The application of international tax treaties may at first look seem easy, especially for a common job such as an international truck driver, who is working as an employee and who travels between various countries on a regular basis.

The tax treaties, however, contain a tough interpretation problem due to the fact that taxation rights may in certain cases depend on the actual place where work is performed. For a truck driver who travels around in 4 or 5 countries during one single work day, it may become a very difficult matter to determine in which country certain parts of his income should be taxed. This will especially be the case if the employee is living in a different country as the country where the employer is established.

The question is giving rise to a long list of disputes with the tax authorities and to a number of court decisions.

In some tax treaties, there are specific clauses in order to appoint the country where the income of employees, engaged in international transportation activities, can be taxed. In those cases the issue is less complicated. There are, however, still many tax treaties where such a specific clause is missing.

In the absence of a specific treaty clause, one has to apply the base rule of article 15, § 1, which covers income from employment. According to this article, the salary is in principle taxable in the country of residence of the employee. There is an exception when the employment is carried out in another state and which is applicable in cases where the conditions of the so-called 183-day rule are not met (these conditions will often not be met if the employer is established outside Belgium).

It will then be necessary to define the place where the truck driver is deemed to be carrying out his employment.

In a number of court decisions, it was ruled that these truck drivers are carrying out their work in the country where the employer is located. If, for example, a truck driver was living with his family in Belgium and was working for a transportation company, located in Luxembourg, this would result in the submission of his income to the Luxembourg income taxes (which are much lower as compared to the Belgian ones). This would be the case even if the truck driver would be working in various countries and would even not work at all on the territory of Luxembourg.

The Belgian tax authorities do not accept this principle and always keep referring to the OECD interpretation of the tax treaties, which look at the place where the work is actually performed (principle of physical presence in the work state). This can also be read in the tax circular of 25 May 2005, which extensively covers the OECD interpretation of article 15. In our example above (Belgian truck driver, working in various countries for a Luxembourg employer and never working in Luxembourg) this would lead to the conclusion that the salary would remain fully taxable in Belgium.

The issue was also already treated several times by the Belgian supreme court (Hof van Cassatie), which does not follow the point of view of the Belgian tax authorities (for example decisions of 6 November 2000, 28 May 2004 and 9 November 2007). The supreme court took the interpretation that the work place of the truck driver is the place where he has his professional ‘home base’.

In order to determine this home base, one would then have to consider various elements such as the place from where the truck driver is given instructions, where the trucks are registered, where the transport activity is organized, from where the payroll instructions are issued to make up the salary documents for the employee, etc…. The physical presence of the truck driver in the country can also be an element that is looked at, but the supreme court does not require a permanent physical presence in the work state during the overall working time of the employee.

In the cases mentioned above, the court in the end decided that the truck drivers had their professional home base in the country where the employer was located and consequently decided to exempt the income from taxation in the home state (Belgium).

Considering these interpretation difficulties, Belgium and Luxembourg have tried to solve the discussion by signing a covenant to the tax treaty to cover international truck drivers. In this covenant, reference is made for truck drivers to article 15 § 3, which is applicable on activities of international transport. Under this section of the treaty, the taxation is to take place in the country where the transport activity is organized. In this way, physical presence not relevant and no further discussions should arise on this element in the relationship between both countries.

It can be noted that even with this covenant, discussions could still exist. Indeed, it may not always be clear where the operational center of the employer is established. In this respect, the court of Appeal of Liege already decided (6 February 2013) that the place of management of a Luxembourg transportation company was located in Belgium in a case where the majority shareholder of the company was established in Belgium and where certain activities took place in Belgium (for example parking of the vehicles, management of certain tasks and place from where certain instructions were issued). For this reason, the court still allowed Belgium to tax the salary under the new covenant.

For other tax treaties, the problem of the criterion of physical presence remains in the absence of specific treaty clauses and one can note that Belgian case law is not uniform and that various conclusions are reached by different courts of justice. We can, for example, look at a court decision of the court of Ghent of 16 April 2013 in the case of a Belgian resident truck driver, who was working for a transportation company, which was operated out of Denmark. His activities were mostly carried out on the territory of France and for the remainder of the time in Belgium and in other European countries. He did not work in any of these countries during more than 183 days.

When looking at Denmark, where his employer was located, one could note that he only worked there during a limited number of days.

In this case, the court decided that due to the limited physical presence of the employee in the state where his employer was located (Denmark) one could not conclude that the employment took place in Denmark and that Belgium was entitled to tax the income.

Other courts continue to follow the interpretation of the supreme court and would in similar circumstances decide on treaty exemption in Belgium. On 12 February 2013 the court of Antwerp had to consider the case of a Belgian resident employee, who was working for a Dutch employer. It was claimed that he worked 90% of the time in Belgium and only 10% of the time in The Netherlands, though no specific evidence was available to verify this. On 23 April 2013 the same court treated the case of an employee, who was working in various European countries.

In both cases, the physical presence was not further looked at. The court was of the opinion that this criterion can not effectively be applied for international truck drivers and that one can not require that the employees keep precise track of their working time (in each country) and of the mileage per country. In the first case (Dutch employer), the court applied the principle of the ‘professional home base’ of the employee and allocated the taxation rights to The Netherlands. In the second case (for the same Danish employer as the one of the court case of Ghent, discussed above), the court referred to the country where the center of the management of the transportation was established.

Also other outcomes can be found in Belgian case law. On 8 May 2013 the court of Liege took a decision in the case of a Belgian resident truck driver, who was transporting cars between Belgium to Switzerland and who was employed by a Swiss transportation company. In Belgium, the transport took place from the premises of the Belgian branch of the Swiss employer.

The court applied the base principles of the supreme court by looking at the place from where the activities were organized. The court deemed it highly likely that at least part of the instructions were given in Belgium (through the local branch). It was therefore decided to split the taxation 50/50 between both countries.

It is clear that in case one would like to apply the principle of the taxation on the basis of physical presence (in the country where the employer is located) that is will most often be very difficult to determine the work time an/or travel distance, which relates to that the various countries where the transport is taking place.

The supreme court has accepted the decision of the court of Appeal of Mons of 17 October 2008 in the case of a Belgian resident truck driver, who was employed by a Luxembourg company. Although the court confirmed that physical presence is the base criterion in article 15, § 1 of the tax treaty, it was also clear that in practice it is very difficult to actually apply. Also in this case there was no overview of the days and time, which were spent by the employee in various countries. This led the court to the decision to apply the base rule of article 15 of taxation in the country of residence of the employee.

Conclusions

It is clear that the taxation of international truck drivers, who live in Belgium and who work for foreign employers continues to give rise to complex discussions, especially as the Belgian tax authorities continue to be persistent in their efforts to tax such income. For these employees and their employers there is a continuous risk of discussions with the Belgian tax authorities and of international double taxation.

One can note that the criterion of physical presence is becoming less important on one hand because it is difficult to be applied in practice but that on the other hand, one can not simply refer to the place where the employer is established in order to determine the country, which is allowed to tax the income.

One will have to look at the place where the operational home base of the employer can be found on the basis of various facts and circumstances. Apart from the place where the employer is located, the place where the salary is paid out and the content of the employment agreement, one may also need to look at the place from where the daily operational instructions to the employee are given. In order to reduce the risk of discussions it is advisable for employers to organize the activities in a clear, transparent and consistent way in order to avoid ambiguity to arise, which then may result in the taxation to be fully or partially reverted to the country of residence of the employee.