Belgian taxation of Co-Investment made by professionals (case law)

Carried interest and stock options

Belgian taxation of Co-Investment made by professionals (case law)

Carried interest and stock options 

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There is no specific regime for Carried Interest or Earn Out in Belgium. The mechanism of co-investment with use of the stock options special tax regime is a way to structure the incentive to managers and investment professionals subject to Belgian tax law.

The Belgian tax authorities may challenge co-investment structures. These structures are accessible only to those who carry out a professional activity linked to the investment structure, and who capture, sometimes disproportionately, part of the value created by the investment.

Several recent court decision, some of which have not been appealed, have rejected attempts by the tax authorities to classify such structures as simulated. The recent decision of the Brussels Court of First Instance of 27 February 2023 is a notable example of this trend.


A listed investment company has set up a co-investment mechanism to incentivize its managers.

Under this mechanism, the manager is granted free stock options in a co-investment company.

These stock options are granted under the special tax regime for stock options (law of 26 March 1999).

Consequently, the manager is taxed at a flat rate on basis on a fraction of the value of the shares to which the option relates at the time the options are granted.

As in the present case, this mechanism is often supplemented by a right to acquire the shares resulting from the exercise of the options by “Invest” or a related structure (call option) and a right to sell the shares resulting from the exercise of the options by the manager (put option).

As the manager had accepted the options, he was taxed at the time the options were granted, and was subsequently subject to the special tax regime for stock options. A few years later, he exercised the options. Then Invest, the manager's employer, exercised its call and bought the shares held by the manager, resulting in a capital gain on the shares.


The manager considered that the capital gain realized on the sale of the shares was not taxable, as it was a normal management of her/his private wealth.

The tax authorities (ISI/BBI, the special tax department in charge to combat tax fraud and evasion)  that the co-investment was simulated, and therefore the payments made by the employer should be subject to taxation as professional income.


The Court emphasized that simulation occurs "when a taxpayer, with fraudulent intent or malice aforethought, commits a tax offence by presenting a legal act that does not correspond to the actual agreement, that is kept confidential". The burden of proof for simulation lies with the tax authorities. 

The tax authorities contested the structure, arguing in particular that the manager was not taking any entrepreneurial risk through this structure and that the intention was merely to share the positive results with the holders of the share options. The tax authorities also referred to deficiencies in the shareholders' register (lack of signatures and pencil entries), the absence of the taxpayer's intention to hold the shares on a long-term basis with the associated risks, the questioning of the taxpayer's affectio societatis in the co-investor, the lack of substance, the absence of VAT on the co-investment commission, etc. 

The Court rejected the simulation because the tax authorities did not prove it. They gave several reasons:

  • There was no fraudulent intent or malice aforethought. In particular, there was no hidden agreement to use this mechanism to avoid paying tax on professional income. Furthermore, the conditions were not so far removed from normal commercial transactions that they could be described as fraudulent;
  • All the provisions of the law on stock options have been complied with, and the granting and exercise of the stock options were carried out in a real and transparent manner;
  • The tax authorities (through the Ruling Committee) has already issued positive rulings validating such a mechanism.

In addition, the court pointed out that the professional hadn't allocated the acquired shares to its professional activity.

Consequently, the court rejected the tax authorities claim that the capital gain realised by the taxpayer on the sale of the shares should be taxed as professional income.


The decision of the Brussels Court of First Instance of 27 February 2023 is in line with other recent court decisions (CFI Antwerp, 29 Sept.2021, CFI Brussels, 11 Oct. 2021, CFI Leuven, 19 Nov. 2021n CFI Leuven, 16 Dec. 2022) and rulings issued by the tax authorities: a well-structured profit-sharing scheme cannot be subject to professional income tax. This decision illustrates the importance of correctly implementing a profit-sharing scheme, including the related tax treatment.

The decision does not address another claim by the tax authorities to tax profit-sharing, namely that it should be classified as ‘miscellaneous income’ (revenus divers/diverse inkomsten). The Belgian  Supreme Court will soon rule on this matter (an appeal against a decision by the Ghent Court of Appeal of 28 June 2022, which held that only the disproportionate part of the capital gain can be taxed as ‘miscellaneous income’). We will keep you informed of the outcome.

​                                Date: 20/09/2023

This document is of a general nature, for information purpose, and does not constitute a custom made personal advice. Although carefully drafted, it should not be relied upon as legal advice and as such does not engage any liability of the law firm Advisius.

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