Context

According to the Belgian income tax legislation, tax-deductibility of employer contributions paid into a company pension scheme is subject to the condition that the insurance company or pension fund involved is established in Belgium. This condition also counts for the application of the Belgian income tax reduction on employee contributions.

Consequently, if paid into a foreign pension scheme, employer contributions constitute Belgian non-tax-deductible expenses, and employee contributions do not give entitlement to Belgian income tax reduction.

The Belgian Income Tax Code contains two ‘fiction’ sections:
- pursuant to article 364bis of the ITC 92, capital sums under Belgian pension schemes transferred abroad are taxed at source even where, at the time of the transfer, the taxpayer is no longer a Belgian tax resident;
- pursuant to article 364ter of the ITC 92, the transfer of occupational pension reserves to another pension scheme established outside Belgium is taxable, while that transfer does not constitute a taxable transaction if the reserves are transferred to another occupational pension scheme established in Belgium.

In a “reasoned opinion”, the European Commission has officially requested Belgium to eliminate the above fiscal discrimination within its national legislation. Since nothing was done to honour this request, the Commission brought Belgium before the European Court of Justice (ECJ).

News

On 3 October 2006, the Advocate General proposed that the ECJ would declare the above provisions in Belgian tax legislation in conflict with European Regulations. The ECJ is strongly expected to follow the Advocate General’s conclusions, and Belgium will normally be convicted in the next few months.

Consequently, we suggest an analysis on a case-by-case basis in order to assess whether Belgian provisions as described above cause any undue – corporate and/or personal – tax burden. That assessment should cover both past and future employer and/or employee contributions paid into foreign (EU) company pension schemes.

Immediate action might be recommendable for any tax claim periods not yet closed, with this new position already to be taken into account for new tax return filings in the next few months.