EC Objects To Belgian Tax Treatment Of Deposits

by Ulrika Lomas, Tax-News.com, Brussels

30 June 2009

The European Commission has sent Belgium a formal request to amend its legislation, which leads to differing taxation of interest depending on where the bank paying such interest is established.

According to the Belgian legislation, interest paid by Belgian banks to individuals is exempted from tax up to the amount of EUR1,660 whereas interest paid by foreign banks cannot benefit from the same exemption. The Commission's request takes the form of a ‘reasoned opinion’ (second step of the infringement procedure of Article 226 of the EC Treaty). If Belgium does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

Belgium offers an exemption from income tax that is only applicable to interest paid by banks established in Belgium. Belgian residents are, as a consequence, dissuaded from opening or maintaining savings accounts with banks that are not established in Belgium. The exemption is an incentive for these residents to open and maintain a savings account in Belgium and/or to repatriate their savings to Belgium. Moreover, it is also an incentive for those who already have one or several savings accounts with Belgian banks, to remain clients and not transfer their accounts to a bank which is not established in Belgium.

The Commission considers the difference in treatment between interest paid by Belgian banks and interest paid by foreign banks amounts to an obstacle to the free movement of capital within the meaning of Article 56 EC, and to the freedom to provide services within the meaning of Article 49 EC.

In the Commission's view 'the difference in treatment constitutes an arbitrary discrimination, which cannot be justified.'

Recommended