Tax Treaty Case Law around the Globe 2014

S. 277Chapter 27 Belgium: Limitation of Foreign Tax Credit Does Not Infringe Article 23 of the Former Belgium-US Treaty

Luc De Broe

27.1. Introduction

On 15 March 2013, the Belgian Supreme Court (Cour de cassation/Hof van Cassatie) decided on the application of the domestic tax credit regime in a case the facts of which also come under the scope of the former Belgium-United States Income Tax Treaty of 1970 (as amended through 1987) (the Treaty). The Supreme Court held that the limitation of this tax credit for leveraged companies by virtue of application of the so-called debt financing ratio enacted in Belgian domestic law subsequent to the Treaty does not infringe article 23 of the Treaty.

27.2. Facts of the case

Pursuant to article 287 of the Income Tax Code (ITC), Belgian companies are entitled to a tax credit for foreign taxes on (inter alia) income "from movable property, other than dividends and income from renting, leasing, the use or franchise of such movable property" - in other words on interest income - provided that several conditions are fulfilled. Until 1990, the foreign tax credit was a lump-sum credit (forfaitaire gedeelte van de buitenlandse belasting/quotité forfaitaire de ...