Brussels, 20 July 2006
Direct tax: Commission requests Belgium to end discrimination on personal tax deductions for residents with foreign source income
The European Commission has sent Belgium a formal request to amend the legislation according to which Belgian residents with both Belgian and foreign income are discriminated by not benefiting from a full deduction of personal and family allowances. The Commission considers that this limited deduction of personal allowances is contrary to the EC Treaty. The European Court of Justice has already ruled on this issue in a case concerning the Netherlands (Case C-385/00 "De Groot"). The request is in the form of a ‘reasoned opinion’ under Article 226 of the EC Treaty. If Belgium does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.
"The European Court of Justice has ruled very clearly on how the exemption with progression method should be applied. Every Member State should follow the ECJ interpretation." said EU Taxation and Customs Commissioner László Kovács.
When a double tax convention is applicable, Belgium exempts foreign source income of Belgian residents from tax, but nevertheless takes such foreign source income into account for the purposes of determining the rate of tax applicable to the taxpayers' Belgian source income (exemption with progression method). This leads to a limited deduction of the personal and family allowances.
On the basis of a case decided by the European Court of Justice concerning identical rules in the Netherlands (Case C-385/00 "De Groot" of 12 December 2002), the Commission considers that the unavailability of full personal deductions contravenes the free movement of workers and self-employed persons guaranteed by Articles 39 and 43 of the EC Treaty and the corresponding provisions of the EEA Agreement and the right of every citizen of the Union to move and reside freely within the territory of each Member State of Article 18 of the EC Treaty.
The Commission's case reference number is 2005/4576.