Trusts do not exist under Belgian civil law. Belgium does generally recognize foreign trusts and will potentially subject them to both income tax and transfer taxes.
To tackle tax evasion and tax avoidance, Belgium introduced the so-called ‘Cayman tax’ back in 2015. It allows the Belgian tax authorities to look through targeted offshore structures to directly tax their founders and third-party beneficiaries on income received by such constructions. The recent Summer Agreement introduced some new changes to this relatively new type of taxation.
The law currently targets two (soon three) categories of legal constructions:
- Structures without legal personality such as trusts, nominee and fiduciary arrangements (Type 1);
- Foreign entities (with legal personality) that are subject to an effective tax rate lower than 15%. Within the European Economic Area (EEA), only the types of entities listed in a – regularly updated – Royal Decree are in scope (Type 2).
This look-through treatment can be avoided by showing that the trust meets a substance test, i.e. that it is not a ‘wholly artificial arrangement’ and that it has a ‘genuine economic activity’. In other words, that it is not established purely for tax purposes.
The Belgian Ruling Commission (BRC) was recently asked whether funds established for private investment purposes, and more precisely within the framework of a ‘UK SIPP’, fall within the scope of the Belgian Cayman Tax.
A SIPP is a UK government approved personal pension plan that is different from a normal private pension. Individuals can make their own investment decisions from the different possibilities as approved by HMRC, but in practice is often managed by the provider. The UK SIPP would mostly consist of tax-deferred contributions. Partly contributed to by the employer, and partly by the employee. Tax rebates are given for the contributions in exchange for limits on accessibility.
In the case at hand, the SIPP agreement was governed by a ‘statement of trust and rules’ endorsed by a Scheme Provider based in Jersey and a UK-based Trustee and Scheme Administrator. Every SIPP is setup as a separate trust fund, different from the SIPPs of the other participants who entered into an agreement under the same scheme.
In a recently published ruling (2016.695 dd. 28.03.2017) the BRC decided that a UK SIPP (‘Self-Invested Personal Pension’), for the application of the Cayman tax, should indeed be regarded as a Type 1 construction.
However, the BRC also concludes that the SIPP is excluded from the Cayman Tax for the following reasons:
- The SIPP is established in the UK and is therefore presumed to be resident in a ‘Compliant State’. This is the case if the country is a Member State of the EEA or if it has concluded a double taxation treaty or a tax information exchange agreement (TIEA) with Belgium. The BRC also confirmed that this condition will stay fulfilled, even after the UK has left the EEA (‘Brexit’) as the TIEA will presumably remain in place; and
- The SIPP carries out a genuine economic activity as it has several premises, a couple hundred employees in service and a sufficient amount of equipment that is proportional to its business activities,
In brief, if you are a Belgian tax resident who is a participant in a UK SIPP, there is no Belgian tax consequence as the income received by such legal construction normally does not fall within scope of the Cayman Tax.
Nevertheless, the existence of this structure still has to be reported in your annual Belgian income tax return, together with the confirmation that the conditions for the tax exemption are fulfilled.