ECJ Slams Belgium's 'Discriminatory' Savings Tax Perk
10 June 2013
Posted by: Author: Ulrika Lomas
Author: Ulrika Lomas
The European Court of Justice (ECJ) has found that Belgium's regime of granting tax exemption to savings account interest payments made by resident banks, and not to those made by non-resident financial institutions, is "discriminatory."
Article 21 of Belgium's Income Tax Code provides that income from capital and from moveable property shall not include the first tranche of EUR1,880 (USD2,485) per year of income from savings deposits received by credit institutions established in Belgium.
The ECJ ruled that the system constitutes a restriction on the free movement of capital and services under articles 56 and 63 of the Treaty on the Functioning of the European Union (EU).
The Court rejected Belgium's claim that the regime is vital for ensuring the effectiveness of fiscal supervision, arguing that Belgium now participates in the information exchange system of Directive 2003/48, which specifically enables the risk of tax evasion to be considerably reduced.
Furthermore, the ECJ ruled that the Commission had correctly observed that the risk of tax evasion "also exists in the situation where a taxpayer has two or more savings accounts with a bank established in Belgium and therefore in a purely domestic context."
The Commission argued: "Since taxpayers enjoy anonymity in relation to interest from a Belgian savings account, it would be sufficient, in order to be able to take advantage of the exemption at issue several times, that the taxpayer entrust his savings to several different banks. It follows from this that the risk of evasion or abuse, relied upon by the Belgian Government, is inherent in the national system of exemption and does not depend on the existence of a cross-border element."
The European Commission launched an infringement procedure against Belgium back in 2010. The Commission insists that the Belgian legislation infringes EU legislation as it has the effect of discouraging Belgian residents from using, for the management of savings accounts, the services of banks established in other member states of the European Union or in states, which are parties to the European Economic Area Agreement.
The Commission maintains that interest payments by such banks can never be exempt on the sole grounds that the debtor bank is not established in Belgium, even though that bank is able to fulfil the other conditions laid down in the Belgian legislation in question.
Commenting, the Belgian Finance Ministry underlined that need for the Government to "analyse in detail" the ECJ's ruling, before adopting its position. The Ministry explained that the consequences of the decision appear simple, namely that the tax regime applicable to savings account interest will have to be identical in future, irrespective of whether or not the interest is paid out by Belgian banks or by European banks, and whether or not they have a branch in Belgium. This will allow savers complete freedom when choosing where to invest their savings, the Ministry ended.
However, another alternative does exist, namely to repeal the regime altogether. Indeed, last month Belgium's Finance Minister Koen Geens called for an end to a highly popular savings tax break.
At the time, Finance Minister Geens insisted that savings account investments in Belgium are currently too heavily subsidized by the state. The Minister therefore advocated that the withholding tax exemption applicable to such accounts be abolished and that a withholding tax of 15 percent be imposed on classic savings accounts.
It is estimated that EUR240bn is currently invested in savings accounts in Belgium.