If an individual realizes a capital gain on assets belonging to his private portfolio, this capital gain will not be taxed if the capital gain was realized in the context of the “normal management” of his portfolio (non-speculative capital gain). If the capital gain is considered to have been realized outside the context of such “normal management” (and thus constitutes speculative capital gain), the capital gain will be taxable as miscellaneous income. However, the individual is allowed to deduct costs connected to the transaction (such as legal costs, costs of intermediaries, etc.) and is therefore taxed on a “net basis” amount. Moreover, the individual is entitled to deduct losses incurred on earlier speculative portfolio transactions within the last five years.
However, if the speculative capital gain specifically relates to shares, no deduction of costs (or previously incurred losses) is allowed. In such a case, the capital gain will be taxable on a “gross basis” amount.
In a recent landmark judgment on September 21, the Belgian Constitutional Court has ruled that the above difference in taxation on a “gross basis” versus on a “net basis” violates the principles of equality and non-discrimination provided for by the Belgian Constitution. The Court ruled that, in order to eliminate this violation, speculative capital gains on shares also need to be taxed on a “net basis” (i.e., after deduction of costs). The Court refused to rule on the deduction of earlier losses incurred, since this matter was deemed irrelevant in the case brought before the Court.
The judgment of the Court will have considerable and positive consequences for individual taxpayers who have realized speculative capital gains on shares.
Indeed, these taxpayers can now claim to be taxed only on a net cash basis and are allowed to deduct costs connected to these transactions. For taxes imposed within the past five years, a specific request for an administrative relief can be filed with the Tax Authorities and taxes can be repaid. The jurisprudence of the Constitutional Court in this matter can effectively be considered as a “new element” for the application of this administrative relief.
Although the Constitutional Court did not rule on the deduction of losses, but only on costs, we nevertheless believe that there are solid arguments to apply the above jurisprudence to the deduction of losses as well. It is clear that in various cases, this may effectively lead to a complete review of the tax position of the taxpayer concerned, and potential repayment of taxes levied earlier.
We would be happy to answer any questions you may have on the above jurisprudence.