20 March 2017
by Hannelore Durieu and Stephanie Vanmarcke
Discussion about SCIs raises its head again
A new decision of the Court of Cassation once again leads to legal uncertainty regarding the tax treatment of income obtained by Belgian residents from a French 'translucent' SCI (Court of Cassation 29 September 2016). This time, the Court turned against the taxpayer and sided with the position of the Finance Minister and the Belgian Tax Office.
For a long time, there has been disagreement regarding the tax treatment of income from SCIs. Translucent SCIs are treated as fiscally transparent within the framework of French income tax. This allows the income obtained via the SCI to be directly taxed payable by the shareholders. Shareholders are therefore expected to own a French property. Since income from immovable property is taxable based on the double taxation treaty in the country of the property's location, the majority of case law was in agreement thatFrance was granted the exclusive power to tax. Therefore Belgium must grant an exemption for this income, subject to progressive tax rates. This reasoning was also followed by the Court of Cassation in 2004 (Court of Cassation, 2 December 2004).
However, the Belgian Tax Office has never accepted this reasoning. The Belgian Tax Office considers that Belgium should be granted exclusive power to tax. Income from translucent SCIs should, according to the Belgian Tax Office, be taxed in Belgium as dividends. In this way, the income received by a Belgian shareholder is taxed twice, namely as income from property in France and as investment income in Belgium. However, the Court of Cassation decided this time that the Belgian Tax Office is correct and that Belgium is allowed to tax such income as dividends.
It goes without saying that this judgment is not good for the taxpayer. Currently, negotiations are underway on a new double taxation treaty between Belgium and France. Hopefully, the new treaty will once and for all put an end to the legal uncertainty surrounding SCIs.
If you have any questions, please do not hesitate to contact one of our specialists.
For a long time, there has been disagreement regarding the tax treatment of income from SCIs. Translucent SCIs are treated as fiscally transparent within the framework of French income tax. This allows the income obtained via the SCI to be directly taxed payable by the shareholders. Shareholders are therefore expected to own a French property. Since income from immovable property is taxable based on the double taxation treaty in the country of the property's location, the majority of case law was in agreement thatFrance was granted the exclusive power to tax. Therefore Belgium must grant an exemption for this income, subject to progressive tax rates. This reasoning was also followed by the Court of Cassation in 2004 (Court of Cassation, 2 December 2004).
However, the Belgian Tax Office has never accepted this reasoning. The Belgian Tax Office considers that Belgium should be granted exclusive power to tax. Income from translucent SCIs should, according to the Belgian Tax Office, be taxed in Belgium as dividends. In this way, the income received by a Belgian shareholder is taxed twice, namely as income from property in France and as investment income in Belgium. However, the Court of Cassation decided this time that the Belgian Tax Office is correct and that Belgium is allowed to tax such income as dividends.
It goes without saying that this judgment is not good for the taxpayer. Currently, negotiations are underway on a new double taxation treaty between Belgium and France. Hopefully, the new treaty will once and for all put an end to the legal uncertainty surrounding SCIs.
If you have any questions, please do not hesitate to contact one of our specialists.
Hannelore Durieu
Partner International Tax - Certified Tax Advisor hannelore.durieu@vdl.be
Stephanie Vanmarcke
Team Manager International stephanie.vanmarcke@vdl.be
Disclaimer
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.