Court of Cassation: Pension of Dutch school teacher taxable in Belgium

On 19 April 2018, the Belgian Court of Cassation (Hof van Cassatie/Cour de Cassation) rendered a decision (Case No. F.16.0062.N/1) on the issue whether article 19, §2 of the Belgium-Netherlands Income and Capital Tax Treaty (2001) (as amended through 2009), governing the competence to tax pensions derived from government services, applies to civil servants only.

(a) Facts. The taxpayer, a Belgian resident obtained a pension from the National Civil Pension Fund  (“Stichting Pensioenfonds ABP“), frequently referred to as ABP and the pension fund for government and education employees. He had been employed by a Dutch school, a private institution, which was financed by the Dutch state.

The taxpayer claimed that Belgium must exempt the income because his pension was financed by the Dutch State. The taxpayer referred to the decision of the court of Cassation of 4 March 2004 in respect of the same provision under the old Belgium – Netherlands Income and Capital Tax Treaty (1970). He argued that under the new Treaty the scope of the allocation provision has not changed. A broad definition of “government services”, including private employment, should, based on the decision of 4 March 2004, be applied.

The Belgian tax administration disagreed. Pursuant to clause 23 of Protocol I, the new Treaty has a limited scope. It only applies to civil servants. Hence, pensions build-up in the frame work of a private employment are governed by article 18, §1 of the Treaty.

(b) Legal background. Article 19, § 2, (a) of the Treaty provides that “Pensions paid by a Contracting State or one of its political subdivisions or local authorities, either directly or out of funds created by them, to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State”.

This provision is further qualified by clause 23 of Protocol I, stating that a pension arising in the Netherlands falls under its the scope “insofar as the right to this pension was established within the framework of paid public employment, irrespective of the debtor of this pension”. If partly established in the framework of paid private employment and in the framework of paid public employment, articles 18 and 19 are proportionally applicable.

(c) Issue. The issue was whether the allocation of the competence to tax pension income under article 19, §2 of the Treaty is based on a formal criterion, i.e. having the status of civil servant (public employment).

(d) Decision. Referring to article 31.4 of the Vienna Convention of 23 May 1969 on the Law of Treaties (“A special meaning shall be given to  a  term  if  it  is  established  that  the  parties  so  intended”), the Court ruled that it must be concluded from clause 23 of Protocol I that Belgium and the Netherlands have given a special meaning to the term “pensions paid in the context of governmental functions within the meaning of Article 19.2 “in particular when the persons receiving the pension originate from the Netherlands: only pensions accrued as civil servants (i.e. during a public law employment) can, according to the Protocol, fall under the scope of Article 19, §2 of the Treaty.

Pensions build-up in the framework of a private employment are explicitly excluded, even if the pension is being paid by the government or by a fund established by the government

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