgian tax legislation does not stipulate a similar exit-taxation rule.
Although the rules as such will not be altered under the new treaty, they will be expanded and further granulated. Under the new treaty, the following changes stand out (Article 13(5) new DTC):
- The taxing rights of the emigration state will be limited to the increase in value relating to the period in time when the individual was a resident of the emigration state. This is in line with European case law on exit taxes;
- Where the company was located at the time of the emigration of the shareholder-individual will no longer be relevant;
- The size of the participation will also no longer be relevant. Indeed, no more autonomous treaty definition will be given of shareholding targeted by any special regime (so-called substantial shareholding, which was to a great extent aligned with Dutch domestic law);
- The timing of emigration will no longer be considered; the 10-year period will be discarded. In practice, this rule will in fact only have limited relevance given that the Dutch Supreme Court assumes that the Netherlands may levy (irrespective of the time limit provided for in the treaty) because the taxable moment is situated just before emigration (and that the application of the conservatory assessment is therefore a domestic Dutch matter);
- The immigration state will have to take into account the increase in value previously taxed by the emigration state. More concretely, the immigration state will have to grant a tax 'step-up' considering the value of the shares at the time of immigration (so-called acquisition price). No express provision is included in case of depreciations or decreases in value;
- Purchase and liquidation bonuses are to be qualified as capital gains (and no longer as dividends) for the purposes of the treaty in so far as a (exit) tax is levied on the increase in value upon emigration. Note that Belgium will therefore have to exempt, provided the liquidation bonuses are effectively subject to tax in the Netherlands and do not benefit from a tax exemption (Article 20(1), g) new DTC).
Dividends and interest
The new treaty will introduce new provisions for shareholders-individuals emigrating from the Netherlands to Belgium and transferring the actual place of management of their company to Belgium.
Under the new treaty, after the emigration of the shareholder-individual, the Netherlands may tax the dividends and interest paid by his company in accordance with its domestic law if there is still an outstanding tax claim (i.e. conservatory assessment) related to that emigration (Articles 10(9) and 11(7) new DTC). Although such conservatory assessment is unlimited in time under Dutch domestic law, the new treaty will limit the taxing rights for the emigration state to 10 years for interests and dividends.
This regime will be new for dividend payments but is already in place for interests.
The conditions for the new regime to apply will be as follows:
- A company that is tax resident in the emigration state, as assessed under domestic tax law;
- The Netherlands applies a number of fictions to companies emigrated abroad, e.g. in case of a company seat transfer abroad, the company is still deemed to be established in the Netherlands if it was initially constituted under Dutch law;
- Belgium is also familiar with this, vice versa. A company with its statutory seat in Belgium will be deemed to also have its actual seat located in Belgium and thus to be tax resident in Belgium (qualification as a 'domestic company' within the meaning of Article 2, §1 5°, a) Income Tax Code (ITC92)), unless the company provides rebuttal evidence that its actual seat is located abroad under the domestic tax law of that country.
- distributes a benefit to a resident of the immigration state;
- within ten years of the shareholder-individual's emigration;
- in cases where an exit tax has been levied; and
- there is an outstanding tax claim in respect of the levied exit tax.
With regard to dividends, a possible rate limitation will apply on the taxing rights of the emigration state. Indeed, the applicable rate cannot exceed half of the general withholding tax rate applicable in the immigration state. The Dutch taxing rights will thus be limited to 15% (i.e. half the general 30% rate applicable to dividends). The taxing rights of the immigration country (in this example, Belgium) will not be limited by this specific treaty arrangement. The question is whether Belgium may also levy 30% income tax, whilst deducting the Dutch tax based on this arrangement. The treaty does not address how double taxation is to be avoided in this case, unlike for the purchase and liquidation bonuses.
Conclusion
The new treaty builds on the current treaty as regards the position of the emigrating shareholder-individual. The existing rules are aligned with the evolutions in Dutch domestic legislation regarding the conservatory exit tax assessment. As is also the case today, the regulations are formulated reciprocally, but because they are written in a more general sense, they leave the necessary room to also be applied inversely (when emigrating from Belgium to the Netherlands), should Belgium introduce a general capital gains tax on shares in the future, with an accompanying exit tax rule.
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