It is a principle of international law that, if an international institution is established in a country, its officials cannot be subjected to the local legislation in respect of their work and of their remuneration.
To formalise this, the institution signs a convention with the State where it establishes its seat and in that convention they agree on the privileges and the immunity granted to the institution and its officers. One or two of the provisions of that convention deal with the tax situation of the officers.
Usually these provisions grant a tax exemption for income received from the institution. However, they also provide that Belgium can take account of the tax exempt remuneration and wages to calculate the tax due on any income received that is liable to tax in Belgium. This is a so-called 'exemption with progression' provision. It means that if the official has other income that is taxable in Belgium, this can be taxed at the hypothetical tax rate that would apply on his total income, including the income that is tax exempt.
Until recently, officials could (and did) claim that, even if Belgium had reserved itself the right to tax the other income at the higher rates, there was no legal basis for doing so in the Belgian law. The principle of the exemption with progression is laid down in article 155 of the Income Tax Code, but this article stated that income exempted under an international double tax treaty, must be taken into account to calculate the tax rate on any taxable income.
The Cour de Cassation, Belgium’s Supreme Court, confirmed that article 155 must be read correctly. It only applied to an exemption with progression under double tax treaties. Even if it contains a tax provision, the treaty signed with the international organisation is not a double tax treaty.
However, Parliament has changed the text of Article 155 and with effect from 1 January 2005, Belgium can take account of official's exempt income to calculate the tax due on any other income that is liable to tax in Belgium.