The tax on foreign savings deposits, again

The European Commission has sent a letter of formal notice requesting Belgium to amend its rules regarding the exemption of interest from savings deposits.

Interest from savings deposits

Under Belgian law interest on regulated savings accounts is exempt from personal income tax up to a threshold of (currently) €990, Article 21, first paragraph, 5°, ITC 92).  Any interest over €990 is taxed at a favourable rate of 15% instead of 30%.

The law does not limit the exemption to savings accounts in Belgium, but regulated savings accounts must meet certain conditions to be exempt :

• the savings deposits must be denominated in euros ;
• withdrawals can be made from savings deposits, directly or by means of a current account, only for a redemption in cash, a transfer to a personal current account or savings account of a spouse, a child or grandchild or a parent ;
• the bank must be able to require five calendar days’ notice for over €1,250 and to limit withdrawals to €2,500 per month;  
• the savings account must have a double remuneration structure with a basic interest and a fidelity premium that are calculated on an annual basis and paid once a year. The fidelity premium can only be paid for deposits that are held for twelve months.
• The basic interest may not exceed 3% and the fidelity premium must be between 25 and 50% of the basic interest.

Although this favourable tax regime applies in principle to interest on foreign savings deposits, in practice the exemption is systematically refused.

The European Court of Justice has already decided twice that the exemption of part of the interest from savings deposits is contrary to the free movement of services (Articles 56 TFEU and 36 EEA Agreement) (cases C-383/10) and C-580/15). The Court ruled that the imposition of a double remuneration structure appears to be ” de facto specific” to the Belgian market. This could constitute an obstacle to the free movement of services. However, the Court left it to the national courts to decide whether it is.

The Belgian tax authorities continue to refuse the exemption for overseas savings accounts, and in a recent practice note 2020/C33 they explain that a regulated savings deposit in another EEA Member State meets similar conditions if it ensures effects equivalent to those of Belgian regulated savings deposits and if it has the same level of requirements. However, if one of the conditions is not met (the account is not in euros or the savings account can be used to make payments, the Belgian tax authorities will refuse the exemption and the taxpayer will have to go to court.

Taxpayers have gone to court and the courts of appeal in Antwerp and Ghent have confirmed that the Belgian law is contrary to EU law, the exemption also applies to savings accounts in other European Economic Area Member States, such as the Dutch savings accounts.

Still, the Belgian tax authorities do not give up and they have taken this to the Supreme Court.  We expected the Supreme Court to refer to the European Court of Justice, but the Commission got there first.

The infringement proceedings

On 30 October 2020, In the European Commission launched infringement proceedings by sending a letter of formal notice requesting further information. Belgium now has two months to respond to the alleged breach of EU law.[MQ1] 

Depending on this reply, the European Commission may either withdraw its objection or issue a reasoned opinion. A reasoned opinion sets out in detail the infringement of EU law and the measures to be taken within a specified period of time to end the infringement. If Belgium fails to comply with the opinion, the European Commission may bring the case before the Court of Justice and ask for penalties.

If the court finds that a country has breached EU law, the national authorities must take action to comply with the decision and the Court may impose penalties.

It is unlikely that Belgium will be able to provide an adequate response to the European Commission or that it will this tax regime in line with EU law. In view of Belgium’s previous convictions by the Court of Justice, the most likely outcome is a decision of the Court imposing penalties as it has done recently.