A significant tax deduction is granted to married or legal co-habitant taxpayers for dependent children, that are living together with the family.

Numerous disputes have in the past taken place regarding this rather basic tax deduction for Belgian resident taxpayers, that can be found in article 134 of the Belgian Income Tax Code (ITC).

Initially, it was foreseen in this article that the tax deduction for dependent children had to be imputed against the tax of the partner with the highest amount of taxable income. However, this rule did not always result in an optimal tax calculation. This was, for example the case when the highest income earner was working abroad and earned income, that was exempt from Belgian tax based on an international tax treaty. In those cases, the children deduction was cancelled out by the treaty exemption of the income. The same occurs if the partner is working for an international organisation under full tax exemption.

This approach led to discrimination for such taxpayers in comparison to parents, who both earn Belgian taxable income. There was also discrimination with taxpayers, who are not married or legal co-habitant, and who can freely decide who includes the child benefit in his or her annual income tax return.

For many years, the Belgian tax authorities stubbornly refused to respond to this obvious discrimination, resulting in numerous disputes and court cases. In the end, the issue came before the European Court of Justice. On 14 March of 2019, the European Court dismissed the arguments of the Belgian authorities and in view of this, the Belgian tax legislation was finally adjusted.

When reading the Belgian tax code, however, we were very surprised to see that the change was only made for Belgian tax resident taxpayers. For non-resident taxpayers, the authorities all those years simply continued to stick to the old principle that the child deduction can only be claimed by the partner with the highest professional income. The calculation rules for non-residents can be found in article 245 ITC, and in this article the old discrimination continues to exist.

In the income tax return, this is reflected in the strange codes 1051, 1052 and 1005 (codes that do not even exist in a resident tax return). For many years, this led to a continuation of the discrimination of those non-resident taxpayers, where only one partner earns Belgian taxable professional income, and where the other partner earns a higher professional income abroad, that falls outside the scope of Belgian taxes. As a result of all this, numerous non-resident taxpayers have paid too many taxes during the past years.

Now at last, also this discrimination has been sent to the bin. The Court of Appeal of Ghent has ruled on 1 October 2024 that the benefit for dependent children of non-residents is to be applied, even if the partner, who is subject to tax in Belgium, has the lowest professional income. The Belgian court in this way makes a proper application of the European rules on the free movement of workers (article 45 VWEU) and finally treats non-residents in the same way as resident taxpayers. In some way, it is surprising to note that taxpayers even had to go go court for this quite obvious matter. The Court has treated the case with much care and the decision includes abundant motivation.

In the court case, both parents (Belgian nationals) were resident in Germany. The mother of 2 children was working for a Belgian employer and the father was working for an international organization in Germany with tax exemption. No significant income was taxable in Germany and consequently no tax benefits could be obtained in the country of residency of the parents. Under these circumstances, the country of employment, Belgium, should grant the tax benefit for the children. In this way, the non-resident couple was treated in the same way as compared to a Belgian resident couple, that would be employed under exactly the same circumstances.

Non-resident taxpayers now have more opportunities to claim the child deductions going forward. They can even go back to past tax filings, as family deductions fall under the limited cases of ex officio tax adjustments, that can be claimed back for up to a maximum of 5 years. Non-resident taxpayers, can have a look at their prior years taxes and can possibly claim the refund of unduly paid Belgian taxes.

Is all discrimination now out of the world? We are afraid that is not yet the case. The decision of the Court of Ghent is based on the European free movement of workers. Discrimination may therefore continue for families, with a main residence outside of the European Economic Area. It seems that they may also have a case to try to claim the child deductions, not based on European law, but on the non-discrimination principles in the Belgian Constitution.

Unfortunately, not only the law is of importance. Also the way in which the law is applied for individual taxpayers plays an important role. We note that the tax authorities nowadays have become very reluctant to accept any tax benefits for taxpayers and seek any possible opening for starting discussions on these matters. In this way, we note cases where tax inspectors are reluctant to accept tax dependent family members who are living abroad. It is indeed not always easy to prove that all conditions for the deduction are met. The children must be part of the family of the taxpayer on 1 January of the tax year (the year following the income year). They may also not have their own income exceeding certain limits, which can be difficult to prove (how can one prove the absence of income, for example).

Another important barrier against the child deduction and other family-related benefits (such as the marriage quotient) is the fact that nowadays often married or co-habitant taxpayers are without clear reasons nor motivation simply treated as single taxpayers by the tax office, if the other partner is not registered with a Belgian commune or when the marriage or co-habitation has not formally been registered with a Belgian commune. Tax inspectors often even believe that families are disrupted (“de facto separation”) when only one of the partners is living and working in Belgium, while the other family members remain abroad. This kind of rather silly discussion has only been increasing in past years. Discussions with tax officials in recent years have grown to clearly unreasonable levels, resulting in the denial of tax benefits without good reason nor proper review of all relevant facts and circumstances. This has hit numerous families in a financial way, as the personal and family related deductions can be quite significant.

A further difficult topic is the case where children are living abroad, but at a separate address of the parents due to their higher studies. Also in such cases, discrimination can easily occur in comparison with Belgian families with children, who study at universities, and who are not living in the family home on a day-to-day basis.

The good thing is that we can look forward to a long awaited change of article 245 ITC to eliminate the most obvious existing discrimination from the law and to align the legislation with the recent case law.

As mentioned above, simply changing the law is not sufficient. We are also looking much further for a different, more correct and more reasonable approach by tax inspectors on how to treat families. The current practice of denying the existence of foreign marriages and co-habitations in a purely arbitrary way is clearly in breach of fundamental taxpayer and family rights. Also, the clearly unreasonable discussions on the status of families and the situation of dependent children should in some way come to an end. As long as this will not change court cases are likely to continue to come up on such matters.