Burden of proof
Belgian residents who claim the exemption in Belgium on their salary for Luxembourg employment must prove that their activities were physically carried out in Luxembourg.
Proof can be provided by various documents such as bank extracts, time logging overviews, personal train tickets, toll tickets, fines for traffic offences, fuel bills, hotel bills, attendance lists of meetings such as an extract from the minutes, receipts, mobile phone bills showing roaming charges and so on.
In practice, many taxpayers are confronted with investigations and the Belgian tax authorities may go very far in demanding proof of physical presence in Luxembourg. Unsurprisingly, there are a considerable amount of disputes about these issues.
A recent decision by the Court of First Instance of Marche-en-Famenne (20 March 2019) shows a slight easing in the position of the Belgian tax authorities. This case ended with the agreement of the Belgian tax authorities to accept the proof of physical presence in Luxembourg based only on a statement drawn up by a colleague and an overview of fuel bills showing a significant number of refuels in Luxembourg. This agreement of the tax authorities can be understood as positive for the taxpayer on the question of the required evidence.
The significance of this agreement must on the other hand not be overstated, as the taxpayer had provided for a total of thirteen pieces of evidence in the prior administrative procedure, initially disregarded by the tax administration. It must not be overlooked that a long procedure in court was necessary to achieve this result. Therefore, the advice remains to conserve as many pieces of evidence as possible for each day, as this could significantly improve the ease with which the tax exemption can be obtained.
24-days tolerance goes up to 48 days
Another issue is the presence as such. Belgian employees working for a Luxembourg employer may not always carry-out their work in Luxembourg, as more and more people work from home to avoid long commutes and employees may have to work in a third state because of conferences, business trips, trainings, or social events.
This may have a significant effect on the tax liability in Belgium.
According the applicable double tax treaties, in principle, any working day performed outside Luxembourg is subject to tax in Belgium (except in the specific case with France).
Not only does this lead (in most cases) to a higher total tax burden, it also results in an increased administrative burden, on the on hand for the Luxembourg employer who has to be careful in the determination of the Luxembourg tax levied on salary of their Belgian employees and on the other hand for the employee. Double taxation, however, should in any case be avoided, by applying for a tax refund in Luxembourg.
The Belgian and Luxembourg governments introduced in 2015 a tolerance, the so-called "24 days rule". Thanks to this rule, Belgian employees working in Luxembourg may work outside Luxembourg for 24 days per year and still benefit from an exemption in Belgium and taxation in Luxemburg.
However, as soon as the limit of 24 days is exceeded, the tolerance is no longer applicable for the first 24 days either.
Practice shows that many employees easily spend more than 24 days per year outside Luxembourg for their job, resulting in Belgian taxation on this part of their income.
This issue may end for many cross-border workers as the ministers of finance of Belgium and Luxembourg concluded an agreement in 2019 to start new negotiations to increase the limit of 24 days up to 48 days.
If this agreement is formalised, this would facilitate tax compliance, increase legal certainty and reduce the tax burden for many cross-border workers.
It will take some time before this adjustment comes into effect. We will keep you updated.
Do not hesitate to contact our team for more information:
Katrien Bollen – Senior Associate (katrien.bollen@tiberghien.com)
Mona Vera – Associate (mona.vera@tiberghien.com)