On 5 March, Belgian and Dutch officials signed an agreement clarifying the taxation of pensions under article 18 of the double tax treaty (in English) between the two countries. The agreement was published in the Staatscourant (the Dutch official journal FR).
The agreement is the result of a change in policy announced by the Dutch government at the end of last year that they would tax some pension benefits paid to Belgian resident pensioners.
In principle, supplementary pensions (aanvullend pensioenen) are taxed in the state where the pensioner resides. However, in certain circumstances, the state from where the pension is paid, the source state, may tax the pension. This is the case where the total gross amount of the pension is in excess of €25,000 per year and has not been taxed in the source state, (1) if either the pension is not subject to the progressive tax rates or (2) if less than 90 percent of the pension is subject to taxation in the state of residence.
Until 2017, the Dutch tax authorities generally granted an exemption from Dutch withholding tax to Belgian resident pensioners on the assumption that these conditions were not met so that the Netherlands did not have the power to tax.
However, in individual cases, based on Belgian domestic law, the courts have decided that Belgium could not tax supplementary pensions if they accrued through a Dutch pension institution before 1 January 2004 (that is the date the Belgian Supplementary Pensions Act entered into force).
Based on this case law, the Dutch tax authorities found that these pensions escaped all taxation, and they considered that the conditions of the treaty were nevertheless met. At the end of 2017 they notified some 1,300 Belgian resident pensioners who receive pension benefits over €25,000 per year that the exemption of Dutch withholding tax would be withdrawn on 1 January 2018. This means that the pensions would be taxed in the Netherlands and that Belgium has to exempt for them (although municipal tax would be due on the theoretical income tax).
The position of the Belgian tax authorities is that even if in certain individual cases the courts have decided that the Dutch pension benefits are not taxable in Belgium, the principle still is that they are being subjected to taxation. The conditions of the double tax treaty are not met, and Belgium has the power to tax the Dutch pension benefits.
In the agreement of 5 March, the Belgian and Dutch tax authorities aligned their positions and came to an agreement for the future. The Netherlands will exempt pensions paid to Belgian residents if it is “irrevocably established” that they are in fact fully taxed in Belgium, i.e. either the pension is taxed at the progressive tax rates, or at least 90 percent of the pension is subject to taxation in Belgium.
However, the Netherlands reserves the right to tax the income if it is established that the conditions of article 18(2) ultimately are not met. And if there is an appeal regarding the income in a Belgian court, the Netherlands may also exercise the right to tax the pension.
Starting with tax year 2017, the Netherlands will give Belgium a list of Belgian residents who received a supplementary pension that is higher than €25,000 per year, and Belgium will inform the Dutch tax authorities whether these pensions were fully subject to tax in Belgium. This information is to be provided within 18 months.
Belgium will also provide the Netherlands every year with a list of the residents who have entered an appeal in court concerning a pension from the Netherlands, and they will also, on a spontaneous basis, inform the Netherlands if the status of a pension has changed and is no longer fully subject to tax.
The Belgian and the Dutch tax authorities will exchange the relevant information directly. The Dutch withholding tax will be rectified automatically if it was applied incorrectly. Taxpayers should not have to take action.