Denial of tax benefits resulting from different treatment for income earned in another Member State incompatible with EU law

Nicolas de Limbourg 17 December 2013


On 12 December 2013, Belgium was sentenced by the European Court of Justice for breaching EU-law and, more precisely article 49 of the Treaty on the Functioning of the European Union (freedom of establishment).

The case at hand concerned a married couple with 2 children, resident in Belgium. With respect to their tax returns for tax years 2003 and 2004, the tax authorities had issued, in accordance with the Belgian Tax Code, a joint assessment and allocated the tax benefit for dependent children (increase in tax-free amount) to the taxpayer with the highest taxable income. In the case in point, the partner earning the highest income was fully exempt (with progression reserve) from tax in Belgium and his income was fully taxable in Germany. As a result of the exemption-with-progression method, the couple could not benefit from the tax benefit for dependent children.

The Belgian allocation rules for granting the tax benefit for dependent children are in this case incompatible with the freedom of establishment because all benefits are lost if the taxpayer with the highest taxable income derives only exempt income from another Member State.

Belgium is now obliged to adjust its tax legislation in order to put an end to the breach of EU law.

Read the judgement