In this regard, reference can be made to the secret commissions tax, increased tax pressure on companies in liquidation, the 27% withholding tax rate on income from moveable assets, the reduction in the home mortgage interest deduction, the increase in the value of the benefit-in-kind represented by a company car and housing, the so-called Caymans tax, etc.

Completing one's personal income tax return does not exactly give cause to celebrate, aside from a slight decrease in the progressive tax rates.

Investors today need nerves of steel: volatile markets, interest rates hovering above the point at which returns are eliminated by inflation, and ever-greedier tax collectors watching like hawks from the wings, waiting to claim their share of any capital gains (in addition to all sorts of piecemeal taxes, such as the tax on stock exchange transactions).

This article explains how the speculation tax works. In a later article, we'll cover other ways in which the tax authorities can discourage or even encourage investors.

The cornerstone of the new measures, which entered into force on 1 January 2016, is the speculation tax. The speculation tax is yet another measure which will most likely generate only limited income for the government (estimated at €28 million), given that both collection of the tax and verification of the calculations are extremely labour intensive. Due to these unintended side effects, it is highly likely that the net proceeds raised by the tax will in fact be negative.

What is the speculation tax?

Since 1 January 2016, individuals are subject to a 33% tax if they sell listed shares, options, warrants or other listed financial instruments (i.e. those for which the underlying asset consists of listed shares, such as futures, turbos, sprinters or speeders) at a profit within 6 months from acquiring them,

At first glance, this definition may appear straightforward, but the twelve pages of legislative history, containing countless examples and interpretations intended to clarify the practical application of the tax, indicate otherwise. Febelfin, the Belgian banking federation, has indeed expressed considerable concern about the ambiguity and complexity of the new legislation.

Contracts for difference are not covered

When rumours about the imminent introduction of a speculation tax first began to circulate, financial service providers started thinking up financial products that could fall outside its scope of application. The most discussed are so-called contracts for difference or CFDs. A CFD is a contract between two parties, the buyer and the seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (if the difference is negative, the buyer pays the seller instead). In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up or down on underlying financial instruments and are often used to speculate on those markets.

Other exemptions

The following are also not subject to the speculation tax: shares or units in undertakings for collective investment and collective investment vehicles for investment in debt claims, shares in regulated real estate companies (such as Cofinimmo and Befimmo), convertible bonds, and shares in investment funds and tracker funds.

Two other important exemptions should be noted.

The first concerns capital gains on listed shares, options or warrants, realised by an employee, manager or third party that acquired the shares, options or warrants within the scope of the Act of 26 March 1999 and 22 May 2001 and therefore paid tax on a fixed benefit in kind upon acquisition. According to the legislative history, the disposal of shares, options or warrants under these circumstances is exempt from the speculation tax.

The second exemption concerns capital gains realised on a transfer for consideration of listed shares, options, warrants or other financial instruments, initiated solely by the issuer and with which the taxpayer is obliged to go along.  This exemption covers so-called mandatory corporate actions, initiated by the company.  Examples include imposed reorganisations (mergers, demergers and spin-offs of listed shares), squeeze-outs and dividends for which the shareholder has no choice between shares or cash.

Non-deductibility of capital losses

Contrary to the general rule that tax losses can be deducted from taxable gains, capital losses are not deductible when it comes to the speculation tax. However, the legislation provides for one important exception, namely transactions involving securities with the same ISIN code for which both capital gains and capital losses are recorded.  In this case, only the net gain is subject to tax. The explanatory memorandum covers this point extensively.

Problems of application

Since the initial plans to introduce the speculation tax, representatives from financial institutions - which are responsible not only for properly calculating the tax but also for ensuring its collection - have pointed out potential problems with its application. Recent major transactions by Nyrstar (a €275 million capital increase), Fagron and ArcelorMittal exposed another problem with the interpretation of the calculation basis for the speculation tax, namely how subscription rights to new shares should be valued. The finance minister's cabinet informed Nyrstar that both the purchase price of the subscription right and the offering price of the new shares should be taken into account to determine the full purchase price of the security. According to Febelfin, however, this guidance conflicts with the law since the securities should have the same ISIN code.

Unintentional indirect effect: fewer stock exchange transactions

The financial sector had already issued a warning: the proceeds from the speculation tax may well turn out to be lower than expected. For the time being, this appears to be the case. Indeed, since 1 January 2016, there has been a significant decrease (sometimes up to 40%) in purchases and disposals by individuals, and thus income from the tax on stock exchange transactions has fallen as well (up to 30%). It appears that the new tax is unlikely to fill the state coffers and may further startle already skittish investors.