Referring to our headlines of 15 July 2014 and 23 October 2015, the Belgian tax authorities recently published a new practice note on the increase of the tax free amount for dependents after the Court of Appeal in Antwerp rejected the last practice note in 2015. This practice note updates again the position of the Belgian tax authorities on the attribution of personal tax benefits when the taxpayer (spouse / legally cohabiting partner) with the highest income fully / partially works abroad. The new practice note has been drafted pending the amendment of the Belgian law in this respect. The recent practice note deals with the new income tax calculation for assessment year 2017 and the administrative procedures for requesting a correction for prior years.
According to the current Belgian Income Tax Code of 1992, the tax free amount on behalf of taxpayers increases in case they have dependent persons. In respect of spouses and legally cohabiting partners for whom a joint assessment is established, this increase is automatically allocated to the income of the highest earning partner. Although this rule in a national context in principle leads to the maximum benefit for taxpayers, the benefit of the increased tax free amount can be partly or completely lost in a cross-border situation in case the partner with the highest income carries out his professional activities abroad and is (partly or fully) taxable there.
During the last five years, case law (European Court of Justice on 12 December 2013, Belgian Constitutional Court on 24 April 2014 and the Antwerp Court of Appeal on 22 September 2015) have deemed the automatic allocation of the increase to the highest earning partner as being in conflict with the European free movement of persons and the principle of non-discrimination. In the light of these judgements, the Minister of Finance Van Overtveldt has stated in his answer to a Parliamentary Question that an amendment of the law will be initiated. The increase of the tax free amount for dependents should be assigned automatically to the partner with the highest income, and should be free of choice.
Pending the said amendments of the law, the Belgian tax authorities have drafted a practice note in which they explain the new income tax calculation as from assessment year 2017 (current tax returns).
The Belgian tax authorities will make a comparative tax calculation:
- one calculation whereby the tax free amount is allocated to the partner with the highest income;
- one calculation whereby the tax free amount is allocated to the partner with the lowest income.
The calculation which is the most advantageous for the taxpayer will be applied.
The said practice note can only be invoked by taxpayers:
- who have a joint filing obligation; and
- for whom the partner earning the highest income is (partially) exempt from Belgian income taxes due to the fact that he or she is employed abroad; and
- who can benefit from the increased tax free amount for dependent children.
In contrast with the previous practice notes, the above conditions apply regardless whether the taxpayer was granted any benefit linked to the personal situation by another member state.
The new income tax calculation will automatically be applied as from assessment year 2017 (income year 2016).
As for the past and taking into account that the aforementioned case law qualifies as a new fact, taxpayers who meet the above conditions can file a claim with the Belgian authorities via an ex-officio tax relief procedure, allowing them to introduce a claim for the income received during the five preceding years (in case the normal objection term of six months following the assessment notice has passed). Note, however, that they can only do so if it is the first claim made with regard to the assessment notice issued.
Up to the end of 2017, a rectification can be asked for the assessment notices received in 2013.
As a final note, one should take into account that opening a procedure to claim back part of the income taxes may lead to having to prove the correct application of the relevant double tax treaty (i.e. prove of physical presence abroad).