Exit subject to tax clause in tax treaty Belgium - The Netherlands

Double tax treaties aim at avoiding double taxation through specific rules on the allocation of taxing rights.   In other words, the tax treaty determines which country can tax certain items of income and how double taxation is avoided.  If the taxation rights are attributed to one country (the ‘host country’), the other (the ‘home country’ or residence country) must generally grant an exemption.

Three categories of tax treaties

Basically there are 3 types of exemption requirements: those that grant an exemption in the home country when the income is

• ‘taxable’ in the host country
• ‘taxed’
• ‘effectively taxed’

Taxable means that according to the double tax treaty the income is taxable in the host country irrespective of whether or not and how the host country exercises its taxing rights. 

Taxed means that the income must be included in the taxable income in the host country where it is subject to its tax regime. This can be an effective taxation but also an exemption following deductions, reductions, …. 

Effectively taxed means that tax must effectively be paid in the host country.

Double tax treaty Belgium – the Netherlands

Although article 23 of the double tax treaty uses the term ‘taxed’, the Belgian tax administration has always been of the opinion that In this specific tax treaty, the term ‘taxed’ should be interpreted as ’effectively taxed’.  This was explicitly mentioned in a Circular letter of the Belgian tax administration from 2006. 

Decision of the Supreme Court of January 25, 2018

The Belgian Supreme Court (Court de Cassation) countered now the interpretation of the Belgian tax administration.  This means that when a Belgian resident receives Dutch source income that can be taxed in the Netherlands according to the tax treaty, Belgium in any case must grant an exemption even when there is actually no tax due in the Netherlands.

One example is the redemption of a pension built up within the company in The Netherlands by a Belgian tax resident before the date the pension takes effect.  The scope is however broader than this.

Of course, for professional income received by Belgian individuals the exemption with progression remains intact.  This means that notwithstanding the exemption, Belgium can take the exempt income into account to determine the tax rate on the other taxable income in Belgium.