On 23 November 2017, the Belgian court of appeal of Brussels rendered its decision in the Belgacom Invest-case (case no. 2014/AF/271). The case concerned the residence of a Luxembourg intermediary holding company under domestic law and under article 4 of the Belgium – Luxembourg Income Tax and Capital Tax Treaty (1970) (as amended through 2009) (the treaty). Details of the decision are summarized below.
(a) Facts. On 21 November 2003, Belgacom (currently Proximus) incorporated a Luxemburg intermediary holding company. The incorporation took place in the framework of the 2004 IPO of Belgacom and was based on an agreement between the shareholders, amongst them the Belgian State. The intermediary holding became the owner of the shares of Belgacom mobile and part of the shares of the Belgian coordination centre of the group, leading to substantial tax savings (through apparently also a hybrid loan).
In 2008, the minister of public enterprises informed the Belgian parliament, having learned about an ongoing tax investigation by the special tax inspectorate (dedicated to the fight against serious and organized tax evasion), that by opting for Luxembourg instead of Belgium for the location of the intermediary holding company, Belgacom avoided an additional tax cost for its shareholders that would have resulted from a second levy of corporate income tax on the dividends paid by Belgacom Mobile to Belgacom (via Belgacom Invest). Tax considerations have, according to the minister, only influenced the location of the holding company. They were not at the basis of the decision to set up the holding company itself. Belgacom has chosen the option of the least taxed route that, according to the minister, is explicitly permitted both by the Court of Cassation and by the European Court of Justice.
However, the Belgian tax administration, upon an audit, concluded that the Luxembourg company was a company without actual decision-making power, managed in Belgium by its parent company and the Belgian coordination centre of the group.
The intermediary holding company had no personnel and offices. The day-to-day management of the company was carried out by a lawyer and a corporate service provider with whom it had a domiciliation agreement for its registered office in Luxembourg.
The company had three directors: the Luxembourg lawyer, in charge of the daily management, and two Belgian residents, employees of the Belgian parent company and the Belgian coordination centre of the group. Notwithstanding the fact that (most of) the general meetings and board of director’s meeting, at least formally, took place in Luxembourg, the directors were according to the Belgian tax administration merely rubber stamping the decisions of the parent company, taken in Belgium.
(b) Legal background. A company is a resident of Belgium if it has its legal seat, main establishment or place of management in Belgium (article 2(1)(5)(b) of the CIR/WIB). Also under the tie-breaker rule of article 4(4) of the Treaty, if a company is regarded as being a resident of both states, then it shall be deemed to be a resident of the state in which its place of effective management is situated.
(c) Issue. The court had to decide whether Belgacom Invest was a company subject to the Belgian corporate income tax and, if so, whether its place of effective management was in Belgium.
(d) Decision. The court confirmed the decision of the court of first instance of 6 June 2014 and ruled in favour of the taxpayer. The statement that Belgacom Invest was a Belgian company was speculative, based on assumptions and alleged facts.
The Luxembourg seat of management was not a sham. The certificate of residence issued by the Luxembourg tax authorities on 3 October 2007, subsequent a Belgian request for administrative assistance, clearly demonstrates that the Company had its place of principal establishment in Luxembourg and that it was a Luxembourg company governed by the laws of Luxembourg.
The company was not a mere letterbox company. The day-to-day management took place in Luxembourg. There are no legal provision that requires a company to hire personnel and rent an office. It is perfectly possible to out-source secretarial, administrative and other functions. On the contrary, these facts demonstrate that the company had sufficient substance to conduct it holding activities.
The fact that the two Belgian directors of the company did not have an office in Luxembourg or business cards of the Luxembourg entity, was according to the court not relevant. Also, the fact that the minutes of the Board of directors’ and general shareholders’ meetings were drawn up in Belgium at the head office of the parent company and that some meetings took place by phone (for efficiency reasons) did not have a negative impact on the decision of the court.
The court emphasized that the Belgian tax administration must consider the legal reality. The argument that the Belgian directors are mere employees of the group and thus not capable of taking independent decisions fully neglects the corporate rules which apply with in a holding company having one single shareholder or, for that matter, within a group of companies having in general employees on the board of directors of its member companies.
The facts sufficiently demonstrate that decisions have been taken by the company, indisputably a Luxembourg company, through its competent organs in Luxembourg, where it has sufficient substance to conduct its activities. There are, as reported by the court, no factual elements submitted by the tax administration which even could lead to the conclusion that the company had a place of management in Belgium or that the place of management in Luxembourg was a sham.