Belgian, U.S. Treaty Ends Double Taxation

A new treaty between the United States and Belgium to avoid double taxation was enacted Dec. 28, 2007. The effective date for withholding taxes will be Feb. 1, the Belgian Embassy said Tuesday.

The new treaty reduces double taxation of income, eliminates barriers to trade, and investment, and facilitates cross-border capital movement.

Economic ties between the U.S. and Belgium will be strengthened by the new treaty, he Embassy said. With bilateral trade between the two countries valued at more than $35 billion annually, Belgium is the 18th largest trading partner for the U.S. Some 1,200 U.S. companies have invested more than $52 billion in Belgium, and Belgian companies have invested more than $12 billion in the U.S., employing about 130,000 people.

The new tax treaty is but one more step in a series of measures the Belgian government has taken recently to increase Belgium’s attractiveness for foreign investors.

The US-Belgian Double Taxation Treaty contains a variety of new features for U.S. companies with business plans in Europe, including:

1. It introduces a 0 percent withholding tax on dividend payments from a U.S. company in Belgium to its U.S. parent company, provided the U.S. entity in Belgium owns 10 percent or more of the Belgian company. This 10 percent ownership threshold is significantly lower than the threshold in other treaties recently concluded by the U.S. The exemption from withholding tax also applies to pension funds, provided the dividends are not the result of business activities by the fund.

2. It introduces a 0 percent withholding tax on interest. Together with the National Interest Deduction, this makes direct loans between the U.S. and Belgian affiliated companies more attractive, and increases possibilities for companies in Belgium to finance U.S. affiliates.

3. It is the first income tax treaty concluded by the U.S. to contain a binding arbitration procedure with a foreign country. The U.S. and Belgium have two years to resolve a tax dispute before arbitration starts, unless the two countries decide that the provision is not suitable for arbitration. An arbitration panel will decide one of two final last offers by both governments. It gives taxpayers the prospect of finality to a tax dispute within a specific timeframe.

4. Anti-abuse provisions designed to deny inappropriate use of the treaty were strengthened, to bring them into closer conformity with current U.S. treaty policy. On the other hand, new categories of taxpayers such as qualified charities or pension trusts will now be able to claim benefits.

5. It extends the benefits of the Treaty to companies owned by so-called “equivalent beneficiaries,” which may provide opportunities for multinational groups that are based in the EU, Switzerland or NAFTA.

Other changes in the new Treaty include a more tax friendly treatment of pension plan contributions and an extended information exchange provision. It allows, for example, for a tax deduction in the country of employment for payments made to a pension plan resident in the other country. The U.S. and Belgium will also, upon request by either government, exchange information held by a bank or other financial institution.