On 29 September 2016, the Belgian Supreme Court revised its decision of 2 December 2004 on the application of the Belgium-France income tax treaty to income from a French real estate company constituted under civil law (société civile immobiliere – SCI).
(a) Facts. The facts of the case are similar to facts of the decision of 2 December 2004. Under French domestic law, the SCI is treated as a transparent entity (in fact translucent), whereas under Belgian domestic law, it is treated as a non-transparent entity, as it has a separate legal personality distinct from its members.
In the case at hand, the Belgian tax administration took the position that the income derived by the Belgian partner from his participation in the French SCI was subject to tax in Belgium based on article 18 (other income) of the treaty.
The taxpayer was of the opinion that the income of the SCI was solely taxable in France as income from immovable property on the basis of article 3 (Income from immovable property) and 19(A)(2) (avoidance of double taxation) of the treaty.
(b) Issue. Whether the income received by Belgian partner of a French SCI is governed by article 3 or 18 of the treaty.
(c) Decision. In contrast to its decision of 4 December 2004, the Supreme Court held that the income from an SCI does not qualify as income from immovable property under article 3, §1 of the treaty.
The decision is based on the argument that the participation held by the partner in the SCI does, as such, not qualify as “immovable property” under the French income tax code (application of article 3, §2 of the treaty, i.e. interpretation in accordance with the legislation of the laws where the property is located).