On 23 January 2014, the Court of Justice of the European Union (the Court) issued its decision in Case C‑296/12 Commission v. Kingdom of Belgium.
The Court declared that, by introducing and maintaining a tax reduction in respect of contributions paid to a savings pension (savings account or savings insurance) in so far as that reduction is applicable only to payments to institutions or funds established in Belgium, the Kingdom of Belgium failed to fulfil its obligations under Articles 56 Treaty on the Functioning of the European Union.
As far as the reasoning of the Court is concerned, it is interesting to note that the coherence of the Belgian tax system, according to which there is a direct link between the deductibility of contributions to a pension and the taxation of the corresponding benefits, has again been debated. The key elements of the reasoning are outlined below (cf. para. 37-40 of the decision):
Transfer of Residence:
Although the Belgian tax system appears to be coherent in purely internal situations (cf. Case C‑204/90 Bachmann, 1992), a transfer of residence of the person liable to tax occurring between the time of payment of contributions to the savings pension and the receipt of savings pension income could adversely affect the coherence of the Belgian rules.
Indeed, according to the Court, where a person liable to tax, having contracted for a savings pension with a financial institution established in Belgium, qualifies for a reduction of tax on the contributions to that savings pension, subsequently, before the time when payment of the savings pension income falls due, transfers his residence to another Member State, the Kingdom of Belgium loses the power to tax that income, at least where it has agreed, with the Member State to which residence of the person liable to tax is transferred, a double taxation agreement which provides that pensions and other comparable payments are taxable only in the Member State where the recipient of that income is resident.
Contributions Paid to Foreign Financial Institutions:
Conversely, the fact that a savings pension is acquired from a financial institution established in a Member State other than the Kingdom of Belgium is not liable, as such, to affect adversely the coherence of the rules at issue. There is nothing to prevent the Kingdom of Belgium from exercising its power of taxation over the income derived from the savings pension paid by a financial institution established in another Member State to a person liable to tax who is still resident in Belgium when that income is paid, as a counterbalance to the payments of contributions in respect of which a tax reduction was granted.
Conclusion:
Consequently, the rules at issue, which constitute a general refusal to grant a tax reduction in respect of contributions paid to a savings pension managed by a financial institution established in a Member State other than the Kingdom of Belgium, cannot be justified by the need to preserve the coherence of the tax system.
