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Belgium Taken To Task For Three Tax Regime Features

Tuesday, November 10, 2020

The European Commission is undertaking infringement proceedings against Belgium regarding the taxation of shares held by life insurance companies, the taxation of income from savings deposits, and the deductibility of alimony payments.

The Commission has sent a letter of formal notice to Belgium requesting it to change its rules on the taxation of shares held by life insurance companies. The Commission said that Belgian life insurance companies are effectively exempt or almost fully exempt from tax on income from dividends, interest, and real estate, including capital gains. However, outbound dividends and interest or income paid to life insurance companies established in other EU/EEA counties is subject to withholding taxes generally ranging from 15 percent to 30 percent. Outbound income from real estate is subject to income tax.

The Commission said that the higher taxation of foreign insurance companies is incompatible with the free movement of capital guaranteed by the Treaty on the Functioning of the European Union (TFEU) and the Agreement on the European Economic Area (EEA).

The Commission has also sent a letter of formal notice requesting that Belgium bring its rules on the exemption of income from savings deposits in line with EU law. Currently, under Belgian law, an amount of interest from savings deposits is exempt from personal tax if the deposits satisfy certain criteria. The Commission said that the Court of Justice of the EU has considered these criteria as contrary to the TFEU and EEA Agreement.

In each case, the Belgian authorities have two months to respond, after which the Commission may issue a reasoned opinion.

Finally, the Commission has referred Belgium to the EU Court of Justice regarding its rules on the tax deductibility of alimony payments for non-residents. Currently, Belgian legislation refuses the deduction of alimony payments from the taxation of income of non-residents who earn less than 75 percent of their worldwide income in Belgium. The Commission said that deduction is refused in Belgium even when the taxpayer has no significant taxable income in the state of residence, making it impossible to deduct alimony payments from taxable income in the state of residence.

The Commission said that this penalizes non-resident taxpayers, who have exercised the right of freedom of movement of workers, because the alimony payments are deducted neither from their taxable income in their state of residence nor in Belgium as the state of employment. The Commission sent a letter of formal notice regarding these issues to Belgium in 2016 and a reasoned opinion in 2019.