During recent years, the Belgian government has been increasing the tax rate on interest and dividend income. For dividends, the general rate has long been fixed at 25%, but this was raised this year to 27% and the rate will further go up to 30% from 2017 onwards.

In the more distant past, tax payers were not always alerted by the Belgian tax rates on passive income as many of them simply underreported this type of income in their Belgian annual tax return. Due to the growing exchange of tax data between tax authorities and the sharp increase of tax audits and penalties for non-compliance, this has now changed and also passive income is now properly reported to the Belgian tax authorities.

This results in a growing attention by tax payers to the actual amount of taxes, they are paying on such income, both in Belgium and abroad. In case no withholding taxes are applied at source, only Belgian taxes are to be considered. In case withholding taxes were calculated at source, both foreign and Belgian taxes (on the net foreign income, after deduction of the foreign tax) are relevant.

The resulting situation of international double taxation is leading to a significant number of disputes by tax payers. They believe to be treated in an unfair way, as passive income from Belgian sources is only taxed once and therefore leads to a higher net income for the tax payer as compared to foreign source income.

The court of Appeal of Gent issued a decision on 17 November 2015 in a dispute relating to dividends, earned by a Belgian resident from a source in France. The dividends were paid in 2010 by a French company and were subject to a levy of French taxes at source at a rate of 15%.

The Belgian beneficiaries of the dividend income included the dividend in their Belgian income tax return. They did, however, not report the net dividend (after deduction of the French tax) as income to be taxed at the general rate of 25%. Instead, they reported the gross dividend as income to be taxed at a special rate of 10%.

By doing this, they probably intended to obtain an overall tax burden of 25% on the gross dividend amount (15% in France and 10% in Belgium), as would have been the case with a Belgian sourced dividend, instead of a tax burden of 36,25% (15% in France and 21,25% in Belgium).

In the resulting dispute, the tax payers referred to the old tax credit mechanism, that used to exist in the relationship between Belgium and France. The treaty allows for a special tax credit to enable Belgian tax residents to credit the French tax against the Belgian tax in order to resolve the international double tax issue. The actual implementation of the credit is organized by internal Belgian tax law.

This special credit (also known as FBB) was, however, abolished in Belgian internal tax law at the end of 1988. As a result of this change of internal Belgian tax law, double tax since then occurs on dividend income between both countries.

Tax payers sometimes believe that international tax treaties do not allow any form of double taxation. This is not correct, however. Treaty countries must make efforts to avoid or mitigate international double taxation, but they have no obligation to strictly avoid any possible double tax to occur.

Tax payers have therefore shifted their attention to European law and the free movement of capital and services to fight this type of international double taxation.

The European Court of Justice repeatedly has confirmed the right of treaty countries to agree on the taxation of dividend income, even where this results in a kind of international double taxation. Also the change of law of 1988 by the Belgian government has not been disallowed by European case law. The court of Appeal of Gent refers to this case law in the decision of 17 November 2015 and dismissed the claim of the Belgian tax payers.

As mentioned in the beginning of this article the double tax issue more and more is disliked by Belgian resident tax payers. This dislike further increases as a result of constant changes of the Belgian tax rates, most likely combined with the low investment returns, which can be observed in recent years. All of these are constantly eating away the net investment returns of Belgian residents. They tend to experience the double taxation as unfair in comparison with other Belgian residents, who earn similar types of income from Belgian sources or from countries, where no taxes are calculated at source.

Maybe the time has come that the Belgian government starts paying attention to this matter and takes some measures to stop the increase of the tax burden for their residents up to levels, which some tax payers believe to be unreasonable. This can be done by changing their approach in future tax treaty negotiations or by introducing internal tax rules, enabling tax payers to again start crediting foreign taxes, paid on passive income.