The European Court of Justice (ECJ) has ordered the Belgian state to pay a fine of €2 million for ignoring a 2018 judgement on the taxation of rental income.
The original case dealt with the way Belgium taxes income from property rental differently depending on whether the property is situated in Belgium or in another member state of the EU.
Belgium is the only member state of the union that does not tax rental income on the basis of the amount of money received, but rather on the cadastral income – a notional figure based on a number of factors such as the floor area and the estimated rent the property could achieve.
So in fact an estimated rental income is used to calculate the tax due on a real rental income, which may differ to a greater or lesser extent.
The EU Commission, which brought the original case, has no issue with what system Belgium uses within its own borders, but objected to the discrimination involved in using a different taxation calculation for properties in other countries.
A Belgian taxpayer who had rental properties in Belgium and the Netherlands, say, would then pay tax based on real income from the Dutch property, and another tax based on cadastral income from the Belgian property, which is likely to be less, as cadastral incomes are still based on 1975 rents, albeit indexed annually. Meanwhile real rents have risen more steeply.
The ECJ in 2018 agreed, and Belgium was ordered to bring its legislation into line with the ruling as soon as possible.
After a year, nothing had been done, and the Commission brought the case back to the court, asking for a fine of €2 million and a further penalty of €22,000 for every day the order was not carried out.
The ECJ has now handed down its judgement. Belgium will be fined €2 million, but the daily penalty has gone down to €7,500.
“The reason for this is that this is, all in all, a limited problem,” said Stefaan Van der Jeught, a spokesperson for the Court.
“Only 1.6% of Belgian tax returns mention foreign real estate. Nor does the Court say that Belgium should abolish the way in which rental income is taxed domestically. It just points out that it must be the same at home and abroad.”
A spokesperson for federal finance minister Vincent Van Peteghem said the government would give its response “in a few weeks,” once it had studied the judgement.
However the government faces a dilemma. Taxing foreign rental income on the basis of cadastral income would be a nightmare to implement, given the difficulty of finding out that information.
The other option, meanwhile, would be to tax property owners based on real rentals, which would almost certainly mean asking them to may more tax.