During the past years, massive changes took place on the international fiscal landscape. More and more attention is paid to cross-border situations, where tax authorities are gathering information on income that is earned abroad and review the proper tax treatment of such income in the country, where the tax payer is living with his family.
In the past, national tax authorities were mostly ignorant about assets and income of their residents, that were kept or earned abroad. Many tax payers made use of this situation in order to underpay their taxes. In order to resolve this situation, countries have been working hard on setting up appropriate systems in order to efficiently exchange international tax data.
In addition to the many efforts, that were made by the US in the area of international tax data exchange, and growing pressure on financial institutions to proceed with tax related reporting, one can also note important developments at the European level. Information can from now onwards be exchanged between countries in different ways:
- countries can raise a request for the exchange of (specific) information
- automatic data exchange flows (without specific requests)
- countries can take the initiative to send information to other countries (without specific request)
The automatic data exchange has already started for income, that has been earned from 1 January 2014 onwards. The actual exchange occurs within 6 months after the end of the year (before 30 June 2015). The following income data will be exchanged:
- income from employment
- income of directors of companies
- life insurance benefits
- real estate
Specific reporting requirements are also introduced for financial institutions in order to identify clients their accounts, investments and income. This not only covers direct investments, but also investments that are held through intermediary legal structures and that are to be taxed directly on behalf of the ultimate beneficiary.
Given these evolutions, tax payers must carefully review their international tax situation and ensure that they properly report their world-wide earnings in their country of residency. They also need to carefully study the international tax treaties in order to determine which country is entitled to tax certain income components (either the country of source of the income, the country of residence or a combination of both).
The data exchange between countries is likely to trigger numerous tax audits. These will most often become quite complex as interpretation of the tax data is necessary in order to determine the fiscal qualification of the income, the taxable basis and the country, that is entitled to impose any taxes. Local tax authorities are not (yet) familiar with many types of foreign source income and may not proceed with a correct tax treatment in Belgium. It is clear that international double taxation will now occur more frequently and the number of tax disputes as to the proper taxation of foreign income is also likely to increase.