Tax Treaty Case Law around the Globe 2013

S. 305 Belgium: Taking into account foreign income for the calculation of personal tax deduction

Edoardo Traversa/Gaëtan Zeyen

1. S. 307 Introduction

In order to prevent double taxation, Belgium generally applies the exemption method with progression, as implemented in domestic law by Article 155 of the Belgian Income Tax Code. According to this article, which applies only in the presence of a double taxation convention, exempt foreign income is initially included in the taxable base and is taken into consideration for the calculation of the tax rate. Subsequently, the tax is reduced proportionally to the ratio between the foreign income and the taxpayer’s aggregate (worldwide) income. Although implementing an exemption, this second stage technically amounts to a tax credit, i.e. the tax credit for foreign income. This credit applies to items of income other than dividends, interest and royalties.

The application of the exemption method “with progression” has raised some practical issues, especially regarding the question of how tax deductions related to a taxpayer’s personal and/or family situation should be taken into consideration. The method of calculation applied by the Belgian tax authorit...