Context

Belgian residents are in principle taxable in Belgium on their worldwide income. This means that they pay Belgian taxes on their income regardless of whether the income is received for activities performed in Belgium or in another country. However, foreign countries will in principle also want to tax income earned from work done there. To avoid the double taxation of such income, Belgium has signed a range of double taxation treaties with foreign countries. However, in the absence of such a treaty, in principle Belgium is not obliged to exempt such income from Belgian income tax. Under section 156 of its Income Tax Code, Belgium will nevertheless give partial relief from the Belgian income tax due in such a case, but only if the relevant income is actually taxed in the other country. In this respect the Belgian tax authorities have issued a practice note (the so-called ABOS – ACGD practice note), which exempts certain taxpayers from having to prove that their foreign-source income is actually taxed abroad.

However, in one case, the Belgian tax authorities denied application of the practice note and demanded actual proof that the income was taxed abroad. They argued that the practice note is in contradiction with law and thus without legal standing.

Judgment

The Court of First Instance of Brussels ruled (23 May 2007) that the ABOS-AGCD practice note is indeed in contradiction with the law. However, since it has not yet been revoked by the Belgian tax authorities and still constitutes part of the official commentary on the Income Tax Code, the taxpayer may reasonably expect the tax authorities to continue to apply the practice it sets forth. Although the tax authorities may refuse to apply the practice note because of its “contradictory nature”, they are also obliged to provide taxpayers with legal certainty (a principle that is even enshrined in the European Convention on Human Rights). According to the Court, this means that the tax authorities can only revoke application of a practice note that that is in contradiction with the law prospectively, but not retrospectively. The fact that the practice note is still published on the tax authorities’ website and is also still being applied in other cases means that the taxpayer was rightfully entitled to expect that it would also be applied in this case.