Liège Court of Appeal upholds Belgium-France mutual agreement on government services rendered by persons having dual nationality

On 13 April 2016, the Liège Court of Appeal rendered a decision (2013/RG/804) in respect of article 10, (government services) of the Belgium – France Income tax treaty (1964), as amended through 2009 (the treaty) and, in particular, in respect of the scope of the mutual agreement of 5 March 2009 entered into by the Belgian and French governments.

(a) Facts. The taxpayer, who has both the French and Belgian nationality, is a frontier worker, residing in France. He works as a male nurse for a regional Belgian hospital (Centre Hospitalier Régional de Tournai).

The taxpayer argues that his remuneration is solely taxable in his state of residence (France) because, first, he is a frontier worker, second, the regional hospital is not a legally independent public body, and third, if he would be rendering government services, the remuneration would not be taxable in Belgium because he has also the French nationality.

(b) Legal background. Subject to the provisions of Articles 9, 10 and 13 of the treaty, the Additional Protocol on Frontier Workers in respect of article 11 of the treaty (income from employment) provides (as a grandfathering clause) that remuneration derived by a French resident who performs his activity in the frontier zone of Belgium and who has a permanent home in the frontier zone of France shall be taxable only in that State.

Article 10(1) of the treaty provides that remuneration paid by one of the Contracting States or a legal entity, organised under the public law of that State, which does not carry on industrial or commercial activities, shall only be taxable in the said State. This provision may be extended by reciprocal agreement to the remuneration of the personnel of legally independent public bodies or institutions set up or controlled by one of the Contracting States or by a province or local authority of that State, even if the activities which such bodies or institutions carry on are of industrial or commercial nature (article 10(2)).

Notwithstanding the above, the provisions of article 10(1) and (2) shall not apply where remuneration is paid to residents of the other State who are nationals of that State (article 10(3).

Hence, the question arises as to which treaty article – article 11 of the treaty (employment income) as the umbrella article or article 18 of the treaty (other income) – applies to remuneration for government services rendered by nationals of the other state.

In order to avoid situations of double on non-taxation, and due to a decision of the French Council of State of 9 November 1987, Belgium and France have entered into a mutual agreement on 5 march 2009. In particular, the governments agreed that instead of the provisions on employment income, the other income provision (article 18 of the treaty) applies to remuneration for government services rendered by persons having the nationality of the state of residence.

However, in respect of persons having the double nationality, the mutual agreement explicitly confirm the prior practice that the remuneration of persons having the nationality of the paying state remains governed by the provisions of 10(1) and 10(2) even if they have the nationality of the other state.

(c) Issue. The issue is whether the remuneration paid by a Belgian public entity to a French resident, having both the French and Belgian nationality, is taxable in Belgium.

(d) Decision. The Court began by observing that, although the taxpayer is a frontier worker, article 11 and the Additional Protocol on frontier workers only applies if, among others, article 10 of the treaty does not apply.

It subsequently, while referring to the general rules on treaty interpretation and mutual agreement procedures, analyses the provisions of article 10 of the treaty and the mutual agreement of 5 March 2009 entered into by the Belgian and French governments. Basically, the court acknowledge that, as stated in the mutual agreement, it has been the intention of Belgium and France all along that the competence to tax remuneration from government services rendered by persons having both the French and Belgian nationality remain governed by the provisions of article 10(1) and (2), and are thus taxable in the contracting state which is paying out the remuneration.

According to the Court, the provisions of article 10(1) and (2) of the treaty do apply. It is of the opinion that, referring to among others a decision of the Court of Cassation of 4 September 2015 (Belgium, News 30 August 2016) and a decision of the Council of State of 9 June 2000, the employer of the taxpayer, the regional hospital, is clearly a legal entity organized under the public law of Belgium. The fact that it carries out some industrial or commercial activity does not change its status.

Consequently, the Court decided in favour of the tax administration and held that the remuneration of the male nurse is taxable in Belgium.

(e) Note. Case law demonstrates (for instance recently Namen Court of First Instance, 7 January 2016) and scholars have stated at various occasions that mutual agreements, which alter the scope of a treaty, are only binding if ratified by the parliament.

Given the fact that the mutual agreement of 5 March 2009 has not been ratified by the Belgian parliament and that it clearly adds an additional condition (not having the double nationality) to the provision of article 10(3) of the treaty, this case is undoubtedly a case for the Court of Cassation, which already has ruled in a similar matter that such agreements are not binding (Court of Cassation, 2 May 2002).

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