Context

According to Article 18 of the OECD Model Convention (hereafter “the pension article”), “pensions and other similar remuneration” paid in consideration of past employment are taxable in the country of residence of the recipient. However under some of the double tax treaties signed by Belgium the pension article provides for the opposite, i.e. taxation in the source country.

Until now, the Belgian tax authorities were of the view that the pension article applied to periodical pension payments while the taxation of lump-sum pension payments had to be addressed based on article 21 of the OECD Model Convention (hereafter “the residual article”) which provides for a taxation in the country of residence. Belgium, however, again signed several treaties with a residual article different from the one of the OECD model.

News

The Belgian tax authorities have now revised their position in a Practice Note of 9 February 2005. The tax treatment of lump sum pension payments must now also be addressed based on the pension article. As a result, depending on the tax treaty applicable – Belgian source lump sum pension payments to a non resident that would previously have been taxed abroad based on the residual article might now be taxed in Belgium, and conversely.

For example, while, to date, a Belgian lump sum pension payment to a resident of Portugal was taxable in Belgium and Portugal under article 21 of the Belgium-Portugal treaty (Portugal granting however a tax credit for the Belgian tax), it will now only be taxed in Portugal based on article 18 of the treaty.

The text of the circular: http://news.hrservices.be?lk200502151