The Issue

The court considered whether the defendant, a Luxembourg SICAV, qualifies for benefits under the Belgium-Luxembourg Double Tax Treaty, in spite of Belgian authorities contending otherwise.

Reasoning of the Court

Background

According to Article 4, §1 of the OECD Model Convention, to be considered a "resident" under a treaty, one must be "liable to tax" in a contracting state based on criteria such as domicile or residence. This liability extends to any tax that falls within the scope of the treaty.

Interestingly, the Dutch and French texts of Article 4 in the Belgium-Luxembourg Double Tax Treaty vary. The Dutch version pertains to "income subject to tax," whereas the French version refers to a "person subject to tax."

The French version should take precedence for several reasons:

• French is the mutual language of both states and was the language used during treaty negotiations.

• The French text is in alignment with Luxembourg's published version of Article 4, §1.

• Both the French text and the OECD Model Convention emphasize "liability to tax," which is consistent with the preparatory work done for the Treaty Bill.

This solidifies that "liability to tax," as outlined in the French version and the OECD Model, should be the guiding interpretation for treaty eligibility.

Scope of Liability: Not Effective Taxation, But Subjection to Tax

Contrary to the Belgian authorities’ argument, Article 4 §1 of the Treaty states that a person or entity must be "subject to tax," but not necessarily effectively taxed. This interpretation negates any conflict with Article 2 §3 of the Treaty.

The SICAV faces various tax obligations in Luxembourg:

• The SICAV is exempt from income taxes, but is nevertheless subject to withholding taxes on local income (without the possibility of a credit).

• Subject to a subscription tax, a type of wealth tax.

• Subject to property tax.

• Generally exempt from corporate income tax, but still considered a resident taxpayer.

These tax obligations confirm, according to the Court, that the SICAV meets the subjection to tax criteria laid out in the Article 4 § 1 of the Belgium-Luxembourg Double Tax Treaty, is a Luxembourg resident, hence treaty eligible.

Luxembourg Tax Administration agrees that being "subject to tax" does not necessarily mean paying a tax listed in Article 2 §3 of the Treaty. Their view focuses on subjection to tax, aligning with Luxembourg domestic law.

The Final Protocol of the Double Tax Treaty does not exclude SICAVs from its scope. It merely excludes holding companies with special tax benefits (the so-called “Holdings 29”), further clarified by the Belgian tax administration's own analysis.