Belgium and France sign new tax treaty

By Moïse Gnakouri, Doctoral researcher, Catholic University of Louvain, Brussels

On November 9, Belgium and France signed a new tax treaty, which will enter into force in January 2023 at the earliest.

The new treaty is more adapted to the current challenges of international taxation and complies with new international standards, in particular those identified by the OECD base erosion and profit shifting (BEPS) project. It clearly states its objective to prevent tax evasion and fiscal fraud in addition to the elimination of double taxation.

There are several changes in the new treaty, in particular regarding the taxation of capital gains on the sale of shares of companies with assets consisting primarily of real estate.

Indeed, on the basis of the tax treaty currently in force between the two countries, the transfer of shares of companies whose assets are mainly composed of real estate was considered as a transfer of shares in the common sense of the term. Thus, the power of taxation was attributed to the state of residence of the seller. However, in the case of Belgium, these capital gains are not taxed.

Under the new tax treaty, this type of transfer of shares will be considered as a transfer of real estate property, which will result in attributing the taxing power to the state where the real estate is located. For this purpose, it will be necessary that the company whose shares are transferred has assets composed of more than 50 percent, directly or indirectly, of real estate and that these real estate assets are not used for the activity of the company whose shares are transferred.

In addition, the new tax treaty does not only cover income but also wealth owned by residents of one of the states.

Furthermore, the new treaty takes into account the federal structure of Belgium and more specifically the regionalization and communitization of certain taxes. Indeed, at the time of the conclusion of the tax treaty currently in force, Belgium was a unitary state where the tax competencies belonged essentially to the central power. Since 1993, the regions and communities have had fiscal powers. They have therefore taken part in the negotiations, as the taxes for which they are responsible are covered by this agreement.

The tax treaty currently in force between Belgium and France was signed on March 10, 1964, and has been amended several times, most recently in 2009.