Even in the case of furnished rentals, foreign rental income may be fully taxable abroad

1. Belgian tax authorities are currently organising an audit campaign

Since 2021, online platforms, such as Airbnb, are obliged to exchange data with the Belgian tax authorities. Based on this data exchange, the Belgian tax authorities have launched a general control action.
The starting point of this action is that in the case of a furnished rental, 40% of the rental income received is taxable in Belgium as movable income anyway. It follows that the rental income received could benefit from a tax exemption in Belgium only to the extent of the remaining 60%.
Such a split is supported by Belgian tax law on the furnished rental of a property. However, the application of this split to foreign holiday homes violates double taxation treaties.

2. The position of the Belgian tax authorities violates the double taxation treaties

Indeed, these double tax treaties are based on the general principle that income received by a resident of country A from immovable property located in country B is taxable in country B. It clarifies that the expression ‘immovable property’ has the meaning attributed to it by the law of the country where the property in question is located. Finally, it is explained that ‘immovable property’ includes, in any case, the property belonging to the immovable property.

The law of the country where the property in question is located refers primarily to the internal tax law of that country. In the absence of a tax definition, a non-tax definition of that country can also be used.

Under Belgian law, for example, there is no specific tax definition of the term ‘immovable property’, hence the civil law definition must be used. According to that definition, property can be immovable by its nature, by incorporation, by its purpose or by the object to which it relates.

Authoritative legal doctrine refers to the furnishing of a residential property as an example of immovable property by destination, among others. This then confirms that if the property is rented out together with the furniture, the furniture becomes immovable by destination in order to preserve the economic unity of the operation.

A similar interpretation of the term ‘immovable property’, including ‘immovable property by destination’ is used in several (mostly civil law) European countries, including, for example, France, Spain, Italy and Portugal.

Thus, in the case of a holiday home located in one of these countries, the Belgian tax authorities will have to take into account the internal qualification in these countries of the co-rented furniture as being immovable (by destination). For the sake of completeness, reference can also be made to the clarification in the double taxation treaties that the expression ‘immovable property’ includes in any case the property belonging to the immovable property.

It then follows that rental income derived from a foreign holiday home is fully taxable in the country where the holiday home is located and must be fully exempt from taxation in Belgium (subject to progression reservation).

3. First case law in favour of the taxpayer

This position has been confirmed by a judgment concerning a furnished rental of a holiday home in Greece. Referring to Greek tax law and the double taxation treaty concluded between Belgium and Greece, this judgment confirms that Greece, and not Belgium, has tax jurisdiction over the rental income, including that generated by the furniture made available by the taxpayers to the tenants.

However, this judgment was appealed by the tax authorities, which means that the Brussels Court of Appeal will have to rule on the matter. It is common knowledge however that this Court of Appeal is facing a huge backlog of cases, which means that it will take a long time before it can deliver its judgment.

In the meantime, tax auditors are instructed to maintain their position and consequently proceed with a valuation of 40% of the foreign rental income received.

However, taxpayers facing this should not abide to this.

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