Dutch wage tax exemption withdrawals affecting Belgian residents’ Dutch pension schemes


Since end of last year, about 1,300 pensioners who receive benefits of EUR 25,000 or more per annum under a Dutch pension scheme and who are resident in Belgium have been notified by the Dutch tax authorities that the exemption these pensioners enjoyed as regards Dutch wage tax withholding over such benefits is withdrawn effective 1 January 2018.

Why have the Dutch tax authorities changed their policy?

In principle, a Belgian resident receiving pension benefits from the Netherlands pays Belgian income tax over such Dutch pension benefits. This is because the double tax treaty entered into between the Netherlands and Belgium stipulates as a principal rule that the state of residence Belgium is entitled to tax Dutch pensions. For withholding of Dutch wage tax by the Dutch pension institution to be precluded, an exemption from the obligation to apply Dutch wage withholdings must be obtained from the Dutch tax authorities.

On the basis of the double tax treaty, however, such pensions can also be taxed in the Netherlands where the aggregate of the pension benefits exceeds a sum of EUR 25,000 gross per annum provided that two additional conditions are met: as a first condition, the pension premium payments must have been exempted for tax purposes in the Netherlands; the second condition is met if Belgium does not tax the Dutch pensions at progressive tax rates and/or if less than 90% of the pension income is subjected to taxation in Belgium. Subject to the above two conditions to be met simultaneously, the Netherlands may tax the pension benefits and Belgium is under an obligation to grant tax exemption for same pension benefits (except for municipal tax). Until recently, the Dutch tax authorities nearly always took the position that the above conditions were not met and that consequently the Netherlands had no taxing power under the double tax treaty in this respect. Hence the Dutch tax authorities used to grant an exemption from Dutch withholding tax.

However, recently, following individual lawsuits in Belgium, the Dutch tax authorities decided to withdraw such exemptions. The reason for this is that the interpretation given by the Dutch tax authorities to the Belgian court rulings is such that Belgium may not tax pension benefits that have accrued externally through a Dutch pension institution before 1 January 2004 (i.e. the effective date of the Belgian Supplementary Pensions Act). The position now adopted by the Netherlands is that, considering the above, the relevant double tax treaty conditions are met, and so the Netherlands have taxing power over the Dutch pension benefits. As a result, the exemptions have been withdrawn and, contrary to the past, the Dutch pension institutions will withhold Dutch tax.

What is the view of the Belgian tax authorities in this respect?

Under Belgian law, the Belgian court rulings have consequences for only those individual cases that were the subject of lawsuits – without having general effect. The Belgian tax authorities have pointed to it that, on the basis of the Belgian tax legislation, the Dutch pension benefits are still being subjected to taxation. This leads the Belgian tax authorities to conclude that the relevant double tax treaty conditions are not met, and so the power to tax the Dutch pension benefits (still) lies with Belgium.

About 1,300 pensioners are now being faced with high uncertainty in relation to this taxation issue. It is imperative that the Netherlands and Belgium confer as soon as possible to align positions. Pending a solution, pensioners may address the Dutch tax authorities to officially object to the withheld wage tax. Another option available to them is to initiate a Mutual Agreement Procedure with the Belgian tax authorities.