The Belgian government these days is very concerned about the increasing cost of utilities like gas, fuel and electricity. Measures are under way to protect citizens against the impact of recent price increases on the purchasing power of individuals and families. Every day, this topic is extensively covered in the Belgian press.
The same government seems not to have any reluctance, however, against relentlessly chasing retirees with excessive tax bills that quickly amount to thousands of Euros per year. The purchasing power of these individuals seems not to be of any concern to the authorities nor to our excellencies.
Last year, we could already observe the tax authorities diligently and systematically chasing Belgian resident retirees, who receive pension income from Dutch sources for prior employment for Dutch employers. This has resulted in multiple cases of international double taxation, as the pension income in most cases had already been fully taxed at progressive tax rates in The Netherlands. Many such pensioners are now forced to bring their case before the courts of justice to resolve this unfortunate and costly matter.
At the very end of 2021 a new target was detected, this time in retirees, who live in the UK, and who receive Belgian state pensions for prior professional activities in Belgium. Pensioners suddenly started to receive claims to pay Belgian income taxes on these pensions, while they have already paid their UK taxes on the same income. The outcome once again is international double taxation in its purest format.
How can this happen? Between Belgium and the UK, a tax treaty has been signed. One of the main objectives of such treaties is the avoidance of international double taxation, but Belgium suddenly launched a new interpretation of the treaty rules and disregards this basic treaty objective.
How does this work? Many years ago, Belgium and the UK agreed that pensions for prior employment in the private sector (not for retired public servants) were only to be taxed in the country of residence of the beneficiaries. Belgian pensions, received by UK residents, were thus taxable in the UK and people in general were happy with this situation.
This simple rule was changed by means of a protocol, that was already signed back on 26 June 2009, but that only entered into force many years later. Indeed, the new rules only entered into force for payments, made from 1/1/2013 onwards.
The new protocol replaced article 18 of the tax treaty (on pensions) with the basic principle that pension income should from 2013 onwards be taxed in the country of source and no longer in the country of residence. Pensions from Belgian sources thus became taxable in Belgium and should no longer be taxed in the UK.
This new rule may have been understandable for new retirees (from 2013 onwards), but for older retirees (who by now are already of rather advanced age), the new protocol would have resulted in a sudden and important tax change and disruption in the life of these people. Life would also become more difficult for them as in order to comply with the new rule, they would have had to start filing Belgian tax returns in addition to the UK ones, that at the same time also would have become more complex (again to avoid international double taxation).
To protect these older retirees, it was written in the protocol that where pensions and other similar remuneration under a pension scheme were first credited or paid before 1 January of 2013, all payments under that scheme shall be taxable only in the country of residence.
One may expect that this simple rule would have brought peace to these retirees, so that they could continue to only contribute taxes on such pensions in the UK. For many years, this has been the case and the Belgian revenue services have left Belgian retirees in the UK undisturbed so they could live a happy life.
Somewhere in 2020, however, Belgian tax officials started to read the protocol over and over again and suddenly, they invented a new interpretation. They had noticed that pensions can come from various sources. A first source is social security or state benefits, that are paid out from public funds. These are the so-called ‘first pillar pensions’. Another source of pensions are all kind of pension schemes, that may be set up by employers or other organizations to complement the pensions, that are provided from public funds. These additional pensions are known as ‘second pillar pensions’.
The Belgian tax officials now are of the opinion, that the rule of the protocol only applies to second pillar pensions, because in the text, use is made of the words ‘pension schemes’. They thus started to believe that pensions out of public funds do not arise from pension schemes and thus should not be covered by the exception.
The result of this nice piece of treaty interpretation is that the Belgian tax authorities at the end of 2021 have started to impose tax on state pensions from Belgian sources, received by beneficiaries in the UK, notwithstanding the fact that such pensions have in the meanwhile already been fully taxed in the UK. The impact of this approach on the purchasing power of these elderly people hereby seems to be of no importance at all to them.
These elderly pensioners had a rude awakening when opening their mailbox and are now faced with an immense challenge to try to find some kind of tax relief at any side of the channel. As tax treaty interpretation quickly becomes very complex, this is not an easy matter to deal with. One can only hope that the Belgian revenue services at some point recover their sense of reason and will stop this direct attack on retirees, who settled on British soil. This violent attack on taxpayer purchasing power, certainly merits appropriate attention from the press as well.