Tax Treaty Case Law around the Globe 2015

S. 293Belgium: Constitutionality of Interest Credit in Belgium-Australia DTC

Edoardo Traversa/Gaëtan Zeyen

I. S. 294Introduction

This case, which was initially filed with the Tribunal of first Instance of Antwerp and then referred to the Belgian Constitutional Court concerns the application of a specific tax credit for interest of foreign source in the context of the DTC between Belgium and Australia of 13 October 1977 (which entered into force on 11 November 1979).

This specific tax credit regime – called “Fixed Foreign Tax Credit” (Quotité Forfaitaire d’Impôt Etranger’/‘Q.F.I.E.’/ Forfaitair Gedeelte van Buitenlandse Belasting/ F.F.B.), hereinafter “FFTC”, aims at eliminating double taxation as regards passive income (interest and royalties) of foreign source. Originally, the “FFTC” tax mechanism consisted in a “lump sum” deduction, with the consequence that in certain cases, the deductible “FFTC” was higher than the amount of foreign tax effectively paid; as a result, the FFTC was used in tax planning strategies at the end of the 1980s and generated a large number of disputes before Belgian domestic courts. As a consequence, the scope of the “FFTC” has since been limited by different anti-abuse...