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Brussels, 16th July 2004

Direct taxes: Commission decides to refer Belgium to Court of Justice concerning taxation of non-Belgian service providers

The European Commission has decided to refer Belgium to the European Court of Justice concerning the tax obligations it imposes on contractors who use foreign subcontractors to provide services in the construction sector. Belgium obliges principal contractors to withhold 15% tax on payments made to sub-contractors and to assume joint responsibility for the tax liabilities of the subcontractor in cases where the subcontractor is not registered in Belgium. These tax measures violate the EC Treaty rules on the freedom to provide services (Articles 49 and 50).

Under Belgian law a principal contractor who uses a subcontractor who is not registered in Belgium for certain construction work is jointly responsible for the payment for the tax liabilities of the sub-contractor (limited to 35% of the total price without VAT) (Article 402 CIR92). In addition, the principal contractor who makes payments for certain construction work to a subcontractor who is at the time of the payment not registered in Belgium has to retain 15% of the amount paid (without VAT; Article 403 CIR92). The contracting activities to which this requirement applies are mainly construction, transformation, repairs, maintenance and demolition of immovable property.

In the view of the Commission this legislation discourages contractors from using subcontractors not established in Belgium. At the same time it constitutes an obstacle to the supply of services in Belgium by sub-contractors that are not established in Belgium. The Belgian Government claims that the measures are necessary to combat tax fraud in the construction sector. However, the Commission regards the chosen measures as disproportionate since there are other methods of preventing fraud, for example by mutual assistance and information exchange with other EU Member States under EU Directive 77/799/EEC and by mutual assistance in the recovery of claims under EU Directive 2001/44/EC.
The latest information on infringement proceedings against the Member States is available on the following site:

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