Summary
In a decision issued on 2 September 2025 (Ruling Nr. 2025.0487), the Belgian Ruling Office has provided further guidance on how taxing rights over a severance payment must be allocated when an employee has worked in more than one country under the same employment relationship. The ruling examines the interaction between Belgian domestic tax rules, the Belgium–France double tax treaty, and the OECD Commentary on termination payments.
Background
The taxpayer, a Belgian resident at the time of termination, entered into an employment contract with a French company in 1994. In 2017, he was seconded to the Belgian subsidiary under an addendum that explicitly confirmed that he remained employed by the French entity, which retained sole authority to amend or terminate the contract. His original remuneration package continued to apply, and the entire period spent abroad was fully credited for seniority purposes.
During his secondment, the employee carried out his duties partly at the Belgian subsidiary (3 days per week) and partly from his home (2 days per week). Several supplementary agreements extended the secondment through February 2025. In January 2025, the parties executed a termination agreement, governed by French labour law, which took effect in February 2025.
The severance payment was calculated based on the employee’s full seniority of 30 years and 8 months, as well as his average remuneration over the last three months of employment. The French company bore the financial burden of the termination package.
As the employee intended to remain in Belgium after the termination, the question arose as to how the severance payment should be taxed: exclusively in Belgium as the state of residence, or allocated between Belgium and France according to the period worked in each jurisdiction.
Ruling Office’s Analysis
The Ruling Commission first reiterated the distinction in Belgian tax law between (i) payments compensating a notice period, and (ii) severance payments that do not relate to such a period.
For compensation that effectively replaces a notice period, the taxing rights lie with the state where the employee would normally have worked during the notice period. However, when the payment is linked to past service and calculated on the basis of career-long seniority (non-compensatory), the situation is different.
Referring to the OECD Commentary, the Ruling Office stressed that severance payments not compensating a notice period are typically attributable to the period of employment to which they relate. While the OECD mentions a rebuttable presumption that the relevant period is the 12 months preceding termination, this presumption falls away when the facts clearly show that the payment is linked to the entire period of service. In this case, the payment explicitly covered more than 30 years of employment, as confirmed in the termination agreement and under French labour law.
Belgian Administrative Instruction Nr. AFZ/2005-0652 adopts the same approach: when an employee has exercised his duties in several countries under the same employment contract, the severance payment must be allocated proportionally to those countries, based on the period during which the employee was taxable there.
Pro Rata Allocation Between Two Countries
Applying these principles, the Commission concluded that the severance payment must be split between Belgium and France. Out of a total of 368 months of service, the employee worked: 95 months in Belgium, and 273 months in France.
Accordingly, 25.81% of the severance payment is taxable in Belgium, while 74.19% is taxable in France. Belgium may therefore tax only the Belgian portion, despite the employee being a Belgian resident at the time the payment is received.
Practical Observations
In practice, when an employer terminates an employment contract—whether in Belgium or abroad—they rarely take into account the employee’s past work history across different countries. As a result, payroll providers typically withhold tax on the assumption that the entire severance payment is taxable in the employee’s country of residence. This often leads to an overly conservative withholding and, consequently, excessive Belgian payroll tax being paid at source.
Even if incorrect withholding has taken place, this does not prevent the employee from later filing an objection or appeal and invoking the pro rata allocation method. In many cases, this can result in a substantial tax refund in Belgium. However, employees should be aware that they may also need to demonstrate that the foreign portion of the severance payment was (or will be) taxed abroad, in line with the tax treaty allocation.
Significance
This decision reconfirms the continued relevance of the pro rata temporis allocation method for severance payments linked to total career seniority—particularly in international employment situations where an employee remains contractually tied to a foreign employer.
The ruling reaffirms that these payments cannot simply be taxed in full in the state of residence and must instead be divided between the states that had taxing rights over the underlying employment income. It shows that incorrect initial withholding does not prejudice the taxpayer’s right to claim a refund afterwards, provided that the historical employment split can be documented.
The outcome offers important practical guidance for cross-border employers and internationally mobile executives who may have questions regarding tax optimization for termination packages.