Funds in line for £800m tax boost after court victory

A court ruling has overturned withholding tax rules levied by the Belgian government on overseas investment funds, releasing a tax windfall of more than €1 billion (£804 million) for UK investors.

The tax had previously been levied by Belgium on overseas funds invested in the country. Several single country withholding taxes in the EU have recently been successfully challenged.  

Teresa Owusu-Adjei, UK asset management tax leader at PricewaterhouseCoopers, said: ‘Seven years ago we asked the Belgian government for money back and we helped our fund clients complain to the European Commission.

‘They took the case against the Belgian government on behalf of the funds industry – so the clients who made claims have a lot of money coming to them.’

However, the estimated €1 billion payback is at the lower end of the scale and refunds could actually amount to double this figure, Owusu-Adjei said.

‘I think the bill is bigger because this has been calculated by the Belgian government. They were trying to get the European Court to limit the impact against them were they to lose, but the number could be up to double that [€1 billion]. So a fund can make claims and this will provide a very good one-off boost to the fund’s performance.’

Last week, the European Court of Justice ruled that foreign investment funds should not pay punitive withholding tax on Belgium dividends and that they are eligible to claim a refund on tax paid.

The ruling came on the basis that the tax treatment is discriminatory as domestic investment funds are not liable to pay withholding tax on Belgium dividends.

The discriminatory tax rule has meant some funds have had to pay 25% tax, unless countries have a tax treaty in place, such as the UK where funds have paid 15%.

The latest ruling will provide a significant performance boost to eligible funds in the UK and comes after France’s withholding taxes on foreign investors were overturned earlier this year.