Evolution of the concept of ‘Beneficial owner’

What is a ‘beneficial owner’?

The concept of beneficial owner has evolved significantly in recent years. Where the focus previously lay primarily on legal structures, today the emphasis is on economic reality and ultimate control.

In 2019, the European Court of Justice provided important clarifications in the so-called Danish cases. The beneficial owner is the person or entity that:

• actually receives the income;

• can freely dispose of that income.

In other words, the term must be interpreted economically. Purely legal structures such as conduit companies without real economic activity are no longer sufficient.

Why is the beneficial owner qualification so important?

The qualification determines whether a company or individual is entitled to:

• exemption or reduction of withholding tax on dividends, interest or royalties;

• DRD deduction in Belgium;

• tax benefits under international tax treaties.

Belgian application of the beneficial owner concept

Belgium closely follows developments at the European level. The Ruling Commission (Dienst Voorafgaande Beslissingen, DVB) and Belgian courts increasingly apply an economic approach, alongside formal legal requirements, to determine who qualifies as a beneficial owner and when abuse exists. Elements that are assessed include:

• decision-making rights within the company;

• the presence of economic motives;

• the actual use of the income.

Conclusion

Anyone wishing to benefit from tax advantages such as the DRD deduction or withholding tax exemptions on dividends or interest must meet the beneficial owner qualification. It is no longer sufficient to merely comply with formal legal requirements. Economic substance is essential: real activities, well-founded decisions, and transparency regarding income flows.

The time when empty companies could serve as mere tax conduits or passive holding companies is definitively over.

Do you have questions about what this means for your company? Please fill in the contact form below. Our Tax International team will be happy to assist you!