Commission notifies Belgium of discrimination against foreign savings deposits

For the third time, the European Commission has sent a reasoned opinion (INFR(2015)4212) requesting Belgium to amend its rules regarding the exemption of interest from savings deposits. It considers that Belgium is maintaining discriminatory conditions for tax exemption of remuneration received from saving deposits.

Interest from savings deposits

Under Belgian law interest on regulated savings accounts is exempt from withholding tax up to a threshold of (currently) €980 per spouse or partner (Article 21, first paragraph, 5°, ITC 92). On any interest over €980 the withholding tax is a favourable 15% instead of 30%. This withholding tax is the final tax, the taxpayer does not need to declare the interest in his income tax return anymore. However, if the taxpayer has received interest on overseas savings accounts, he has to declare the interest in his income tax return where he can claim the reduced tax rates.

The law does not limit the exemption to savings accounts with Belgian banks, but to be exempt regulated savings accounts must meet certain conditions (article 2 Royal Decree ITC) :

• the savings deposits must be denominated in euros ;
• withdrawals can be made from savings deposits, directly or by means of a current account, only for a redemption in cash, a transfer to a personal current account or savings account of a spouse, a child or grandchild or a parent ;
• the bank must be able to require five calendar days’ notice for over €1,250 and to limit withdrawals to €2,500 per month;
• the savings account must have a double remuneration structure with a basic interest and a fidelity premium that are calculated on an annual basis and paid once a year. The fidelity premium can only be paid for deposits that are held for twelve months.
• The basic interest may not exceed 3% and the fidelity premium must be between 25 and 50% of the basic interest.

Although this favourable tax regime applies in principle to interest on foreign savings deposits, in practice the exemption is systematically refused.

The European Court of Justice has already decided twice that the exemption of part of the interest from savings deposits is contrary to the freedom to provide services (Article 56 TFEU and Article 36 of the Agreement on the European Economic Area) in cases C-383/10 (in 2013) and C-580/15 (in 2017). The Court ruled that the obligation to have a double remuneration structure appears to be "de facto specific" to the Belgian market. This could constitute an obstacle to the free movement of services. However, the Court left it to the national courts to decide whether it is.

The Belgian tax authorities continue to refuse the exemption for overseas savings accounts, and in a practice note 2020/C33 in 2020 they explained that a regulated savings deposit in another EEA Member State meets similar conditions if it ensures effects equivalent to those of Belgian regulated savings deposits and if it has the same level of requirements. However, if one of the conditions is not met (the account is not in euros or the savings account can be used to make payments, the Belgian tax authorities will refuse the exemption and the taxpayer will have to go to court. In the same practice note, the tax authorities reviewed four foreign savings accounts with banks in France and the Netherlands and concluded that none of those accounts qualifies for the regulated savings account regime.

Taxpayers have gone to court and the courts of appeal in Antwerp and Ghent have confirmed that the Belgian law is contrary to EU law, the exemption also applies to savings accounts in other European Economic Area Member States, such as the Dutch savings accounts. The tax administration does not give up easily and they have taken this to the Supreme Court. However, the court rejected the appeal for technical reasons relating to the appeals procedure (23 June 2022, nr F.20.0106.N/1, not yet published).

The infringement proceedings

On 30 October 2020, the European Commission had started infringement proceedings with a letter of formal notice. On 14 July 2023, the European Commission sent a new reasoned opinion to Belgium. The Commission considers that the Belgian tax exemption system applicable to income from savings deposits imposes discriminatory conditions for access to the Belgian banking market.

The restrictions imposed by article 2 RD ITC raise barriers for non-Belgian banks that want to attract Belgian deposits,. They may also trigger significant risks for Belgian banks that do not fully comply with those rules, not only in their contractual terms but also in the practical implementation in their systems.

With interest rates going up, more and more Belgian taxpayers may have to pay tax on their savings over the exempted threshold. And on those accounts, Belgian banks have to withhold the correct 15% withholding tax rate.

Belgium now has two months to reply to the Commission’s arguments. If it fails to convince the Commission, it risks ending up before the Court of Justice of the European Union for the third time. Presumably the government will play for time ; it is unlikely that the European Court of Justice will hand down a decision before the next federal elections in June 2024.