Securities tax 2.0 passes the Constitutional Court test
January 2023 – The securities tax is here to stay. Several parties had sought its annulment at the Constitutional Court, but with the exception of the anti-abuse provision, the court has no problems with the new version of the securities tax.
Old securities tax: void
In 2018, a new tax was introduced in Belgium: the tax on securities accounts. That tax was payable by individuals who held financial instruments registered in one or more securities accounts, provided that the share in the average value of those financial instruments, was €500,000 or more. The securities tax was 0.15%.
That securities tax was annulled by the Constitutional Court in October 2019, inter alia because the distinction between those securities that were, and those that were not, subject to the tax was not based on relevant criteria.
However, the tax was not retroactively lifted; thus, the government was given a second chance.
New securities taks
The new version of the securities tax came into force on 26 February 2021.
This so-called "annual tax on securities accounts" or JTER is payable by all Belgian residents: natural persons, companies or other legal entities. It does not matter whether the securities account is held with a Belgian or a foreign intermediary. The JTER applies to securities accounts where the average value of the taxable financial instruments held on them exceeds EUR 1,000,000. The reference period over which this average is calculated starts on 1 October and ends on 30 September of the following year.
As before, the rate is 0.15% and is payable on the entire value of the securities account.
However, there is a restriction: the tax cannot exceed 10% of the difference between the average value of taxable financial instruments and the threshold amount of EUR 1,000,000.
Constitutional Court: no violation
Requests for annulment against this JTER were also submitted to the Constitutional Court.
A first objection concerned the €1,000,000 threshold. The tax is due if the average value of the taxable financial instruments in the securities account exceeds this threshold. It thus looks at the balance in the account, and not the owners. A security holder who stays just below that limit will not owe any tax, while an account holding, say, EUR 1,500,000 but held by 4 or 5 natural persons will be subject to the tax. But the Constitutional Court sees no violation in this because the amount of the threshold belongs to the government's discretion and because the government cannot take into account all possible cases.
A second objection concerns the fact that only 'securities accounts' are targeted. Thus, other securities or investment instruments are not affected by the tax. But the court also rejects the objection because:
(a) falls to the government to determine on which it levies the fee; and
(b) the distinction is justified in an objective and reasonable manner.
Constitutional Court: violation though
However, the new securities tax does not come out of the ruling unscathed. Indeed, the tax also contained two anti-abuse provisions: a general one and a specific one.
The general anti-abuse provision stipulates that the tax authorities should not take into account acts that are legally correct but are actually only intended to circumvent a normal valuation.
An example of such an act is selling all securities in the account at the reference times: you sell everything so that you have nothing on 1 October, and then you buy everything again, only to bring everything back to zero at the same time the following year.
The JTER only came into force on 26 February 2021, and to give quick taxpayers the slip, the government published a notice on 4 November 2020 that once the law was published, the anti-abuse provision would come into force on 30 October 2020.
There is also a specific anti-abuse provision targeting two transactions, namely:
(a) the splitting of a securities account into multiple securities accounts held with the same intermediary; and
(b) the conversion of taxable financial instruments held in a securities account into registered financial instruments.
The investor who carried out either of these two transactions is suspected to be guilty of tax abuse.
That provision also took effect retrospectively.
Both anti-abuse provisions were objected to.
Regarding the content of the general anti-abuse provision, the Court does not go along with the complainants' arguments. Only the Court clearly emphasises that the burden of proof for the abuse lies with the tax authorities, and not with the investor.
But with its entry into force (almost 5 months before publication), the Court does have a problem. According to the government, there was no retroactivity, as it had announced in a 4 November notice that the new provision would come into force on 30 October 2020.
However, the Court ruled that retroactivity creates legal uncertainty and should therefore be avoided as much as possible. Retroactivity can only be justified "by special circumstances, in particular where retroactivity is indispensable to the attainment of an objective of general interest, such as the proper functioning or continuity of the public service".
And those special circumstances are not present, according to the court. The fact that a notice was circulated does not mean that there was no retroactivity and consequently an unjustifiable legal uncertainty.
As for the specific anti-abuse provision, the Court is categorical: the fact that there is an irrefutable presumption of tax abuse in the said transactions is a violation of the so-called Constitutional legality principle. In other words, the tax authorities can still invoke the general principle of law in the two cases mentioned, but then the tax authorities themselves have to bring in the evidence.
JTER thus remains, but the Constitutional Court does stumble over two elements of the law, even though the new securities tax remains on its own, unlike the earlier version. In other words, the annual securities account tax is here to stay.
