Ruling on Treaty between Belgium and Netherlands
A new ruling has been made regarding the Belgium-Netherlands Income and Capital Tax Treaty (2001). On 25 January 2018, the Supreme Court made a decision regarding a professional cyclist that was employed by two Belgian cycling teams during 2007-2009. This cyclist had many races outside of Belgium; in the Netherlands, Italy, Australia, France, Luxembourg, and Spain, and in the income tax return, he requested a proportional exemption of his salary based on the days of participation in cycling races and the applicable treaty provisions.
The argument brought to court was regarding the allocation key used by the taxpayer. The Courts of First Instance and Appeal ruled in favor of the taxpayer, agreeing that allocations based solely on the races performed are a suitable allocation key. The Belgian tax administration disagreed, stating that not only was this an unsuitable allocation key but that effective taxation in the Netherlands under article 23(1)(a)of the Treaty was required in order to be able to benefit from an exemption. Therefore, the Belgian tax administration filed an appeal before the Court of Cassation. Article 23(1)(a) of the Treaty states that Belgium will exempt income other than dividends, interest, or royalties or other items of capital which are taxed in the Netherlands from taxation but may still apply the tax rate which would have been applicable if such income or item were not exempt.
The Supreme Court and the Advocate General decided to reject the arguments of the Belgian tax administration citing that an allocation key based on the days of participation in cycling races is not contrary to the law. The Advocate General clarified that an argumentum a contrario is not allowed. In laymen’s terms, it is not allowed to reallocate the competence to tax on the basis of article 23(1)(a) of the Treaty. If Belgium wished to tax items of income, for which the competence to tax is allocated to the other contracting state, it should have included a credit system in the Treaty. This decision states that there is no room for a “subject-to-tax clause” under the exemption method.