The new treaty for the avoidance of double taxation concluded between Belgium and Spain on 14 June 1995 will finally enter into force on June 25, 2003, as a result of the exchange of the ratification instruments on June 10, 2003. The new treaty (which is not yet published in the Belgian Official Gazette) will be applicable to withholding taxes levied on income arising as of January 1, 2004 while will be applicable to other taxes that are assessed on income derived as of January 1, 2003.

We noted amongst other changes that Article 15 of the treaty addressing the tax treatment of employment income has been materially amended. As you may know, wages and remuneration paid to a resident of one State (say Belgium) with respect to an employment carried out in the other State (Spain) are taxable in that State (Spain) except if the three conditions provided by the so-called “183 day rule”, are simultaneously met. Under the new treaty one of the three aforesaid conditions requires that the employee is present in the other State (Spain) for a period or periods that in the aggregate does not exceed 183 days in “any twelve month period”. Under the previous treaty the equivalent condition required that the employee was carrying out his activity in the other State for a period or periods that in the aggregate did not exceed 183 days in the calendar year.

For instance, under the previous treaty, a resident taxpayer of Belgium who was exercising his activity in Spain for 150 days in the second half of a calendar year and for 120 days in the first half of the following calendar year was liable to Belgian income tax on the pay derived from his Spanish activities provided the two other conditions provided by the “183 days rule” were met. Under the new treaty, in the same scenario, the pay derived from the Spanish activity will be liable to tax in Spain as the taxpayer will have spent 270 days in Spain in a 12 month period, when in our example would be the second half of a calendar year and the first half of the following calendar year.