USA: New US/Belgian agreement clarifies double taxation of pensions

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Welcome clarification of ‘qualified pension plans’ attracting relief from double taxation.

The US and Belgium have signed an agreement on avoidance of double taxation of pension plans.  The agreement, which clarifies the plans benefiting from the treaty provision, was published in the Belgian Official Gazette in August.

Article 17 of their treaty, which deals specifically with pensions plan, was published in 2006, and provided significant clarification to the tax regime of occupational pension plans between the two nations.  It specified that employer’s premiums and employee’s contributions to a plan can be made without immediate taxation in the assignee’s country of activity, even if the plan is established in the other country if, among other conditions, they are made to a ‘qualifying pension plan’.  Prior to 2006 there was always a risk of differing interpretation between the two countries on what constituted a (deferred tax) pension plan vs. a (immediately taxable) savings plan, a typical area of dispute being the participation of US executives in a 401(k) plan.

However, while it provided some clarification, the 2006 treaty gave no definition of what constituted a ‘qualifying pension plan’.

Under the August 2010 agreement, Belgium and the US have agreed a list of plans deemed to qualify without further examination in the other country.  It includes, for instance, the 401(k) plan in the US, and all occupational pension plans set up in Belgium in accordance with Belgian law.

This list is not exhaustive and further rulings can be requested for non-listed plans.  Reference to this agreement can also be made to request adjustment of any tax assessment made in contradiction with the above principles.

For further information or to discuss the issues raised, please contact Jean-Louis Davain
(jean-louis.davain@loyensloeff.com) on +32 2 743 4343.