European Commission refers Belgian to European Court of Justice

On 18 June 2015 the European Commission announced that it is referring Belgium to the Court of Justice of the European Union because it taxes Belgian residents differently on property abroad and at home.

If a Belgian resident earns income from property located abroad, that is taxed at a higher value than that from comparable property in Belgium. The Commission does not criticize the way Belgium assesses and taxes the income of property located in Belgium. However, there is a different method of assessment for income from property located abroad.

In Belgium, the income from property (irrespective of whether it is let) is calculated on the basis of the cadastral revenue, a theoretical rental value dating back to the 70-ies, with a correction to take account of inflation. However, for properties abroad, the tax is assessed on the rent received (for rental properties) or on the rental value (for second residences), minus a standard allowance of 40 percent for expenses.  The European Commission estimates that income or deemed income from property located abroad is taxed on approximately 50 percent of the market value of the property, while income from domestic property is taxed on between 20 and 25 percent of the market value.

Such a difference in tax treatment constitutes an infringement of the free movement of capital guaranteed by Article 63 TFEU and Article 40 of the EEA Agreement. Belgian law favours investments in certain properties located in Belgium and penalises taxpayers who choose to invest in similar property in other Member States of the EU or the European Economic Area (EEA)

The Commission sent a reasoned opinion to Belgium on 22 March 2012 asking for an amendment of the tax legislation.  Since Belgium has not complied, the Commission has decided to refer the matter to the Court of Justice of the European Union.

In a recent decision, the Court recently found that the freedom of movement of capital prohibits the Belgian legislation that leads to higher taxation simply because the method for determining income from property that is not rented out results in the income from property in another Member State being assessed at a higher amount than income from similar property located in Belgium (Case C-489/13, Verest and Gerards, 11 September 2014).  It is the same legislation which the Commission is challenging now.

Author: Marc Quaghebeur

Marc Quaghebeur is a Belgian tax lawyer with Cabinet DAVID specialising in international tax issues and cross border estate planning. He is a member of the Brussels Bar and the Society of Trust and Estate Practitioners. He

Leave a Reply

Your email address will not be published. Required fields are marked *