Constitutional Court judgment on tax regime for foreign occupational pensions

On 14 December 2023, Belgium’s Constitutional Court issued a judgment on the taxation of certain occupational pensions received by Belgian resident individuals but funded outside of Belgium (i.e., the employer and/or employee contributions were paid into a non-Belgian pension scheme out of foreign earnings while the employee was working outside Belgium). In accordance with the Court’s decision, as from income year 2022, foreign occupational pensions accrued prior to 2004 are taxable in Belgium if it is determined that the pension was not already actually taxed during the accrual phase, by virtue of the contributions to the scheme being treated as taxable employment income of the employee. 

Background

Historically, individuals receiving occupational pensions (under an employer-provided scheme) funded outside of Belgium prior to 2004 were able to argue that such income was not subject to Belgian taxation upon distribution. This argument was based on the notion that the pension income was already deemed taxable under Belgian tax rules during the accrual phase, even if no actual taxation took place. The argument, often applied to Dutch occupational pensions and extendable to occupational pensions from other jurisdictions or international organisations, found support in case law and legal doctrine but faced consistent challenges from the Belgian tax authorities.

In an effort to conclusively cease the application of this position, the Belgian legislator eventually amended the law in 2022, but with retroactive effect from income year 2021. 

The modification to the legislation faced significant criticism within legal doctrine, not least due to its retroactive implementation as from 2021. Additional concerns included the observation that the change did not alter the fundamental principle that, under Belgian law, the pension was considered taxable at the time of accrual. This aspect was seen as a safeguard against subjecting the pension to taxation for a second time upon distribution..

Decision of the Constitutional Court

These concerns were presented to the Constitutional Court but the Court did not annul the law, except for its retroactive entry into force as from 2021. The Court argued that the law should be interpreted in the sense that foreign occupational pensions are only regarded as taxable on distribution if no tax benefits were received during the accrual phase.

As a consequence, according to the Constitutional Court, as from income year 2022, foreign occupational pensions accrued prior to 2004 are taxable in Belgium if it is determined that the pension was not actually taxed during the accrual phase.

It remains to be seen whether other courts in Belgium will align with this position when applying the law.