BELGIUM Trends and Developments Contributed by: An Weyn and Aurore Sultus, Arteo Law
Substance exclusion A so-called “substance carve-out” applies to con - structions with sufficient substance. For the exclusion to apply, the construction must carry out a genuine economic activity in its country of establishment, by means of premises, personnel and equipment. The activity may not be limited to the management of the founder’s private assets. The 2023 tax reform defined “economic activity” as “the offering of goods or services on a specific market”. According to the Constitutional Court, this definition is too restrictive and incompatible with EU freedoms of establishment and capital. A limitation of EU freedoms would only be acceptable according to the Constitutional Court if there is a wholly artificial arrangement set up with the purpose of avoiding tax - es. Moreover, the mere fact that a legal construction manages assets or derives income solely from asset management is by itself not sufficient to conclude that there is a wholly artificial arrangement. Taxpayers must be given a fair opportunity to prove to the tax authorities that their legal construction has substance and is connected to economic reality even if it does not trade in goods or services. Limitation of the exit tax provision to the income generated during Belgian tax residency The exit tax is annulled insofar as it allows Belgium to tax undistributed profits earned by a construction dur - ing a period when the founder did not qualify as a Bel - gian tax resident. This partial annulment puts bounda - ries to the application of the exit taxation, notably for individuals who qualify as Belgian tax residents for a limited period of time and who would be taxed upon their relocation outside Belgium on income of their construction realised during a period when they were not tax resident in Belgium.
Collective investment vehicles and the 50% threshold Collective investment vehicles (CIVs) are generally excluded from Cayman tax. However, this exclusion does not apply when more than 50% of a CIV is held by one person or by related persons. The Constitutional Court ruled that the 50% participa - tion threshold for a CIV is disproportionate. Taxpay - ers must have the opportunity to demonstrate that third-party participation in a CIV of less than 50% is not driven by purely tax motives, and that the CIV should therefore not qualify as a construction targeted by Cayman tax. Tax Aspects Relating to Trusts Income tax treatment of distributions made by a trust From a Belgian income tax perspective, any distribu - tion made by foreign trusts to beneficiaries that are Belgian tax residents will be treated as dividends and be taxable in the hands of the beneficiaries, unless: • the beneficiary can prove that the relevant income or gain has already effectively been taxed in Belgium in accordance with look-through taxa - tion legislation (Cayman tax) in the hands of the founder; or • the taxpayer can demonstrate that the distribution triggers a decrease in the value of the trust’s assets to below the value of the assets originally contrib - uted. Inheritance tax treatment of a trust When it comes to Belgian inheritance tax, there is no look-through taxation with regard to foreign trusts. In general, the tax authorities have taken the position in the three regions that no inheritance tax is immedi - ately due upon or pursuant to the death of the Belgian tax resident settlor if the trust was set up and acts as an irrevocable and discretionary trust. However, if the trust makes a distribution upon and/or after the death of a Belgian tax resident settlor, the distribution is subject to inheritance tax.
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