Date of publication: 15/10/2018
Will there be soon an update of the mutual agreement (accord amiable) of 16 March 2015 to the Belgium – Luxembourg Tax Treaty?
With the development of information and communication technologies, teleworking is a good solution to solve many problems encountered by employees and employers, as well as to solve more global issues: pollution, global warming, stress, traffic jam, car crashes, balance between private and working life, workspace, parking, etc.
Luxembourg authorities are aware of this issue, however, due to tax issues, this solution cannot be implemented for Belgian residents working for Luxembourg employers because they are currently not authorized to work outside Luxembourg for more than 24 days per year to ensure that their salary paid by their Luxembourg employer remains fully taxable in Luxembourg and exempt in Belgium.
This limit of 24 days per year was adopted in 2015 between the Luxembourg and Belgium authorities in a mutual agreement (signed between parties on the basis of Article 25, §3 of the tax treaty of 1970) and was a (small) relief at this time because, without this measure, the salary of a Belgian resident connected to any working day performed outside Luxembourg for his Luxembourg employer would have been subject to tax in Belgium.
However, this limit of 24 days is clearly not sufficient. Many Luxembourg employees pass easily more than 24 days per year outside Luxembourg for their job (not only because of teleworking, but also just because of conferences, business trips, trainings, social events, etc.) and thus suffer Belgian income taxes on their salary in connection with these days.
As you can imagine, the problem encountered by Belgian residents in this situation is not their unwillingness to pay Belgian taxes instead of Luxembourg income taxes on this portion of their salary, but the real issue is uncertainty. The problem is indeed mainly focused on the unpredictability of the situation: what will be their tax status at the end of the year? Will they, finally be subject to the Belgian or Luxembourg regime and in what portion? In addition, the administrative work to which Belgian residents in this situation are subject is very burdensome: how proving their presence in Luxembourg (especially when Belgian authorities challenge previous years), what proportion of the salary is subject to Belgian tax, what about sickness leave, how preparing the tax returns, how arranging for the refunds of Luxembourg taxes if any, etc.
Luxembourg employers must also be very careful in the determination of the Luxembourg tax levied on salary of their Belgian employees. They must deal with even more administrative work to ensure they strictly comply with their tax obligations and do not levy more Luxembourg income tax than effectively due.
The situation also has an important impact on the Luxembourg tax authorities in terms of public finance and increase of their daily work. They receive more and more requests from Belgian residents, who are challenged by the Belgian administration for tax years they thought closed, in order to obtain the reimbursement of old Luxembourg income taxes levied on their salary, whereas the right to tax this salary was claimed by Belgium under the Luxembourg-Belgium double tax treaty.
It seems that increasing the limit from 24 to 69 days per year would solve quite some problems and would provide for a predictable situation for a lot of employees. For quite some Belgians it would reassure their tax situation in Luxembourg.
In addition, if they comply with this new limit of 69 days, Belgian resident under employment agreement in Luxembourg should also avoid social security issues. Indeed, based on the Regulation (EC) 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems, a person who normally pursues an activity as an employed person in two or more Member States shall be subject to the legislation of the Member State in which the registered office or place of business of the undertaking or employer employing him is situated, if he does not pursue a substantial part of his activities in the Member State of residence. In the framework of this legislation a substantial part of one’s activities is being considered as representing more than 25% of one’s working time or more than 25% of one’s salary. If a Belgian resident employee, who is subject to Luxembourg social security, spends maximum 69 days outside of Luxembourg for professional reasons, such should not affect his (Luxembourg) social security regime on the condition that amongst these days “foreign days” (from a Luxembourg perspective), the “Belgian days” are not exceeding the 25% ceiling of the “substantial part”-definition. Passing this threshold would otherwise make Belgium the competent state for social security. An employee who would be in that situation would remain taxable in Luxembourg, but would be subject to Belgian social security.
We understand that this change, proposed by the Belgian authorities, could be adopted as from January 1st, 2019 and we have no reason to believe that the Luxembourg authorities will not accept this proposition since it will also have a positive impact on the situation of Luxembourg.