Taxation: Commission decides to refer BELGIUM to the Court of Justice of the European Union for failing to comply with the free movement of workers principle as regards taxation of non-resident taxpayers
Today, the European Commission decided to refer Belgium to the Court of Justice of the European Union for its failure to comply with the Treaty principle of free movement of workers, as regards taxation of non-resident taxpayers with modest income.
In its judgment of 10 March 2022 (European Commission v the Kingdom of Belgium, Case C-60/21) the Court found that Belgium infringed the Treaty by refusing non-resident taxpayers who earn less than 75% of their worldwide income in Belgium from deducting their alimony payments from their taxable income. Deduction is refused in Belgium even when the taxpayers have no significant taxable income in their State of residence, making it impossible to deduct payments from their taxable income in that State.
In response to the 2022 judgment, Belgium extended the personal scope of the tax deduction. However, it did not eliminate the infringement in its entirety. The new legislation introduces two conditions, which appear to unduly restrict the availability of the benefit for non-residents with modest income.
First, the deduction cannot be carried forward to future tax years in the state of the taxpayer's residence. The unavailability of a similar relief in the other state should, however, be considered for the same tax year in Belgium and the other Member State.
Second, the amending legislation refuses the tax deduction if the taxpayer's spouse could avail themselves of a similar benefit in another state in future periods. By bringing the taxpayer's spouse into the comparability analysis, the amended legislation expressly contradicts the Court's judgment in Case C-60/21, which concerns discrimination of non-resident taxpayers, and not their spouses.
Background
In the context of a broader compliance exercise covering all EU Member States, the European Commission decided to open an infringement procedure against Belgium by sending a letter of formal notice in May 2016. Since then, and despite the Court's judgment in March 2022, Belgium has still not sufficiently addressed the grievances and is now the last EU Member State where a compliance issue on this matter persists.
Following a letter of formal notice sent in July 2023 as a last attempt to bring the Belgian legislation in line with the Court's judgment, the Commission decided today to refer Belgium for a second time to the Court, requesting financial sanctions for the failure of bringing the national legislation in compliance with EU legislation.
If the Court finds that Belgium has not complied with its previous judgment, it may impose financial sanctions.
For More Information
Infringement decisions database