Why the Belgian transaction tax is so confusing

Last updated July 13, 2022Published March 27, 2022

Fund providers can register their funds with the Financial Services and Markets Authority (FSMA) if they want to advertise those funds to Belgian investors. However, the tax law says that registered funds have a transaction tax of 1,32%. This rate is notably higher than the 0,12% transaction tax for funds that not registered in Belgium but are registered with another member of the European Economic Area. For this reason, most Belgian investors avoid purchasing funds that are registered with the FSMA.

However, there is ambiguity in checking whether a fund is actually registered or not. For some unknown reason, the FSMA lists registered funds by their name and not their International Securities Identifier Number (ISIN). The issue is that a fund’s name is not enough to tell which security is being referred to.

For example, Vanguard offers two funds that follow the FTSE All-World index: an accumulating and a distributing version. The FSMA says that the “Vanguard FTSE All-World UCITS ETF” is registered. Without an ISIN, it’s impossible to tell whether the FSMA is talking about the accumulating or distributing variant (or both).

This means that in practice, a fund name does not uniquely identify a security. An ETF’s name could refer to either the distributing or accumulating version if you’re not careful. This is why many financial authorities and services use ISIN’s to identify a specific security. After all, that’s what ISINs were designed for:

Definition of ISIN from ISO.org:

The purpose of the ISIN is to provide a universally applicable identification number for international securities and derivatives with the goal of reducing delay, mismatches and confusion in global financial markets. The first publication of the ISIN, as an ISO standard, was in 1986 to address problems in cross- border settlement of securities and has since been expanded to be used broadly in the processing of transactions, recordkeeping and regulatory reporting.

Fund providers also getting caught up in the mess

The result is that the tax man, brokers and fund providers now have different interpretations of how certain securities should be taxed. For example, Vanguard provides Key Investor Information Documents (KIID) of only their distributing securities to their Belgian investors. This indicates Vanguard have only registered the distributing variants of their funds and not the accumulating ones, which makes complete sense: providers know not to register accumulating versions as that means customers would have to pay higher transaction taxes. However, it would be impossible to tell whether the accumulating or distributing variants are registered from looking at the FSMA’s list. This is where an ISIN would come in handy.

Brokers disagreeing with tax authorities

According to De Tijd, 4 out of 8 brokers are charging the 0,12% tax rate for the Xtrackers Euro Stoxx 50 ETF. The other half of the brokers are charging 1,32%. Tax authorities claim the registration of a fund happens on the “compartment” level with the compartment being the “envelope” that bundles the distributing and accumulating version. This obviously doesn’t match most brokers’ or fund providers’ interpretation of the tax law. In fact, the term “compartment” doesn’t even seem to be properly defined anywhere outside the tax authorities. What’s the compartment of the registered ETF “iShares MSCI EM UCITS ETF USD (Dist)”? Even though only the distributing version’s name has been registered, would the accumulating version also count in this case?

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