Exchange Traded Funds and Belgian TSET · Exchange Traded Funds and Belgian TSET 5 Source UCITS ETF Shares”, a designated share class of a sub-fund within the Ashmore SICAV, which

Exchange Traded Funds and Belgian TSET

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15th December 2014 Mr Isenbaert Kabinetschef Ministerie van Financiën RE: Exchange traded funds and Belgian tax on stock exchange transactions

Differences in treatment analysis Dear Mr Isenbaert,

BlackRock is pleased to have the opportunity to bring our concerns surrounding the Belgian Tax on Stock Exchange Transactions to your attention.

BlackRock is a premier provider of asset management, risk management, and advisory services to institutional, intermediary, and individual clients worldwide. As of 30 September 2014, the assets BlackRock manages on behalf of its clients totalled €3.57 trillion across equity, fixed income, cash management, alternative investment and multi-investment and advisory strategies including the iShares® exchange traded funds.

BlackRock has a pan-European client base serviced from 22 offices across the continent. Public and private sector pension plans, insurance companies, third-party distributors and mutual funds, endowments, foundations, charities, corporations, official institutions, banks and individuals invest with BlackRock.

BlackRock represents the interests of its clients by acting in every case as their agent. It is from this perspective that we engage on all matters of public policy. BlackRock supports policy changes and regulatory reform globally where it increases transparency, protects investors, facilitates responsible growth of capital markets and, based on thorough cost-benefit analysis, preserves consumer choice.

On 28 November 2014, the Belgian Federal Government tabled on the new program law for of end December 2014 (ref. 54K0672/001). The bill, amongst other things, proposes some modifications to the Belgian Tax on Stock Exchange (below “TSET”) and was the trigger for BlackRock to review the current law on TSE and study it’s practical implications more specifically on the market of Exchange Traded Funds (below “ETF”).

Exchange traded funds (ETFs) are undertakings for collective investment in transferable securities (UCITS) structured as “Société d’investissement à capital variable” / “Beleggingsvennootschap met variabel kapitaal” (below “SICAV” or “BEVEK”) or as “Fonds Communs de Placement” / “Gemeenschappelijk beleggingsfonds” (below “FCP” or “GBF”). They differ from other UCITS only in the way end investor can access them. ETFs being accessed through the exchange and other UCITS through a transfer agent.

Having ETFs being accessed through an exchange gives end investors better transparency on pricing, offers flexibility on execution and makes sure that the costs are being born by those who provoke them.

Some UCITS offer ETF share classes along with traditional mutual fund share classes in the same UCITS. Examples would be the “Ashmore SICAV Emerging Markets Corporate Debt Fund – Ashmore Source UCITS ETF Shares” which is a designated share class of a sub-fund within the Ashmore SICAV, which is itself an investment company organised under Luxembourg law.

During our analysis of the practical implications of the TSET and the upcoming changes we have come to the conclusion that the treatment of investments in, and divestments from, ETFs is very different than the treatment of investments in, and divestments from, traditional BEVEKs from a TSET perspective.


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We also discovered unintended consequences of the TSET law on consumer protection, where registering accumulating funds, and thus making them publically available on the Belgian market and having to follow Belgian legislation regarding marketing has an adverse impact on the fiscal cost to the end client through an increase in TSET.

Finally we have discovered that investors risk profile and investment beliefs are not the first order importance factor when selecting an investment product but TSET impact of certain structures is a key driver in the investment decision.

We welcome the opportunity to discuss with you the issues raised in this document and we would like to continue to contribute to the thinking of the Ministry of Finance on any specific issues that may assist in improving the level playing field amongst investment funds to the benefit of the end investor.

Belgian v. foreign investment companies registered in Belgium for public offering

Belgian Foreign

Mutual Funds Exchange Traded Funds

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Acc. - - 1,32 2.000

Dis. - - 0,09 650

Exit Acc. 1,32 2.000 1,32 2.000

Dis. - - 0,09 650

Charles Symons Responsible for iShares Belux [email protected] BlackRock Square de Meeus 35 1000 Brussels Belgium +3224024914 +32476517122


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1. Prologue

On 28 November 2014, the Belgian Federal Government tabled the bill of law ref. 54K0672/0011. The bill, amongst other things, proposes some modifications to the TSET ruled by article 120 and following of the Code of Various Duties and Taxes (below “CVDT”)2. Section 3.1 summarises the key features of the TSET.

According to the bill, the current3 rate and cap of respectively 0,25% and EUR 740 are proposed to increase to 0,27% and EUR 800, and the current rate and cap of respectively 1% and EUR 1.500 are proposed to increase to 1,32% and EUR 2.000. Section 3.3 briefly addresses the impact these changes will have on funds.

The proposed changes adversely affect the funds market, in particular ETFs established in the form of investment companies (also known in the Belgian market as “Société d’investissement à capital variable” or SICAV / “Beleggingsvennootschap met variabel kapitaal” or BEVEK) registered for public offering in Belgium. Section 2 provides a brief introduction to exchange-traded funds.

The present initiative is inspired by the following two facts:

1. On the one hand, the TSET is arguably out-dated legislation (initially introduced by the Act of 30 August 1913) which has slowly evolved through time. The last major change to the tax was introduced about ten years ago by the Act of 27 December 2004 as a consequence of the decision of the Court of Justice of the European Union dated 15 July 2004 (C-415/02). The other amendments to the tax essentially concerned, as is the case in the aforementioned bill of law, its rates and caps.

2. On the other hand, the fund market has faced major evolutions over the past few decades, favoured by the evolving regulatory framework (the various UCITS Directives in particular). One of these evolutions is the offering of ETFs (being UCITS funds, for the greatest part, in the European Economic Area (the “EEA”)).

The Belgian legislator has not yet taken into account these developments, so that the TSET is currently disrupting the fund market in Belgium to a large extent (in particular for foreign investment companies registered in Belgium for public offering, as shown in section 3.2.1).

As a provider of ETFs in the Belgian market, we consider it is now time to align the tax treatment of ETFs with the tax treatment of other investment funds. To that end, we carried out in section 3.2 an analysis of the differences in treatment that foreign ETFs are subject to. This analysis deals with foreign ETFs established in the form of investment companies (publicly offered in Belgium or not, respectively in sections 3.2.1 and 3.2.2) as well as those established in the form of contractual investment funds (publicly offered in Belgium or not, respectively in sections 3.2.3 and 3.2.4).

On that basis, section 3.4 summarises our point of view as regards these differences in treatment, followed, in the last section, by the key law changes we consider should be brought to the text of the CVDT (section 3.5).

1 Accessible on the website of the Chamber, http://www.dekamer.be. 2 The text of the CVDT on the website of the Ministry of Finance, Fisconetplus. 3 Rate and Cap applicable up to 31 December 2014.

http://www.dekamer.be/kvvcr/showpage.cfm?section=/none&leftmenu=no&language=fr&cfm=/site/wwwcfm/flwb/flwbn.cfm?lang=N&legislat=54&dossierID=0672

http://ccff02.minfin.fgov.be/KMWeb/document.do?method=view&id=5c377345-c4c1-4bd6-9d98-423e42c925f2#findHighlighted


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2. Introduction to exchange-traded funds

1. UCITS funds. Exchange traded funds (ETFs) are undertakings for collective investment in transferable securities (UCITS) structured as “Société d’investissement à capital variable” / “Beleggingsvennootschap met variabel kapitaal” (below “SICAV” or “BEVEK”) or as “Fonds Communs de Placement” / “Gemeenschappelijk beleggingsfonds” (below “FCP” or “GBF”). ETFs exist on all asset classes authorised under the UCITS rules. In the EEA, ETFs are most commonly established as UCITS-compliant funds.

For the sake of this request, we would like to essentially focus on European domiciled ETFs in the form of SICAV/BEVEK (the tax treatments of ETFs in the form of FCP/GBF is nevertheless also addressed, yet at a high level, in this document).

2. Index funds. Generally speaking, ETFs tend to be index funds, which will invest in the securities of a predefined benchmark, and as such replicate its performance. Examples are the equity fund “iShares MSCI Europe”, investing in the 456 companies of the MSCI Europe index, or the bond fund “iShares Belgium Government Bond UCITS ETF”, investing in Belgian Government bonds.

3. Increased popularity. ETFs have gained in popularity in recent years for the following reasons:

They offer investment vehicles at a very low cost to the end investors. Core exposures for European investors are between 0,07% and 0,25% of the Total Expense Ratio.

They offer broad diversification to investors from a very small initial investment amount (for instance, the MSCI All Countries World Index holds shares in 1.056 companies, and access to this benchmark can be gained with an initial investment value of approx. EUR 30).

They offer retail investors the same funds, at the same price, as for the multibillion pension fund.

They offer greater transparency to investors in respect of what they are investing in.

4. Comparison between ETFs and mutual funds. The only difference between ETFs and traditional mutual funds is the way in which most investors gain access to the participations.

The terminology ‘ETF’ speaks for itself: ETFs are funds traded on a stock exchange (for example, BlackRock lists a large number of its European-domiciled ETFs on Euronext). As such, an investor can buy and/or sell participations in the fund directly on the stock exchange. In the case of traditional mutual funds, the buying or selling of participations takes place through the use of a transfer agent.

More precisely in the case of ETFs, given the ‘shares’ in the funds are listed, investors know immediately at what price they have purchased or sold their participation. Given ETFs are SICAV/BEVEK, additional ‘shares’ can be issued if there is an aggregate excess demand. Similarly, if there is an aggregate excess supply, “shares” can be redeemed, in the same fashion as for traditional mutual funds.

Like traditional mutual funds, ETFs come in the form of both accumulating and distributing units.

Cases exist of mutual funds with a number of share classes where one of these share classes consist in a traditional mutual fund share class (entries and exits done via a transfer agent) while others are in an ETF share class (entries and exits on the stock market), both from the same fund and with aggregated assets invested in one and the same investment portfolio. An example would be the “Ashmore SICAV Emerging Markets Corporate Debt Fund – Ashmore


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Source UCITS ETF Shares”, a designated share class of a sub-fund within the Ashmore SICAV, which is itself an investment company organised under Luxembourg law4.

5. The role of an Authorised Participant. The Authorised Participants are playing a crucial role in the ETF ecosystem. They are the only ones who can trade in the primary market, with the fund, to balance out excess aggregate supply or demand of units to the creation or redemption of additional units. They will also make sure that supply of, and demand for, securities are balanced.

6. Overview of the Belgian ETF market. The Belgian ETF market is comprised of a couple of international asset managers. No local player has, as of yet, entered the market, potentially due to the low margin business and large scale needed.5 To the best of our knowledge6, the ETF sponsors which are active in the Belgian market are:

Lyxor ETF (Société Générale, French contractual fund, French investment company, Luxembourg investment company);

Theam easyETF (BNP Paribas, Luxembourg contractual fund, French contractual fund, French investment company);

Db X-trackers (Deutsche Bank, Luxembourg investment company and Irish investment company);

Source ETF (Source Investment Management, Irish investment company); iShares ETF (BlackRock, Luxembourg SICAV and Irish investment company; German

investment company are currently being registered; registration of German contractual funds is considered).

3. Tax on stock exchange transactions

3.1. Introduction

7. Key features. The TSET is ruled by article 120 and following of the CVDT. The key features of the tax are the following:

Trigger events (articles 120 and 122 CVDT). The TSET is due on the following transactions concluded or executed in Belgium through a professional intermediary to the extent that they relate to “public funds”, irrespective of their (Belgian or foreign) origin:

o Secondary market transactions: on every sale, every purchase and, in general, every transfer and every acquisition for valuable consideration (the tax is due, separately, on the sale or transfer and on the purchase or acquisition);

o Primary market transaction: on every redemption of [own] shares by an investment company (as specifically defined) provided that the redemption relates to accumulating shares (the tax is only due on the transfer of the shares to the investment company).

The notion of “public funds” refers to all marketable securities, which, by their nature, could be traded on an organized stock exchange7.

Specific rules apply to regulated investments funds, via a reference to the former8 Act of 20 July 2004 (see para. 10 below).

4 As shown in the prospectus, accessible at the following address: https://wl.fundsquare.net. 5 Based on publicly available information published on the website of the Financial Services and Markets Authority.http://www.fsma.be/fr/Supervision/finprod/icb/Article/lijsten/ccp1_li.aspx 6 Based on publicly available information published on the website of the Financial Services and Markets Authority. http://www.fsma.be/fr/Supervision/finprod/icb/Article/lijsten/ccp2_li.aspx 7 Although the term used can be confusing, the scope of the tax is not limited to undertakings for collective investment publicly offered, but covers a wide range of financial instruments (bonds, shares, investment funds, etc.). 8 Repealed and replaced by the Act of 3 August 2012 on some forms of collective management of investment portfolios (the CVDT still refers to the Act of 20 July 2004 though).

https://wl.fundsquare.net/application;JSESSIONID_CLX=CqGkJMKfyF4TDYnKvyJGFpFYR0m0VSK1jzxxch8DJGTRhDgJby1B!-509561024!-2142896344?_flowId=WL_DownloadDocumentFlow&v=z/++Edz7f+o41gGTsQ+Xl27T7pX5t7DDL1dfaVb9IHnWD50BYOJUVRc+ttBJm9+wxRwUBTWLWb4rKBu8x6APjHk6swvnfY3VaShcCdBlTI9adz1fN+fFVvE/3047KKXMwjbnOmBn5/NOBcQzjGkbeImIjOEbceNIc+/BjKjH8VQ=&typeFlow=WL

http://www.fsma.be/fr/Supervision/finprod/icb/Article/lijsten/ccp1_li.aspx

http://www.fsma.be/fr/Supervision/finprod/icb/Article/lijsten/ccp2_li.aspx


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Tax rates and caps (articles 121 and 124 CVDT). The tax rates currently applicable are the following:

o 0,09% for secondary market transactions on bonds of the Belgian public debt or the public debt of foreign states, nominative or bearer bonds, certificates of bonds, distributing shares of investment companies, etc. (the TSET is then limited to EUR 650 per transaction);

o 1% for secondary market transactions and redemption of [own] accumulating shares of investment companies (the TSET is then limited to EUR 1.500 per transaction); and

o 0,25% for secondary market transactions on any other securities, such as shares (the TSET is then limited to EUR 740 per transaction).

Tax base (article 123 CVDT). The tax is due:

o for acquisitions or purchases, on the sums to be paid by the purchaser after deduction of the brokerage commission;

o for sales or transfers for valuable consideration, on the sums to be received by the seller or assignor, without deducting the brokerage commission;

o for redemptions of [own] accumulating shares by certain types of investment companies, on the net asset value, without any deduction of lump sum charges but reduced by the Belgian withholding tax (précompte mobilier / roerendevoorheffing) levied upon the transaction.

Reporting and payment (article 125 and 1262 CVDT). The professional intermediary is liable to report and pay the TSET to the Belgian tax authorities (at the latest on the last working day of the month following the month during which the transaction was executed).

Exemptions (article 1261 CVDT). Specific exemptions are applicable (e.g. transactions made for their own account by some financial institutions – such as banks or insurance companies; transactions made for their own account by non-resident taxpayers; etc.).

3.2. Differences in treatment analysis

8. Introduction. The currents TSET rates and caps applicable to investment funds are summarised in the following four subsections. In each case, a detailed table first illustrates the various theoretical possibilities, a summary table then highlights the actual differences in treatment, together with some brief explanations.

9. Terms. In the tables below, the following terms are used:

Investment companies v. contractual investment funds: o An investment company is an investment fund taking the form of a corporation (e.g.

SICAV); o A contractual investment fund is an investment fund taking the form of a contract (e.g.

FCP). Funds covered v. not covered by Part II of the Act of 20 July 2004 (see para. 10 below for

details): o A fund covered by Part II of the Act of 20 July 2004 is a Belgian fund, or a foreign fund

registered in Belgium for public offering; o A fund not covered by Part II of the Act of 20 July 2004 is a foreign fund not registered

in Belgium for public offering. Belgian v. foreign funds:

o A Belgian fund is either a Belgian investment company or a contractual investment fund managed by a Belgian management company;


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o A foreign fund is either a foreign investment company or a contractual investment fund managed by a foreign management company.

Mutual funds v. exchange traded funds: o A mutual fund (or MF) is an investment fund the units of which are not traded on a

stock-exchange; o An exchange-traded fund (or ETF) is an investment fund the units of which are traded

on a stock-exchange. Rate (%) and Cap (EUR) refer to the TSET rate and cap applicable to a given transaction. Entry v. exit:

o An entry consists in investing into units of a fund (either on the primary or on the secondary market);

o An exit consists in divesting its units from a fund (either on the primary or on the secondary market).

Primary market transaction v. secondary market transaction: o A transaction occurs on the primary market when one of the parties to the transaction is

the issuer of the security object of the transaction (issue of a new security / redemption of a security by the issuer);

o A transaction occurs on the secondary market when none of the parties to the transaction is the issuer of the security object of the transaction (acquisition / sale).

Accumulating v. distributing: o Accumulating (or Acc.) refers to accumulating shares or units; o Distributing (or Dis.) refers to distributing shares or units.

10. Funds covered by Part II of the Act of 20 July 2004. Article 120bis CVDT refers to “Part II of the Act of 20 July 2004” to define, investment funds (1°), investment companies (2°) and contractual investment funds (3°). This reference to Part II of the Act of 20 July 2004 already embeds a fundamental difference in treatment between Belgian and foreign funds:

Belgian funds. Pursuant to the Act of 20 July 2004, Belgian funds can theoretically be of different types: public (i.e. registered in Belgium for public offering) and institutional (understand, not registered in Belgium for public offering)9. These two types of funds are “covered by Part II of the Act of 20 July 2004” in the meaning of article 120bis CVDT.

Two important exemptions. It is worth highlighting two important exemptions upfront:

o Belgian institutional funds. Article 1261, 3° CVDT exempts from the tax operations on units of Belgian institutional funds;

o Belgian private funds. Article 1261, 10° CVDT already exempts from the tax operations on units of Belgian private funds (even if the latter do not exist yet).

These exemptions were introduced in the CVDT by the Act of 27 December 2006 and were detailed as follows in the parliamentary works (free translation): “The Act of 20 July 2004 therefore provides the opportunity to insert again two other provisions (3° and 10°) in this article. The aforementioned Act allows the creation of institutional undertakings for collective investment (Part II, Book II, Title III of the Act) and private undertakings for collective investment (Part II, Book II, Title IV of the Act). […] Regarding the investment made in an institutional or private undertaking for collective investment, it was chosen to insert two new exemptions […] so that transactions relating to units of institutional or private undertaking for collective investment are exempt from this tax (respectively 3° and 10° of this legislative provision)”. 10

9 The Act also provides that Belgian funds could be “private”. However, the latter type does not exist in Belgium yet, lacking Royal decree implementing the Act in this respect. 10 Doc. parl.,Chamber, DOC 51, 2760/001, p. 203-204.


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Foreign funds. As regards foreign funds, the situation can be summarised as follows:

o Publicly offered in Belgium. In order for foreign funds to be “covered by Part II of the Act of 20 July 2004”, it is necessary that the latter be registered in Belgium for public offering, in addition to their registration for public offering in their country of establishment11. They are then subject to the tax treatment described in sections 3.2.1 and 3.2.3 below.

o Not publicly offered in Belgium. When a foreign fund is registered in its country of establishment for public offering, but not in Belgium, it is not “covered by Part II of the Act of 20 July 2004” and, as a result, does not fall within the categories defined in article 120bis CVDT (its units are then considered as “other securities” in the meaning of article 121, §1, 2°, (1) CVDT).

11. Comparability. As far as foreign funds are concerned, the key question is thus to assess the comparison point with Belgian funds:

Foreign funds publicly offered in Belgium v. Belgian public funds. Domestic Belgian funds publicly offered in Belgium and foreign funds similarly offered are, in all relevant respects, comparable in nature. The comparison between these funds is detailed in sections 3.2.1 (investment companies) and 3.2.3 (contractual investment funds).

Foreign funds not publicly offered in Belgium. As regards foreign UCITS12 funds not publicly offered in Belgium (i.e. foreign funds with UCITS status, but which are not “passported” in Belgium), two possibilities could be envisaged:

o Comparison with Belgian Public Funds. This comparison point is in our view the most appropriate one as it enables the comparison of tax treatment between Belgian and foreign funds having fundamentally the same core regulatory features (being their public character in their country of establishment13).

o Comparison with Belgian institutional funds (i.e. other funds covered by the Act of 20 July 200414). Comparing with other Belgian funds covered by the Act of 20 July 2004 is another possibility. In such case, foreign funds should be compared to Belgian institutional funds. Considering transactions on Belgian institutional funds are exempt from TSET, using Belgian institutional funds as a comparison point would obviously lead to the conclusion that the TSET is fully discriminatory for foreign funds.

In our view, however, this comparison point should not be used for foreign ETFs with UCITS status, but most likely for foreign institutional (or private) funds. The difference in treatment applicable to the latter funds falls out of scope of the present request however.

12. Theoretical v. actual transactions. The highlighted cells in the tables show situations which do not occur in practice and which should thus be disregarded for the sake of the comparison. Indeed,

Belgian funds are not yet quoted on a stock exchange (although could, theoretically be, if certain operational aspects were met); there are no Belgian ETFs.

11 A foreign fund could not be subject to public offering in Belgium without being public offered in its country of establishment. 12 We do not address the case of foreign funds without the UCITS status. 13 A simple reference to the UCITS status of the Belgian and foreign funds might create tax loopholes however. 14 Belgian non-regulated investment funds (provided these can, in practice, be created) have a different tax treatment than Belgian regulated investment funds (as confirmed in Practice Note n°5 of 7 March 1994, p. 2, title I, compared to pp. 7 title V. and 8 title VI.). The scope of Belgian regulated investment funds has evolved throughout time: the initial Act of 4 December 1990 only provided for the creation of Belgian public investment funds; nowadays, Belgian regulated investment funds can either be public or institutional. Comparing foreign regulated investment funds (be it public – registered or not in Belgium – institutional or private) with Belgian non-regulated investment funds would in our view not be appropriate.


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Mutual funds are not traded on a stock exchange so that secondary market transactions with respect to these funds will rarely occur. Indeed, the most common way for investing into a Mutual Fund is the issue of new securities and for divesting is the redemption of securities by the fund.

On the other hand, investments in, and divestments from, ETFs are normally done on the secondary market (more precisely, via a transaction directly on the stock-market). Primary market transactions on ETFs are in practice only carried out by Authorised Participants acting as market makers (never by the ultimate investor).

3.2.1. Foreign investment companies registered in Belgium for public

offering (i.e. covered by Part II of the Act of 20 July 2004)15

13. Evolution of the TSET treatment of accumulating shares of investment companies since 1993.

Fall in withholding tax revenues. The use of accumulating shares, which do not trigger the Belgian withholding tax, has benefitted from a large success soon after the creation of the Belgian investment companies framework by the Act of 4 December 1990. This measure, however, had the effect of depriving the Belgian State of some inflows revenue linked to withholding tax.16

Compensation for lower withholding tax revenues in a tax competition context. The objective pursued by the higher tax rate and cap applied to accumulating shares of investment companies, introduced by the Act of 22 July 1993, is thus, on the one hand, the compensation for the absence of Belgian withholding tax on the return collected from such investments (initially, only dividends distributed by investment companies were subject to the levy of a Belgian withholding tax; de facto not applicable to accumulating shares of investment companies). On the other hand, the TSET regime applicable to investment companies has also to be understood in a tax competition context with foreign asset management countries, Luxembourg in particular.17

The legislature indeed attempted to estimate the required increase in the level of the TSET to avoid a massive shift from financial instruments subject to withholding tax to investment companies. "Thus, by setting the tax at 1%, an investment in capitalisation SICAV is not more interesting than an investment subject to withholding tax, at least during the first two years of investment. The longer the investment period, the greater the impact of the 1% tax to the subscription is reduced [note: initially, not only redemptions were subject to the TSET, but also subscriptions]. This measure aims to discourage investments in SICAV for a short period and to return to the original essence of SICAV, namely a longer-term investment vehicle" 18 (free translation).

Prohibition on taxing the issue of securities. On 15 July 200419, the (now called) Court of Justice of the European Union forbid the application of the TSET on issue of new securities (including those of investment companies and contractual investment funds): “by imposing the tax on stock exchange transactions on applications made in Belgium for new securities issued when a company or investment fund is being set up or following the completion of an increase in capital or as part of a loan issue (…) the Kingdom of Belgium has failed to fulfil its obligations under Article 11 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985”.

15 Repealed and replaced by the Act of 3 August 2012 on some forms of collective management of investment portfolios (the CVDT still refers to the Act of 20 July 2004 though). 16 D. MAREELS, « Etude, La taxe boursière : une cure discrète de rajeunissement et d’amaigrissement réussie ou … une agonie prolongée ? », J.D.F., 2001, pp. 321 – 352. 17 Doc. parl., Senate 762-2 (1992-1993), p. 79. 18 Doc. parl., Chamber, 1211/11-93/94, p. 7. 19 CJEU, 15 July 2004, Commission of the European Communities v. Kingdom of Belgium, C-415/02

http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d0f130d520d2f36581de44548fc0e06603d46167.e34KaxiLc3eQc40LaxqMbN4ObhaNe0?text=&docid=49417&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=66259


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Corrective law. As a consequence, the Programme-Act of 27 December 2004 aimed at applying this Court case and thus suppressed the TSET on issue of new securities.

Harmonised TSET rate on accumulating shares. The Program-Act of 27 December 2005 introduced, a.o., harmonised the TSET rate applicable to accumulating shares of investment companies, irrespective of whether or not the transaction consists in a redemption or transaction on the secondary market.

This harmonisation was initially supposed to be a temporary measure only, it has however been subject to several extensions in time. Where the Act of 27 December 2005 (and the following acts so far) expected a temporary rate harmonisation, the current bill proposes to perpetuate the situation.

New withholding tax upon exit (Belgian tax on savings income). Besides, that Programme-Act of 27 December 2005 also introduced the so-called Belgian Tax on Savings Income (article 19bis of the Belgian income tax code, below BITC). As a result, in the hands of Belgian tax resident individuals, capital gains realised upon the redemption of [own] units, the full or partial liquidation of an investment fund (primary market transactions) or, since the Act of 13 December 2012, the sale of units in an investment fund (secondary market transactions), are treated as interest subject to the Belgian withholding tax at a rate of 25% provided certain conditions are met (in a nutshell, funds with accumulating or non-fully distributing units and investing for more than 25% of their assets in interest-bearing assets).

Conflicting measures. The income taxation of (part of) the income produced by certain capitalisation investment companies would logically have had to lead to a suppression (or at least a reduction) in the rate of TSET on redemptions (and, since the Act of 13 December 2012, on sale) of shares of these investment companies since the TSET was specifically established to "compensate" for the lack of income taxation of these products.20

The opposite, however, happened. Indeed, parallel to the imposition of the "interest component" (also called “Taxable Income per Share”), the legislator temporarily increased the TSET rate and cap applicable to the capitalisation shares of investment companies.

Limited tax relief. To limit the "double" taxation on redemptions of shares of investment companies subject both to (i) the TSET and (ii) article 19bis of the BITC, the Programme-Act of 27 December 2005 foresaw a limited tax relief providing that the tax base of the TSET is then equal to the net asset value of the shares reduced by the Belgian withholding tax levied upon the transaction (article 123, 4° CVDT). However, the fact remains that the sum of both taxes (even taking into account the TSET cap applicable) heavily penalises capitalisation shares of investment companies compared to distributing shares for which only a withholding tax is levied.

Difference in treatment. In addition, although the Act of 13 December 2012 extended the scope of the Belgian Tax on Savings Income to sale of units in investment funds, the limited tax relief provided in the TSET has not been extended accordingly.

20 See, in that respect, A. DAYEZ, « La métamorphose des taxes boursières – Chronique 2004-2008 », Forum Financier / Droit Bancaire et Financier, 2008/VI


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14. Detailed table. The below table illustrates the tax treatment of Belgian regulated investment companies approved by the FSMA for public offering21 compared to foreign investment companies also registered on the list of investment companies publicly offered in Belgium.22


Belgian Foreign



Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Primary Market23

Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market

Acc.24 1 1.500 1 1.500 1 1.500 1 1.500

Dis.25 0,09 650 0,09 650 0,09 650 0,09 650

Exit Primary Market

Acc.26 1 1.500 1 1.500 1 1.500 1 1.500

Dis. - - - - - - - -

Secondary Market

Acc.27 1 1.500 1 1.500 1 1.500 1 1.500

Dis.28 0,09 650 0,09 650 0,09 650 0,09 650

Table 1: Belgian v. foreign investment companies registered in Belgium for public offering (Detailed Table)

15. Theoretical v. actual transactions. Disregarding theoretical transactions and focusing on the comparison between foreign ETFs and Belgian MF leads to the following table:


Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Acc. - - 1 1.500

Dis. - - 0,09 650

Exit Acc. 1 1.500 1 1.500

Dis. - - 0,09 650

Table 2: Belgian v. foreign investment companies registered in Belgium for public offering (Summary)

16. Differences in treatment (rates and caps). Two differences in treatment emerge from this table:

(Case 1) Accumulating classes of shares: Both the entry and exit are taxed (highest rate and cap apply) when foreign ETFs are concerned while only exit is taxed (same rate and cap) when Belgian MF are concerned;

(Case 2) Distributing classes of shares: Both the entry and exit are taxed when foreign ETFs are concerned while transactions on shares of Belgian MF are fully exempt.

21 Financial Services and Markets Authority 22 This list is available on the website of the FSMA. 23 Issue of new securities is not, and cannot be, subject to TSET: CJEU, 15 July 2004, Commission of the European Communities v. Kingdom of Belgium, C-415/02: “by imposing the tax on stock exchange transactions on applications made in Belgium for new securities issued when a company or investment fund is being set up or following the completion of an increase in capital or as part of a loan issue (…) the Kingdom of Belgium has failed to fulfil its obligations under Article 11 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985”. 24 Article 121, §2 CVDT 25 Article 121, §1, (1), 1° CVDT 26 Article 121, §1, (2) CVDT 27 Article 121, §2 CVDT 28 Article 121, §1, (1), 1° CVDT




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17. Differences in treatment (tax base). In addition, although exits from Belgian MFs and foreign ETFs similarly trigger the Belgian withholding tax (when the Belgian tax on savings income – article 19bis BITC – applies) a tax relief only applies to MFs (Case 3).

3.2.2. Foreign investment companies not publicly offered in Belgium (i.e.

not covered by Part II of the Act of 20 July 2004)29

18. Detailed table. The below table illustrates the tax treatment of Belgian investment companies approved by the FSMA for public offering compared to foreign investment companies not registered on the list of investment companies publicly offered in Belgium (although public in their country of establishment).

Belgian investment companies registered in Belgium for public offering v. foreign public investment companies not registered in Belgium for public offering

Belgian Foreign



Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)


Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market

Acc.31 1 1.500 1 1.500 0,25 740 0,25 740

Dis.32 0,09 650 0,09 650 0,25 740 0,25 740

Exit Primary Market

Acc.33 1 1.500 1 1.500 - - - -

Dis. - - - - - - - -

Secondary Market

Acc.34 1 1.500 1 1.500 0,25 740 0,25 740

Dis.35 0,09 650 0,09 650 0,25 740 0,25 740

Table 3: Belgian investment companies registered in Belgium for public offering v. foreign public investment companies not registered in Belgium for public offering (Detailed Table)



Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Acc. - - 0,25 740

Dis. - - 0,25 740

Exit Acc. 1 1.500 0,25 740

Dis. - - 0,25 740

Table 4: Belgian investment companies registered in Belgium for public offering v. foreign public investment companies not registered in Belgium for public offering (Summary)

29 Repealed and replaced by the Act of 3 August 2012 on some forms of collective management of investment portfolios (the CVDT still refers to the Act of 20 July 2004 though). 30 Issue of new securities is not, and cannot be, subject to TSET: CJEU, 15 July 2004, Commission of the European Communities v. Kingdom of Belgium, C-415/02: “by imposing the tax on stock exchange transactions on applications made in Belgium for new securities issued when a company or investment fund is being set up or following the completion of an increase in capital or as part of a loan issue (…) the Kingdom of Belgium has failed to fulfil its obligations under Article 11 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985”. 31 Article 121, §2 CVDT v. article 121, §1, (1), 2° CVDT 32 Article 121, §1, (1), 1° CVDT v. article 121, §1, (1), 2° CVDT 33 Article 121, §1, (2) CVDT 34 Article 121, §2 CVDT v. article 121, §1, (1), 2° CVDT 35 Article 121, §1, (1), 1° CVDT v. article 121, §1, (1), 2° CVDT




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20. Difference in treatment (rates and caps). Several differences in treatment emerge:

(Case 4) Distributing Classes of Shares. Both the entry and exit are taxed (at the “other securities” rate and cap of 0,25% and EUR 740 respectively) when distributing shares of foreign ETFs are concerned while transactions on distributing shares of Belgian MF are fully exempt.

(Case 5) Accumulating classes of shares: Both the entry and exit are taxed (at the “other securities” rate and cap of 0,25% and EUR 740 respectively) when accumulating shares of foreign ETFs are concerned while only exit is taxed when Belgian MF are concerned (however, at the higher rate and cap of 1% and EUR 1.500 which shows an inconsistency in tax treatment of comparable funds).

(Case 6 and 7 – Theoretical). In addition, even if Belgian ETFs existed, the tax treatment of transactions on these Belgian ETFs would suffer a different tax regime than transactions of foreign ETF:

o Case 6 (Distributing ETFs). Both the entry and exit are taxed (at the “other securities” rate and caps of 0,25% and EUR 740 respectively) when distributing shares of foreign ETF are concerned while transactions on distributing shares of Belgian ETFs would benefit from the lower tax rate and cap (rate of 0,09% and cap of EUR 650).

o Case 7 (Accumulating ETFs). Both the entry and exit are taxed (at the “other securities” rate and cap of 0,25% and EUR 740 respectively) when accumulating shares of foreign ETF are concerned while transactions on accumulating shares of Belgian ETF would suffer the higher tax rate and cap (rate of 1% and cap of EUR 1.500 which shows an inconsistency in tax treatment of comparable funds).


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3.2.3. Foreign contractual investment funds registered in Belgium for

public offering (i.e. covered by Part II of the Act of 20 July 2004)36

21. Detailed table. The below table illustrates the tax treatment of Belgian contractual investment funds approved by the FSMA for public offering compared to foreign contractual investment funds also registered on the list of contractual investment funds publicly offered in Belgium.37

Belgian v. foreign contractual investment funds registered in Belgium for public offering

Belgian Foreign



Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)


Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market39

Acc. 0,09 650 0,09 650 0,09 650 0,09 650

Dis. 0,09 650 0,09 650 0,09 650 0,09 650

Exit Primary Market

Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market

Acc. 0,09 650 0,09 650 0,09 650 0,09 650

Dis. 0,09 650 0,09 650 0,09 650 0,09 650

Table 5: Belgian v. foreign contractual investment funds registered in Belgium for public offering (Detailed Table)

22. Theoretical v. actual transactions. Disregarding theoretical transactions and focusing on the comparison between foreign ETF and Belgian MF leads to the following table:


Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry - - 0,09 650

Exit - - 0,09 650

Table 6: Belgian v. foreign contractual investment funds registered in Belgium for public offering (Summary)

23. (Case 8) Difference in treatment (rates and caps). A difference in treatment emerges from this table: both the entry and exit are taxed when foreign ETFs are concerned (regardless of the method of allocation of the net proceeds) while transactions on shares of Belgian MF are fully exempt.

36 Repealed and replaced by the Act of 3 August 2012 on some forms of collective management of investment portfolios (the CVDT still refers to the Act of 20 July 2004 though). 37 This list is available on the website of the FSMA. 38 Issue of new securities is not, and cannot be, subject to TSET: CJEU, 15 July 2004, Commission of the European Communities v. Kingdom of Belgium, C-415/02: “by imposing the tax on stock exchange transactions on applications made in Belgium for new securities issued when a company or investment fund is being set up or following the completion of an increase in capital or as part of a loan issue (…) the Kingdom of Belgium has failed to fulfil its obligations under Article 11 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985”. 39 Article 121 §1, (1), 1° CVDT




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3.2.4. Foreign contractual investment funds not publicly offered in

Belgium (i.e. not covered by Part II of the Act of 20 July 2004)40

24. Detailed table. The below table illustrates the tax treatment of Belgian contractual investment funds approved by the FSMA for public offering compared to foreign contractual investment funds also registered on the list of contractual investment funds publicly offered in Belgium.41

Belgian contractual investment funds registered in Belgium for public offering v. foreign public contractual investment funds not registered in Belgium for public offering

Belgian Foreign



Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)


Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market43

Acc. 0,09 650 0,09 650 0,25 740 0,25 740

Dis. 0,09 650 0,09 650 0,25 740 0,25 740

Exit Primary Market

Acc. - - - - - - - -

Dis. - - - - - - - -

Secondary Market43

Acc. 0,09 650 0,09 650 0,25 740 0,25 740

Dis. 0,09 650 0,09 650 0,25 740 0,25 740

Table 7: Belgian contractual investment funds registered in Belgium for public offering v. foreign public contractual investment funds not registered in Belgium for public offering (Detailed Table)



Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry - - 0,25 740

Exit - - 0,25 740

Table 8: Belgian contractual investment funds registered in Belgium for public offering v. foreign public contractual investment funds not registered in Belgium for public offering (Summary)

26. Differences in treatment (rates and caps). Two differences in treatment emerge:

(Case 9) As the table illustrates, both the entry and exit are taxed when foreign ETFs are concerned (regardless the method of allocation of the net proceeds) while transactions on shares of Belgian MF are fully exempt;

40 Repealed and replaced by the Act of 3 August 2012 on some forms of collective management of investment portfolios (the CVDT still refers to the Act of 20 July 2004 though). 41 This list is available on the website of the FSMA. 42 Issue of new securities is not, and cannot be, subject to TSET: CJEU, 15 July 2004, Commission of the European Communities v. Kingdom of Belgium, C-415/02: “by imposing the tax on stock exchange transactions on applications made in Belgium for new securities issued when a company or investment fund is being set up or following the completion of an increase in capital or as part of a loan issue (…) the Kingdom of Belgium has failed to fulfil its obligations under Article 11 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985”. 43 Article 121 §1, (1), 1° CVDT v. article 121, §1, (1), 2° CVDT




16

(Case 10 - Theoretical) In addition, even if Belgian ETF existed, transactions on these Belgian ETFs would benefit from a reduced rate and cap (rate of 0,09% and cap of EUR 650) while transactions on foreign ETFs are subject to a higher rate and cap (rate of 0,25% and cap of EUR 740).

3.3. Upcoming changes (Bill of Law)44

27. Currently proposed changes. The current Bill of Law provides for the following changes:

The current45 rate and cap of respectively 0,25% and EUR 740 are proposed to increase to 0,27% and EUR 800;

The current rate and cap of respectively 1% and EUR 1.500 are proposed to increase to 1,32% and EUR 2.000.

28. Increased differences in treatment. These proposed changes increase the differences identified above each time the 1% rate or the 0,25% rate is currently used (Cases 1, 3, 4, 5 ,6, 7, 9 and 10 described above).

29. New summary tables. This can be illustrated with the following four summary tables:


Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Acc. - - 1,32 2.000

Dis. - - 0,09 650

Exit Acc. 1,32 2.000 1,32 2.000

Dis. - - 0,09 650

Table 9: Belgian v. foreign investment companies registered in Belgium for public offering (New Summary)


Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry Acc. - - 0,27 800

Dis. - - 0,27 800

Exit Acc. 1,32 2.000 0,27 800

Dis. - - 0,27 800

Table 10: Belgian investment companies registered in Belgium for public offering v. foreign public investment companies not registered in Belgium for public offering (New Summary)


Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry - - 0,09 650

Exit - - 0,09 650

Table 11: Belgian v. foreign contractual investment funds registered in Belgium for public offering (New Summary)

44 Bill of Program-Law, 28 November 2014, Chamber, Doc. Parl. 54K0672/001, accessible at the following address: http://www.dekamer.be 45 Rate and Cap applicable up to 31 December 2014.

http://www.dekamer.be/kvvcr/showpage.cfm?section=/none&leftmenu=no&language=fr&cfm=/site/wwwcfm/flwb/flwbn.cfm?lang=N&legislat=54&dossierID=0672


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Belgian Foreign


Rate (%)

Cap (EUR)

Rate (%)

Cap (EUR)

Entry - - 0,27 800

Exit - - 0,27 800

Table 12: Belgian contractual investment funds registered in Belgium for public offering v. foreign public contractual investment funds not registered in Belgium for public offering (New Summary)

3.4. Assessment

30. Comparability. MF and ETFs are, in all relevant respects, comparable forms of undertakings for collective investment which are offered to the public. In many cases, MF and ETFs are UCITS funds regulated by the same EU Directive. The only difference being the entry and exit means (primary market transactions for MF, secondary market transactions for ETF) (cf. para. 1 and 4 above).

31. Limiting effect on investment decisions. All other things being equal (similar legal form, comparable regulatory status, identical distribution policy), these differences in treatment applied to foreign ETF, usually a higher rate and cap compared to Belgian MF, have a limiting effect on the Belgian investor’s investment decisions. In most cases, the tax treatment becomes a decisive factor for investing into Belgian MF instead of in foreign ETF (Case 1 above is particularly illustrative of this situation: transactions on accumulating shares of foreign ETF are taxed at entry and at exit at the maximum rate and cap while similar investments in Belgian MF are only taxed at exit).

32. Impact on foreign funds. Considering the absence of Belgian ETF, the differences in treatment between primary market transactions and secondary market transactions in funds units only affects foreign funds.

33. Limiting effects on registration decisions. These differences in treatment also have a negative impact on decisions as to whether or not a foreign fund should register in Belgium for public offering (Case 5 above dealing with accumulating shares is particularly illustrative of this situation: foreign ETFs not registered in Belgium are taxed at the ‘other securities’ rate and cap of 0,25% and EUR 740 respectively while, when they are registered, they are then suddenly taxed at the at the higher rate and cap of 1% and EUR 1.500).

34. Constraints on Belgian domestic ETF creation. Importantly, these differences in treatment also affect Belgian asset managers. The tax treatment of secondary market transactions on accumulating shares (taxation at the maximum rate and cap both at entry and at exit – cf. Table 1 above) prevents Belgian asset managers from offering ETFs.

35. Absence of justification. It is accepted that the difference in treatment between accumulating shares and distributing shares (where the legislator brought some arguments linked to the correlative income tax treatment in the hands of private individual investors) can be justified. Elsewhere, the differences in treatment, effective discrimination, identified in this document lack any form of legitimate justification.

36. Need for change. While we appreciate that some of these differences exist for historical reasons (as noted above, the TSET was introduced by the Act of 30 August 1913), it is important that the Belgian legislator adapt the tax rules to correspond to the evolution of regulation and regulated financial products over the past few decades (UCITS directive, possibility to create Belgian institutional and private funds, etc.), bearing in mind the need for a coherent tax system (in the meaning of the CJEU extensive case law in tax matters).


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37. Equality and non-discrimination principles laid down in the Belgian Constitution. The principles of equality and non-discrimination as derived from articles 10 and 11 of the Constitution are, in accordance with article 172 of the Constitution, applicable in tax matters. Indeed (free translation), “it cannot be established privilege with respect to taxes.”

In this regard, the Supreme Court stated that the principle of equality is not necessarily infringed if all taxpayers of the same category are taxed in the same way (see Cass. 17 October 1939, JPDF, 1940, p. 43; Cass. 14 October 1971, Pas. 1972, p. 154). In doing so, in tax matters (free translation), "the constitutional rules of equality and non-discrimination in tax matters do not exclude that differential treatment is established between categories of persons, provided that it is based on an objective criteria and be reasonably justified; that justification must be assessed in light of the purpose and effect of the considered tax, as well as in light of a reasonable relationship of proportionality between the means employed and the aim sought" (see, for instance, Cass. 6 May 1999, Pas. 1999).

In other words, a difference in treatment is not necessarily prohibited. It is however necessary that (i) the categories of taxpayers considered be comparable and (ii) the difference in treatment is not arbitrary, that is to say, it must be based on an objective and relevant differentiation criterion assessed in light of the objectives of the proposed regulation. Finally, (iii) the legislation in question must be proportionate to the aims pursued (proportionality between the goal and the means employed).

38. Free movement of capital (EU fundamental freedom). Article 63 of the Treaty on the Functioning of the European Union (TFUE) states that “all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited”.

Article 63 TFEU does not itself contain a definition of movement of capital. However, in that respect, it can usefully be referred to the Appendix I of former Council Directive 88/361 EEC of 24 June 1988 for the implementation of article 67 of the Treaty. The nomenclature it comprises specifically aims “Operations in Units of Collective Investment Undertakings” so that transactions on funds is a “movement of capital” and therefore subject to article 63 of the TFEU.

We note that in the absence of full harmonisation, indirect taxation has remained in large parts within the competence of Member States. However, Member States must exercise that competence in accordance with the principles of EU law. The EU law obligations of the Member States are, to a large extent, defined by the case law of the CJEU. If a Member State (such as Belgium in this case) subjects to a given tax treatment transactions on units of funds established in Belgium, it cannot subject to a more burdensome tax treatment transactions on comparable units of funds established in other Member States of the European Union (or even Third Countries).

Accordingly, it is arguable that the differences in treatment identified above infringe article 63 TFEU.

3.5. Law changes to consider

39. Towards a coherent tax system. Achieving a coherent tax system equalising the tax treatment of foreign (and even Belgian) ETFs with Belgian and foreign MF requires several changes to the CVDT.

In particular,

The definitions comprised in article 120bis CVDT should be amended so as to not only cover investment funds publicly registered in Belgium, but also comparable foreign funds (even if not publicly offered in Belgium). A workable solution would consist, in our view, to refer to foreign EU/EEA funds regulated based on Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable


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securities (UCITS) and, for third countries funds (i.e. established outside the EU/EEA) to comparable funds (similarly as what is already done in other tax fields).

The trigger events detailed in article 122 CVDT should be amended so that, for the operations referred to in article 120, 1° CVDT on accumulating shares, a tax is only due on the sale or transfer for valuable consideration.

Finally, article 123, 2° CVDT in fine, should be modified so that the tax base on sale or transfer for valuable consideration of accumulating shares be also reduced by the withholding tax levied in application of article 19bis BITC.

Documents

Exchange Traded Funds and Belgian TSET · Exchange Traded Funds and Belgian TSET 5 Source UCITS ETF Shares”, a designated share class of a sub-fund within the Ashmore SICAV, which