Tax authorities speak out on negative interest
November 2021 – For some time now, interest rates have been so low that investors have to pay to invest their money. What does the taxman think about this negative interest?
Withholding tax
There are two aspects to negative interest. The first is the withholding tax (roerende vorheffing/précompte mobilier). If the bank pays you interest on the money you put into an account, in principle a withholding tax must be deducted from this interest. However, as the bank does virtually nothing with this money, it is less and less willing to pay interest. In fact, the bank even prefers not to put the money in any cash accounts - which is why it charges negative interest on these accounts - and you pay the bank interest... Shouldn't a fee be deducted from this interest?
If, as an individual, you borrow money from family or friends and pay interest in return, you should in principle withhold a withholding tax, file a declaration with the withholding tax and finally pay the withheld amount to the Treasury.
So the idea that as an investor with negative interest you should withhold withholding tax from the bank is not so far-fetched.
But the tax authorities (fortunately) see things differently. In a circular on the tax treatment of negative interest, the tax authorities take the view - and they are not entirely wrong - that negative interest is in fact not interest or income from movable property at all. The tax authorities define income from movable property as "the price for the enjoyment of the capital paid by the debtor as agreed with the person who placed or invested the capital".
But if you invest your money with a bank that charges you negative interest in return, the bank does not pay any price for the enjoyment of your investment... On the contrary, it even receives extra money.
So: no income from movable property and no withholding tax.
No compensation
But this reasoning has a downside.
Let's imagine that you invest 500 000 euros with a bank for a whole year. In the first half of the year, the bank pays you interest of, say, 0,5%. That's 1 250 euros. But in the second half of the year, the bank charges you negative interest of 0.2% (which is 500 euros). So you think that at the end of the year you will have received interest of 750 euros... But this is not the case: the 1 250 euros you received is interest; the 500 euros you paid is not. Offsetting the two is therefore not allowed.
The tax authorities go even further and consider that the 500 euros you paid are not deductible at all, not even as collection and custody costs. However, this is a questionable viewpoint. If it is not income from movable property, what is it?
Business accounts
Shortly after the publication of the circular on negative interest, the tax authorities had to qualify their position somewhat: the administration had indeed mentioned in this circular "Furthermore, 'negative interest' is in no case deductible". This wording was a little too simplistic and was replaced by the following wording in an addendum to the circular: "Negative interest" is in no case deductible for the determination of the taxable base of income from movable property as referred to in Article 22, § 1, first paragraph of CIR 92. There is in fact no reason to refuse the deduction of professional expenses when it concerns professional accounts.
This point of view of the tax authorities applies to Belgian, but also foreign accounts and investments.
