New Tax treaty between France and Belgium signed

On November 9, 2021, France and Belgium signed a new income tax convention which will replace the convention of March 10, 1964 at the end of the legislative ratification process in each of the states. Past tax planning based on previous tax treaty for sale of shares of companies holding French property would have to be reviewed as well as residency planning for those moving from one country to another.

The old bilateral convention of 1964 nevertheless remains in force until the ratification, probably in 2023 by the two countries.

 The press release simply indicated that the new bilateral agreement contains provisions regarding permanent establishment, anti-abuse arrangements and a new definition of tax residence. The text of the convention is now available on the French tax government site (www.impots.gouv.fr) for more details.  

Residency planning changes

Let us recall that the determination of the tax residence of natural persons in the convention of 1964 supposes an immediate application of the conventional criteria and not a conflict of residence in application of the internal laws. The new text provides for classical OECD type provisions in this respect and provide for conventional rules to apply in case of double residency. French tax residency criteria will therefore now apply to qualify an eventual French tax residency of a Belgium with French connections/ ties.

The tax treatment of French dividend received by Belgium resident will also be impacted by the new treaty. It will also impact Belgium living/moving in France with dividends distributed from their Belgium company.

Partnership structures

The convention qualifies all partnership / “societe de personne”, as a person, covered by the treaty (article 3).

The convention also provides for new type of provisions regarding tax transparent or “translucide” structures. The article 1 include a technical provision in this respect which is worth analyzing in details especially in the context of French property ownership through the use of French or Monaco SCI. It makes clear that the income received by such structures should benefit from the tax treaty, under certain conditions. It also refers to the specific case where the translucid structure is based in another state (third state), which is quite innovative and worth considering when Monaco SCP are involved.

Impacts on French property structuring

It can be reminded that the current tax convention does not include the definition of the so called “société à prépondérance immobilière”. It leads to a large case law, interpretations, doctrinal debate and CGT planning schemes. One of the last important case Law on this subject for the decision of the Council of State dated 24th February 2020 whereby the Supreme Court rules in favor of the qualification of “real estate purposes company” the shares of a French SCI owning a French property, and therefore allowed the taxation of the gain.

The new text clarifies this regime and indicate that the sale of so-called real estate purposes company’s shares should be taxable to CGT in the country where it is qualified as such. The sale of such companies, which qualifies as “société à preponderance immobilière” by both tax treaty definition and French one would be taxable in France. This clause is similar to the standard model clauses used for all new treaties or amendments.

However, it is worth considering also a very detailed provision regarding the sale of substantial participation (more than 25%), which scope is extended through a reference to the country of residence of the taxpayer within the last 6 or 7 years prior to the sale! Pre move planning to France of Belgium resident would then have to consider this new and innovative extended tax residency liability.

Conclusion

The new convention will impact the way Belgium tax resident should own their French property as well as all structuring done through Belgium companies to hold French property. These cases will have to be reviewed in the light of conventional changes.

It would also impact pre-move planning to Belgium or French tax resident, or person who were resident in France in the last 6 years prior to their move to Belgium.

The "rejuvenation" of the tax treaty between France and Belgium will have practical consequences for certain taxpayers, which will have to be anticipated from the 2022 financial year, that is to say from 1 January 2022.