The Court of first instance of Brussels ruled on 21 April 2023 that interest payments made by a Belgian company to a low-taxed Swiss company could not benefit from a withholding tax exemption.
The Court considered that the withholding tax exemption laid down in the 2004 Agreement between the EU and Switzerland, providing for measures equivalent to those laid down in the EU Interest Royalty Directive (the Agreement), could not apply. Article 15, (2) of the Agreement provides that the withholding tax exemption applies if the recipient is ” subject to corporation tax without being exempted in particular on interest and royalty payments (…)”. According to the Court -thereby following the position of the Belgian Special Tax Inspection (BBI/ISI)- the Swiss company did not meet this condition as it was subject to an effective tax rate of (only) 1,87% on the interest received, based on a tax ruling. This ruling confirmed the application of a notional deduction computed on the debts of the Swiss company (compare with the Belgian notional interest deduction, which was computed on the equity).
In my view, this interpretation is not correct : Article 15 (2) does not contain a “subject to tax” condition which would require that the interest payments be
subject to a minimum effective tax rate. It is in my view sufficient that the interest income be subject to corporate income tax. This position should also be followed as far as Art 3 (a) (iii) of the Interest Royalties Directive is concerned.
It is true that in the X Denmark case (ECJ, 26 February 2019), the ECJ concluded that a Luxembourg SICAR (private equity fund) could not benefit from the Interest Royalties Directive -even though it is formally subject to corporate income tax in Luxembourg-, as the interest income was in fact tax exempt. This said, as opposed to a SICAR (which enjoys an ‘objective’ exemption on interest derived from securities), the interest income was in the case at hand effectively subject to tax in Switzerland (be it at a low rate).
Denis-Emmanuel Philippe
