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.
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…