On 30th October 2012, the Belgian Constitutional Court (Grondwettelijk Hof/Court Constitutionelle) gave its decision in Xavier Deceunick and Stéphanie Coquard v. Belgian State (Case No. 5054) on the constitutionality of the retroactive effect of the 2008 protocol to the Belgium-France DTAA (“the Protocol”), with respect to the municipal surcharge. A preliminary ruling was requested by the Court of First Instance Bergen on 23th January 2012. Details of the case are summarised below:
(a) Facts:
The taxpayers were both residents in Belgium in 2008. One of the Taxpayers was a frontier worker who received employment income from France. Based on the Protocol, which became effective on 1st January 2010, the French employment income was included in the taxable base for the calculation of the municipal surcharge. Because several provisions of the Protocol for frontier-workers applied retroactively from 1st January 2009, the tax administration imposed municipal surcharges on the employment income derived in 2008, because it was taxed in the assessment year 2009. The Taxpayer reasoned that the retroactive effect was incompatible with the non-discrimination principle of articles 10 and 11 and 172 of the Belgian Constitution.
(b) Article 1 of the Protocol provides that employment income derived by frontier-workers is taxable in the source state. Articles 2 and 3 of the Protocol provide that:
• employment income derived by a Belgian resident in France, may be included in the taxable base for the municipal surcharge, which is in Mayur Nayak Tarunkumar G. Singhal, Anil D. Doshi Chartered Accountants International taxation line with article 466 of the Belgian Income Tax Act; and
• the Protocol will have retroactive effect from 1st January 2009.
(c) Decision: The Court observed that the retroactive effect creates legal uncertainty and therefore, only can be accepted if it can be justified by overriding reasons in the general interest. The Belgian government stipulated that it was necessary to include foreign employment income derived by frontier workers in the tax base for the municipal surcharge to decrease the financial problems of Belgian municipalities located in the frontier zone.
In the Explanatory Memorandum to the Protocol, it was indicated that it would be applied to income derived in the tax year 2008 (assessment year 2009). The Court held that the retroactive imposition does not disproportionately infringe the Taxpayer’s rights. The Court based its view on the fact that:
• taxpayers were sufficiently informed about the Protocol when it was signed; and
• taxpayers in France are taxed at a lower rate than in Belgium.
Consequently, the Court held that the retroactive effect of the Protocol was not unconstitutional.
Note: The decision deviates from a decision of the Court of First Instance (Gerecht van Eerste Aanleg) Leuven of 6th April 2012, in which it was decided that municipal surtax was due on income derived in the year that the 2008 protocol became effective. Article 167(2) of the Belgian Constitution regulates that Belgian tax treaties and protocols can only take effect after ratification. The decision of the Court of First Instance Leuven ignores the fact that contracting states often agree that a treaty or protocol should have retroactive effect. Nevertheless, it can be argued that the decision of the Court could be correct because article 3 of the Protocol provides that it will only take effect from 1st January 2009. Therefore, it can be reasoned that it was not the intention of the contracting states that the protocol applies to foreign employment income derived in 2008.
