Interest on savings accounts with foreign institutions: Belgian rapped over the knuckles again for its exemption

With tax return season lurking on the horizon it is a good idea to have a refresher on the current state of affairs with respect to the exemption for interest on savings accounts.

The general rule as regards the exemption

At the present, the first bracket of €1,880 (for tax year 2018, base sum of €1,250) of the income from regulated savings accounts (those accounts where the bank complies with all the statutory provisions) is exempt insofar as the beneficiary is a natural person. On the basis of a legal fiction, the interest gained by underage persons is added together with the interest made by their parents. Under the present regulation, the first bracket of €1,880 is thus not considered as income from moveable property, so the taxpayer is not obliged to report the sum in his/her personal income tax return.

If the threshold of €1,880 is however exceeded and the tax levied at source was not withheld, then the taxpayer is required to report that sum of the interest received that exceeds €1,880 in his/her personal income tax return (or in a non-resident tax return, if it is interest from a Belgian source that is paid to a non-resident), for the purposes of having it taxed at a rate of 15%. It is notable that this tax benefit has already come under fire on numerous occasions. Financial experts working on proposed reforms to the financial sector on behalf of the authorities had proposed at that time to thoroughly overhaul taxation in respect of savings accounts. The regulation was also the subject of a ruling by the European Court of Justice. 

What was the trouble from an EU perspective? 
In its judgement dated 6 June 2013, the Court of Justice ruled that the system of exemption from tax on interest derived from Belgian savings accounts was contrary to the European principles of free traffic of services (art. 56 TFEU) and capital (art. 63 TFEU), given that the exemption did not apply to interest from other financial institutions located within the EEA. Using the same argument as the European Court of Justice, the Constitutional Court subsequently ruled that, aside from the exemption for Belgian savings accounts, the favourable rate of 15% for the non-exempted part of that interest derived from Belgian savings accounts was contrary to the constitutional principle of equality and European liberties.

Responding to a Parliamentary question, also on 6 June 2013, the then-Minister of Finance, Koen Geens, stated that the outcome of the above ruling by the Court of Justice was simple: an identical taxation rule for interest on savings accounts should exist for Belgian and for European banks, whether or not they had branches in Belgium. The consequences that would come from the judgement were, he said, very clear. The tax regime for the interest from savings accounts must be the same, irrespective of whether this interest was paid into Belgian accounts or European ones kept in other Member States, even if they did not have a branch in Belgium. Only when the saver is treated with complete equality will he or she be completely free to choose where he/she saves. The government undertook to adopt a position, but would have to take into account many considerations.

Extending the exemption, but not sufficiently …
In response to the above, the exemption for the first bracket of interest of €1,880 derived from ‘Belgian’ regulated savings accounts and the separate rate of 15% on the balance of the interest that exceeds that threshold were, as of tax year 2013, extended to include savings accounts held with credit institutions based in the EEA. This extension applied income awarded or rendered payable as of 1 January 2012. It was further stipulated that the conditions that the savings accounts held in other EEA states had to meet to be eligible for exemption were analogous to those for the Belgian regulated savings accounts. It was the practical interpretation of that last part that resulted in Belgium recently being summoned to appear before the European Court of Justice once again. 

That is because, in practice, it emerged that (as good as) no foreign credit institution offers savings products that comply with the strict conditions as implemented in the Belgian legislation – they have to be savings accounts that are not of a fixed term or notice period, the withdrawal options are limited, the remuneration is required to exist solely of the basic interest and a loyalty premium, the level of which and the manner of calculating it being recorded, etc (cf. article 21, et al 1.5 Income Tax Code 1992 and article 2 Royal Decree/Income Tax Code 1992). Further investigation led to the conclusion that the basic interest rate and the loyalty premium were a special characteristic of the Belgian banking market, which means that Belgian residents are dissuaded from having savings accounts with foreign banking institutions, as they will never be able to comply with the conditions imposed and the interest received will not fall under the exemption regulation.  

The Court of First Instance of West Flanders, Bruges division, consequently asked, on 9 November 2015, the Court of Justice whether the provision under its present regulation (which requires that the conditions that are analogous to those in article 2 Royal Decree/ Income Tax Code 1992, be met, and which are de facto unique to the Belgian market and thus seriously impedes foreign service-providers from offering their services in Belgium) constitutes a violation of EU law. The Court responded in a recent decision dated 8 June that the Belgian legislation, in its current form, could indeed be a prohibited obstacle to the freedom to provide services. Belgium’s argument, which stands on the protection of the consumer as justification, was rejected by the Court. The Court did however rule that it is up to the judge of the Court of First Instance before which the matter was brought to rule on whether the prohibited obstacle also effectively existed in concrete terms. 

While we cannot predict with utmost certainty it seems that, with due regard for the arguments and the present state of the legislation, it can be expected that the court shall rule that a prohibited obstacle to the free traffic of services does indeed exist. If the court does reach this decision, it will be up to the lawmakers to find a suitable alternative, which could be done in two ways: either the conditions for benefiting from the system are changed to such an extent that the specific Belgian characteristics are abandoned, or the entire tax benefit is abandoned.  

Conclusion 
As it is not certain what the final ruling will contain, the most cautious standpoint involves not claiming exemption for savings accounts held abroad for now. Should it emerge that the legislation is to be amended, you can still request a refund through the objection procedure. If you claim the exemption now in your tax return, this could lead to a request for information or a notification of change from the taxman.As is frequently the case when it comes to the Belgian legislative process, all we can say for certain right now is: to be continued… 

What are the consequences and the opportunities?
Buying real estate in the Netherlands: are there tax benefits?
In recent years the purchase of property in the Netherlands has seen an uptick, especially in the beachside town of Cadzand, where 1,500 new apartments and houses are being be built between 2008 and 2020. This is the perfect opportunity to examine the (tax) consequences of buying real estate in the Netherlands and the opportunities it offers in respect of asset and inheritance planning. This artic
A reminder of the most significant tax-related points
‘For free’ is not always ‘VAT-free’
 ‘A free sample, a gadget with a corporate logo, rewarding faithful buyers and suppliers with a small gift…’ Every company is familiar with this situation, but are they also aware of the tax-consequences of these generous gestures? The tax authorities recently published a circular as a reminder of the most significant tax-related points for attention in this respect.  The rules&
The regional benefits have diverged completely
Home-owner taxes in the tax year 2017
'Own homes' have been a regional authority matter, since 2014. Even then, it was predicted that this would result in serious fragmentation and complication of the fiscal benefits for own homes. 
Powerful weapon for combating against fraud
Prejudgement administrative attachment for VAT gets repackaged
One of the measures used in the battle against tax fraud involves the amendment of the extant regulations for prejudgement attachments that VAT officials can levy on moveable property when, during an inspection, they have established that there are matters that indicate major fraud (organised or not). An example would be when they encounter goods in a warehouse that have been part of a carousel sc
There are a number of (negative) consequences
What happens if a tax audit decides that your company is no longer ‘small’?
From a tax perspective there are a number of advantages to a company being considered ‘small’. In this article we will take a brief look at those advantages. However, there are also considerable consequences when, during a tax audit, a company is deemed to no longer be small, and these not only affect the company itself, but others too.   A small company under article 15 of the Compani
The published circular creates clarity
Are fundraising dinners VAT-liable? We clear up the exemption for charitable support
When a VAT-exempted society decides to host an event for the purpose of raising funds, such as a fundraising dinner, it was often uncertain as to whether the event was exempt from VAT. In the wake of a legislative amendment in 2016 a circular has now been released to clear up matters. Introduction The VAT Code contains an exemption for the delivery of goods and services provided by specified s
The struggle against fiscal fraud
FATCA: Prevention is better than reclamation
The US Foreign Account Tax Compliance Act (FATCA) has been in effect since 1 July 2014. The law is part of the war on tax fraud and is aimed at tackling international tax avoidance by American citizens through a new system of global automatic data exchange. What obligations have been introduced under FATCA? Under FATCA certain identification, reporting and/or content obligations are imposed f
Limited to federal & Flemish regulations
Target group reductions for social security: Are you still aboard?
As a result of the 6th state reformation, the Regions now have the authority to oversee personal target group reductions (doelgroepverminderingen) in respect of the employer’s contribution to social security. Flanders has opted to simplify the target group system, as a result of which a number of existing measures have been scrapped and new target group reductions have been devised for the young
Good news for separated parents with kids in college
Joint parenting for tax purposes: children of age also count
At the start of this year the authorities published a circular explaining the amendment to the article allowing joint parenting for tax purposes to now also be applied to children of age.
An extra advantage when you switch to self-employment
‘Springboard to self-employment’
The ‘Springboard to self-employment’ (‘Springplank naar zelfstandige’) benefit is a measure that allows for a person to perform a sideline activity as a self-employed person while still being entitled to unemployment benefits for a period of twelve months.  1. What are the conditions?  To take advantage of this measure, the following conditions must be fulfilled: 

Subscribe to our newsletter