Belgian Court Rules Domestic Law governs Beneficial Ownership for Withholding Tax Exemption

Instead, the Court found that the term “entitled person” under Belgian law refers to the legal owner of the interest income, not the economic beneficiary. As a result, the Luxembourg joint venture receiving interest payments from a Belgian company was deemed eligible for withholding tax exemption under domestic law, despite the absence of the Directive’s beneficial ownership clause.

Details of the decision are summarized below.

(a) Facts. The taxpayer was a public limited liability company resident in Belgium. Part of the shares in the taxpayer were purchased and owned by a Luxembourg joint-venture established by an Australian investment bank. The taxpayer was, amongst other things, financed by this company partly through subordinated shareholder loans. From 2015 to 2019, the interest on the shareholder loan was 5.78%, which was at arm's length. The taxpayer argued that the interest payment should be exempt from withholding tax under the Directive. The tax administration, however, held that the payer could not rely on the Directive and that withholding tax was due on interest paid during 2015 to 2019.

(b) Legal background. Article 1.1 of the Directive provides that interest or royalty payments arising in a Member State shall be exempt from all taxes in that source State provided that a company of another Member State is the beneficial owner of the interest.

Article 1.4 of the Directive provides that a company of a Member State shall be treated as the beneficial owner of interest only if it receives the relevant payments for its own benefit and not as an intermediary.

Article 1.11 of the Directive provides that the source state may require that, at the time of payment of the interest, a certificate demonstrating that the conditions of the Directive are met.

Belgium transposed the Directive by Article 107(6) of the Royal Decree to the Income Tax Act (RDITA), which regulates that the collection of withholding tax on movable property shall be completely waived for income from loans paid to a company resident in another EU Member State if those are not included in the assets of an establishment held by the beneficiary outside the territory of the European Union.

Based on article 105(6) RDITA a company of Member States means a company as defined in the Directive.

Finally, article 117(6 bis) RDITA provides that the waiver of withholding tax only applies if the debtor has obtained certificate stating that the requirements of the Directive are met.

In deviation from the Directive, the Belgian transposition does not contain the term "beneficial owner", but "owner". Furthermore, Belgian law does not clarify the concept of beneficial owner.

Article 344(1) of the Income Tax Act contains a GAAR under which a transaction or a series of transactions which constitute abuse cannot be invoked against the tax administration.

(c) Issue. The issue was whether the Directive was applicable as the Belgian implementation did not contain the term beneficial ownership.

(d) Decision. The Court first observed that article 107(6) RDITA applies to "income" for an "entitled person". In its ordinary meaning and grammatical function of the wording of this provision, the Court assumed that it referred to a person entitled to this income. Due to the certificate requirement the debtor must, among other things, confirm that the entitled person is the owner or usufructuary of the securities, rights or goods for which the income is paid. In the Court's view this does not mean that that person must have the (economic) enjoyment of the property or be "ultimately" entitled to that income.

The Court held that it is sufficiently clear that the Belgian legislator interprets the concept of entitled person legally and not economically. This means that the term 'entitled party' must be understood under domestic law as the person who is legally entitled to the interest resulting from the loan.

The Court rejected the argument of the tax administration that the term 'entitled person' must be interpreted in accordance with the Directive. There is no obligation to interpret domestic provisions in a way which is inconsistent with their wording. The Court considered that the obligation to refer to the content of a Directive is limited by general legal principles, such as the principle of legal certainty and the principle of non-retroactivity. Thus, a national court is not required to interpret domestic law in a way that is in conformity with the Directive if the wording of the domestic law opposes such interpretation or if such an interpretation is contrary to the principles of legal certainty and non-retroactivity.

The term "beneficial owner" has a legal interpretation in Belgium when applying the exemption from withholding tax, which differs from the interpretation given to the term "beneficial owner" in Article 1.4 of the Directive.

Consequently, the Court held that the concept of 'beneficial owner' as referred to in Articles 107(6) and 117(6bis) RD ITA cannot be interpreted as 'beneficial owner' as referred to in Article 1.4 of the Directive.

Furthermore, the Court found that, in light of the wording of the Belgian transposition of the Directive, a reasonable and legitimate expectation exists that for applying the exemption it is sufficient that it concerns a 'beneficial owner' in line with domestic law and not a 'beneficial owner' as defined in Article 1.4 of the Directive.

Based on the facts, the Court regarded the Luxembourg company as the beneficiary of the interest.

Thereafter, the Court addressed the argument that the taxpayer could not rely on the Directive because the construction constituted abuse.

The Court first held that no abuse of EU law existed because the taxpayer relied on a benefit from domestic provisions which have transposed EU law in a different manner and cannot be interpreted in accordance with the Directive.

Consequently, the Court investigated whether applying the exemption would constitute abuse under the national GAAR, because it is contrary to the objective of that exemption and is not justified by motives other than the avoidance of income taxes.

The Court decided that no abuse existed because the tax administration failed to show that the acts carried out were contrary to the objectives of the exemption. From the text of the relevant provisions the Court deduced that the Belgian legislator intended a transnational exemption from withholding tax on movable property to ensure that interest distributions are taxed only in one Member State. Sufficient is that the payment to a 'beneficial owner' is made in legal terms and it is not required that it is made in economic terms, as required by the Directive.

As the interest is taxed in the hands of the Luxembourg company, the Court held that no tax avoidance motive existed also because both the taxpayer and the company receiving the interest exercise an economic activity and have sufficient substance.

The full text of Decision 2023/2695/A is available here (in Dutch only). The Brussels Court of First Instance made its decision on 12 August 2025, which was then published on 2 September 2025.

Report from Dr René Offermanns, Principal Associate, IBFD. Follow our reporting on this via our Tax News Service (subscribers only).