On July 1st, 2010^[1], the European Court of Justice ruled that the levying of local tax on income from capital collected by Belgian citizens on a foreign bank account is in conflict with free trade of capital within Europe.

Principle
Belgian municipalities usually levy a supplementary tax on top of the income tax due by Belgian residents. The local authority where the tax payer has his/her tax domicile, levies this tax at a rate varying per commune between 0% and 9.5%, calculated on the income tax.

When a Belgian resident collects income from capital (such as interest and dividends) on a Belgian bank account, the bank withholds the Belgian tax in advance. This relieves the Belgian resident from reporting this income on his/her tax form and from paying local tax through the assessment of his/her income tax.

When a Belgian resident collects income from capital (such as interest and dividends) on a foreign bank account, the income needs to be declared in the Belgian tax declaration form. Tax is paid through the assessment of personal tax at rates equal to the tax withholding increased with local tax.

The choice to use a foreign bank account thus leads – in accordance with the Belgian legislation - to a higher taxation, equal to the local tax (irrespective of any prefunding issue).
 
Decision of the Court of Justice – Violation of free trade of capital
The European Court of Justice has ruled on July 1, 2010, that a disparaging tax treatment of Belgian residents depending on whether the income from capital is collected on a Belgian or foreign bank account, is in conflict with the guaranteed free trade of capital within Europe (according to article 56 of the EC-treaty). 

Right to re-claim
In principle, the possibility to reclaim such local tax can be made within 5 years. 
 

Contacts
Jean-Louis Davain
T +32 2 743 43 45 – jean-louis.davain@loyensloeff.com

Saskia Lust
T + 32 2 700 10 32 – saskia.lust@loyensloeff.com

^[1]HvJ 01/07/2010, C 233/09 (Gerhard Dijkman, Maria Dijkman-Lavaleije/Belgische St.)