Constitutional Court: Treaty differences in the taxation of international truck drivers not discriminatory

On 29 November 2018, the Constitutional Court (Cour Constutionelle/Grondwettelijk Hof) gave its decision in the case of Mr. x and Mrs. y v. Belgian State (No. 6654 (163/2018)). The decision is based on a preliminary ruling request from the Liège court of first instance. Details of the decision are summarized below.

(a) Facts. Mr. x, married to Mrs. y, and both Belgian residents, was an international truck driver. He was employed by a Swiss company and had a Swiss driver’s license. In his personal income tax return related to income years 2011, 2012 and 2013, he requested a full exemption for his employment income based on article 15, §3 of the Belgium – Switzerland Income and Capital Tax Treaty 1978.

The tax administration disagreed and allowed only an exemption based on the “physical presence test” (2010, 84 days on 231 days, 2011, 42 days on 233 days and 2013 no exempt days because during that year Mr. x was incapacitated).

Mr. x and Mrs. y felt this physical presence test, requiring Mr. x to keep track of his presence in each country where he exercises his employment, to harm the principle of legal certainty and, furthermore, discriminatory given the fact that international truck drivers under the Belgium – Luxembourg Income and Capital Tax Treaty 1970 are solely taxed in the country where the employer is established (less burdensome) .

Given this argument, the Liège court of first instance requested that the Constitutional Court rule whether a difference in tax treat treatment, i.e. between the situation where the employer of an international truck driver is established in Switzerland or in Luxembourg and between the situation where the employee is employed as a truck driver or employed aboard of a ship or airplane, is compatible with articles 10 and 11 (non-discrimination) of the Constitution.

(b) legal background. Article 15, §3 of the Belgium – Luxembourg treaty states that “remuneration derived in respect of an employment exercised aboard a ship, aircraft or rail or road vehicle in international traffic, or aboard a boat engaged in inland waterways transport in international traffic, shall be deemed to relate to activities exercised in the Contracting State in which the place of effective management of the enterprise is situated and may be taxed in that State”.

Employment exercised aboard a road vehicle in international traffic is, however, not covered in article 15, §3 of the Belgium – Switzerland Income and Capital Tax Treaty 1978. Under this treaty, the competence to tax employment income of international truck drivers is governed by the physical presence test provided for in its article 15, §§1 and 2.

(c) Decision. The Constitutional Court ruled that the difference in tax treatment between employment aboard ships or aircrafts, on the one hand, and trucks or trains, on the other hand, is  not disproportional and reasonably justified given the fact that Belgium and Switzerland decided to align the taxation of employment on ships and aircraft with the taxation of the profit derived from shipping and airline activities (article 8 of the Belgium – Switzerland Income and Capital Tax Treaty 1978). The courts refers extensively to the commentary to the OECD-Model Convention and the fact that the 2017 Model contains the rule that the residence state has the competence to tax income from employment in international traffic.

It also ruled that the difference in tax treatment of international truck drivers resulting from the applicable treaty is the result of the negotiations held between the contracting parties, culminating into an international treaty to which Belgium is bound under international law.

Said treaties provide rules to avoid double taxation and to mitigate taxation which is not in conformity with the treaty (article 26 of the Belgium – Switzerland Income and Capital Tax Treaty 1978).

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