Tax on Savings Income Revisited

In a country where 15% of all income earned by families in 2013 was transferred to savings accounts ("Regulated Savings Accounts"), the tax rules applicable to such income is a hot topic. In this respect, both the Belgian Constitutional Court and the Court of Justice of the European Union ruled on the current legislation in 2013. Recently, proposals have been discussed to bring the Belgian legislation into line with both the EU fundamental freedoms and the Belgian Constitution.

Current rules

There are two particularities of the taxation of income from Regulated Savings Accounts:

(i) the first EUR 1,900 (for income year 2014) is not subject to withholding or income tax;

(ii) income exceeding this threshold is taxed at a special rate of 15% (while other movable income is in principle taxed at a rate of 25%).

Regulated Savings Accounts found to breach European law

After having warned Belgium on 26 June 2009, the European Commission filed proceedings on 26 July 2010 with the Court of Justice of the European Union. On 6 July 2013, the Court ruled that Belgium had failed to fulfil its obligations under applicable EU law by introducing and maintaining a system which results in discriminatory taxation of interest payments by non-resident banks, due to a tax exemption for interest payments reserved to Belgian banks.

Immediately after publication of the decision, Minister of Finance Koen Geens stated that the tax treatment of interest income should be the same, regardless of whether the interest is paid by a Belgian bank or a bank established in another EEA Member State.

Possible solutions proposed included: (i) abolishing the favourable tax treatment of Regulated Savings Accounts; (ii) extending the favourable tax treatment to similar savings accounts in the European Economic Area; (iii) extending the favourable tax treatment to amounts exceeding the tax-free threshold; and (iv) extending the favourable tax treatment for interest payments exceeding the tax-free threshold to all interest payments.

Regulated Savings Accounts also found to violate the Belgian Constitution

The third solution proposed would be in line with the position of the Belgian Constitutional Court, which referred a request to the Court of Justice for a preliminary ruling, in particular with respect to the 15% tax rate on interest income exceeding the tax-free threshold. The Constitutional Court subsequently decided to retract its request and ruled on 23 January 2014 that applying a special 15% tax rate to interest income exceeding EUR 1,900 violates the Belgian Constitution. The court's judgment also has consequences for interest payments received in 2012 and 2013. A quick solution should be found.

For each issue, its solution: proposed legislation

During a recent plenary session of the Belgian Senate on 20 February 2014, the finance minister expressed his intention to take two measures. Firstly, he proposed extending the current EUR 1,900 exemption to interest received on similar savings accounts in the European Economic Union. A bill is currently being drafted in this regard but is not yet available. Secondly, the minister proposed amending Belgian law in order to ensure that the special 15% tax rate on interest income exceeding EUR 1,900 can be maintained.

If the finance minister does not succeed in his efforts, additional taxes will be due by taxpayers who receive(d) more than EUR 1,900 in interest payments in 2012 and 2013, as well as in the future. A bill in this respect has been announced, but no text is available yet.

For the sake of completeness, it should be noted that the finance minister originally wished to extend the EUR 1,900 exemption on income from Regulated Savings Accounts to all types of interest and dividends. Indeed, the National Bank of Belgium warned the finance minister in July 2013 that more capital should be invested in other types of financial instruments. However, as the reform will be a political compromise, it is more likely than not that the exemption will continue not to apply to other types of investment income. We will keep you informed of any legislative developments in this respect.