Confusion grows over ‘subject-to-tax’ rule for foreign-sourced income exemptions in Belgium
18 Jul 2025
The Belgian Supreme Court has recently issued two important judgments concerning the interpretation of the ‘subject-to-tax’ condition under Belgium’s double tax treaties. These rulings specifically address the application of this condition in the context of treaties concluded with the Democratic Republic of Congo (BE-Congo DTT) and the Netherlands (BE-NL DTT).
What is at stake?
Under most of Belgium’s double tax treaties, Belgian residents working abroad may exempt their foreign-sourced income from Belgian taxation, provided that this income is ‘taxed’ in the other contracting state. The interpretation of what constitutes ‘taxed’ income has long been debated. Traditionally, the so-called exemption-vaut-impôt doctrine has been applied, under which income is considered ‘taxed’ if it falls within the scope of the foreign tax regime, even if it is ultimately exempt under that regime. In its recent ruling concerning the BE-NL DTT, the Supreme Court reaffirmed this traditional interpretation. However, in the case involving the BE-Congo DTT, the Court appeared to depart from this approach.
These divergent decisions have reignited debate, including in recent parliamentary questions, and raise significant practical considerations for Belgian taxpayers earning cross-border income.
Supreme Court’s decision on the BE-Congo DTT: a context-specific approach
In a decision dated 24 October 2024 (Cass. 24/10/24, F.20.0108.N), the Belgian Supreme Court considered the interpretation of Article 22, § 2, a) of the BE-Congo DTT. The Court held that income sourced from Congo by a Belgian resident is only exempt from Belgian taxation if it has been effectively taxed in Congo. The case concerned a Belgian-resident teacher employed by a Belgian non-profit association who had worked in the DRC. Although the income was sourced from Congo, it had not been effectively taxed there, based on an agreement between the Belgian and Congolese authorities (rather than under domestic Congolese law). As a result, the exemption under the treaty was denied.
In reaching its decision, the Court relied on the treaty’s Protocol, which refers to the OECD Commentary and recognises that contracting states may deviate from the general obligation to exempt foreign-sourced income to prevent situations of non-taxation. The Court also referred to the preparatory parliamentary works of the Belgian approval Act of the DTT, which explicitly require effective taxation in the source state for the exemption in Belgium to apply.
(In)consistency with previous decision?
By contrast, in its earlier decision of 26 October 2023 (F.21.0137.N), the Supreme Court reaffirmed its traditional exemption-vaut-impôt doctrine in the context of the BE-NL DTT. It held that effective taxation in the source state is not required: it is sufficient that the income is subject to the foreign tax regime. The key distinction lies in the treaty context, which determines the interpretation of a double tax treaty. Unlike the BE-Congo treaty, the context of the BE-NL treaty (prior to its amendment by the Multilateral Instrument (MLI)) did not include language requiring effective taxation to avoid non-taxation or reference to OECD commentaries.
Nevertheless, the matter remains far from settled.
Position of the Minister of Finance
Regarding the Supreme Court’s decision of 26 October 2023, the Minister of Finance confirmed, in response to a parliamentary question, that the Belgian tax authorities would follow the Supreme Court’s position.
After the Supreme Court’s decision of 24 October 2024, the Minister of Finance was questioned in Parliament about whether all Belgian tax treaties should be interpreted in light of the OECD Model and its underlying aim to prevent double non-taxation. The Minister confirmed that the OECD Commentaries form part of the interpretative context of Belgium’s tax treaties. He also noted that most Belgian treaties have been amended by the MLI to implement measures aimed at preventing base erosion and profit shifting. The Minister emphasised that, in line with the new MLI preambles, treaty provisions – including subject-to-tax clauses – should not be applied in a manner that results in double non-taxation, particularly in cases involving tax avoidance or evasion.
However, it is noteworthy that the Supreme Court’s interpretation in the BE-Congo case, while aligned with the OECD Commentary, did not require the presence of tax avoidance or evasion to deny the exemption. This nuance highlights the evolving complexity of treaty interpretation and the importance of closely examining the specific language and context of each treaty.
A nuanced perspective on the ‘exemption-vaut-impôt’ doctrine
While neither the Supreme Court’s decision in the BE-Congo case nor the Minister’s statements can be seen as a rejection of the exemption-vaut-impôt doctrine, they do demonstrate that its application is far from absolute. Its application is increasingly dependent on the specific wording and context of each treaty, as well as the anti-abuse objectives now embedded in many treaties through the MLI and OECD guidance.
The exemption-vaut-impôt doctrine must therefore be assessed on a case-by-case basis. Exceptions or limitations may arise depending on the circumstances and the applicable treaty context, underscoring the need for careful treaty analysis in cross-border tax matters.
What this means for you
The growing complexity of international tax treaties – particularly under the influence of the MLI and OECD guidance – makes a tailored review of your cross-border tax position essential. The specific wording of each treaty, the presence of any effective taxation requirements and the broader anti-abuse objectives must all be carefully considered to navigate potential risks and avoid disputes.
Our team can assist tou with:
analysing your situation under specific tax treaties;
assessing the impact of the MLI on your cross-border activities;
ensuring compliance with evolving tax treaty interpretations;
resolving potential disputes related to treaty exemptions.
For clarity on your cross-border tax obligations, to evaluate the impact of recent developments, or in the event of disputes with the tax authorities regarding the application of treaty benefits, do not hesitate to contact us for tailored advice and legal assistance.
Authors: Véronique De Brabanter & Tibo Gisquiere
Contact us
Tibo Gisquiere
