Belgium atx: Exchange of information regime applies as from 2010

Beginning 1 January 2010, Belgium will move from imposing a withholding tax on certain intra-EU interest payments to exchanging information with the tax authorities of the other EU Member State for purposes of the EU Savings Directive. The change was effected by publication of two royal decrees in the Official Gazette of 1 October 2009.

The purpose of the Savings Directive is to subject savings income in the form of interest payments from one EU Member State to a beneficial owner resident in another EU Member State to effective taxation in accordance with the laws of the residence state. In principle, this is achieved through the exchange of information between the Member States. During a transitional period, however, Austria, Belgium and Luxembourg, are allowed to apply a withholding tax system instead of the exchange of information.

Belgium will switch from the application of a withholding tax on qualifying interest payments (currently at 20%) to an exchange of information with the tax authorities of the EU Member State (or associated or dependent territory) of residence of the beneficial owner.

For example, assume a Belgian bank pays interest of EUR 100 to a resident of the Netherlands:

- Currently, a withholding tax of EUR 20 is levied in Belgium. Belgium transfers EUR 15 (75% of the withholding tax) to the Netherlands and retains EUR 5 (25% of the withholding tax). The Belgian tax authorities do not communicate information regarding the interest payment to the Dutch tax authorities.

- As from 1 January 2010, Belgium will not levy a withholding tax, but the Belgian tax authorities will receive information regarding the interest payment from the bank and communicate that to the Dutch tax authorities, giving the latter the possibility to determine whether the beneficial owner duly reported the interest income in his/her tax return.