Is severance pay allotted to an employee who had never been subject to Belgian income tax prior to the year of its allotment, taxable in Belgium?
Employment income is in principle taxed at graduated rates. However, severance pay (exceeding EUR 615), on the one hand, and regular pay, pension, annuity or allocation whose payment is deferred by reason of litigation or of a public authority’s decision, on the other hand, are taxed at the taxpayer’s average rate applicable to taxable income derived in the last preceding year during which a normal business activity has been carried out (below “year of reference”).
In its decision of 21 June 2001, the Brussels Court of Appeal has taken the view that deferred payments of insurance indemnities could not be taxed at the aforesaid taxpayer’s average tax rate by reason of the fact that during the deemed “year of reference”, the beneficiary was not subject to tax in Belgium. (Against: Administrative note of the Belgian Income Tax Code Com. I.B./ I.R./92, no. 171/324 & /331).
Although foreign executives posted to Belgium are not deemed to be made redundant in their year of arrival in Belgium, we may not exclude that such situation may occur. Should it be the case, there may be an opportunity – to consider in view of factual circumstances – to exempt from Belgian income tax the severance pay allotted to the unfortunate employee.
Reference: Brussels Court of Appeal – Decision of 21 June 2001