In a recent administrative instruction (Circular Letter Nr. 2025/C/9, dated February 3, 2025), the Belgian Tax Authorities have stipulated that, since the tax treaty between Belgium and Switzerland does not contain a specific provision regarding payments under the social legislation of either state (social security benefits), the ‘residual’ article of the treaty grants Belgium the exclusive right to tax the so-called AVS pension (Assurance vieillesse et Survivants) granted to their residents.
This interpretation directly contradicts the Belgian Tax Authorities’ stance in a tax ruling of 2021 (Decision Nr. 2020.1951, dated March 16, 2021), reminding us of the long-standing discussion surrounding the Belgian taxation of Dutch AOW pensions.
Background of the Swiss Pension System
Similar to the Belgian pension system, the Swiss system is structured around three separate pillars:
- 1. First pillar: Government pensions, comprising benefits paid under social security legislation, particularly old-age and survivor insurance (AVS pensions)
- 2. Second pillar: Occupational pensions linked to professional activities, funded through mandatory contributions or, for self-employed and others, voluntary contributions, and
- 3. Third pillar: Individual pensions, optional and consisting of personal savings.
Understanding this three-pillar structure is essential for accurately classifying Swiss pensions under double tax treaties, as it determines eligibility criteria and tax obligations for beneficiaries residing in Belgium, and abroad in general.
Characteristics & Eligibility for AVS Pensions in Switzerland
The AVS pension, belonging to the first pillar of the Swiss pension system, is paid to Swiss residents aged 65 and older, as well as to individuals who have resided in Switzerland or worked for a Swiss company for at least one year. Eligibility requires contributions to the compulsory AVS scheme (old-age and survivors’ insurance), but not necessarily linked to previous employment as an employee, self-employed or civil servant.
Unlike Belgium’s first pillar pensions, the Swiss first pillar is thus not necessarily connected to prior employment. This raises questions regarding the treaty-based classification of the Swiss AVS pension, prompting the Belgian Tax Administration to issue some clarification on the matter.
Interpretation under the Belgium-Switzerland Tax Treaty
Article 18, §1 of the Belgium-Switzerland Double Taxation Agreement (DTA), as amended by a Protocol dated April 10, 2014, states: “Pensions and similar remuneration originating from one contracting state and paid to a resident of the other contracting state in connection with previous employment shall be taxable in the state of origin.” This pension article follows the source state taxation principle.
The Belgian instruction notes that AVS pensions are awarded to anyone who has contributed to the compulsory AVS scheme, irrespective of employment history, and are thus paid pursuant to Swiss social security legislation. Because the AVS pension does not require previous employment, it does not fall within Article 18 of the DTA, according to the Belgian authorities. Consequently, since the treaty lacks a specific provision on payments made under social legislation, the ‘residual’ article gives Belgium, as the country of residence, the exclusive right to tax the AVS pension paid to its residents. This interpretation is reportedly shared by the Swiss Tax Authorities, who agree that only second-pillar pensions related to previous employment fall under Article 18 of the DTA.
Reversing the 2021 Tax Ruling
The position described in this circular directly contradicts an earlier ruling by the Belgian authorities (Decision Nr. 2020.1951, dated March 16, 2021).
A taxpayer had been employed by a Swiss entity and moved back to Belgium shortly after the termination of the employment contract. During employment, the taxpayer accumulated both an AVS pension (first pillar), and mandatory second-pillar pension benefits (Loi Prévoyance Professionnelle (LPP).
The second-pillar benefits accrued through two distinct plans: one standard and another with increased benefits due to holding a senior role. These pensions were supplementary, not statutory pensions. The contributions used to build up the Swiss statutory pension (AVS) are tax-deductible in Switzerland for the payer (i.e., the Swiss employer). As a result, contributions made toward the second pillar pension capital—including employer contributions, employee contributions, and voluntary supplementary payments—are also tax-deductible.
The first plan’s benefits were not immediately payable upon termination, as the taxpayer committed to claiming the full capital only at the statutory Swiss retirement age of 65. As it is often the case with this type of plans, there is no immediate payout from the pension plan; instead, a mandatory transfer to a so-called ‘libre passage’ contract takes place. This, again, is a contract maintained with a Swiss insurance company, where the pension capital will remain managed until reaching the Swiss retirement age (65 years). However, the second plan was effectively paid out when the taxpayer relocated back to Belgium.
Ruling Office Confirms Swiss Pensions Are Taxable in Switzerland
The taxpayer sought clarity from the Ruling Commission regarding the taxation of the Swiss pensions in Belgium. The pensions had been entirely accrued while living in Switzerland and thus included both statutory pension and occupational pension schemes.
The Ruling Commission referred to Article 18 DTA which prioritizes taxation in the source state. As the treaty does not define ‘pensions and similar remuneration’, Article 3(2) of the treaty guides interpretation, referring back to the domestic law of the taxing state. The AVS pension, paid to Swiss residents aged 65 and above (or anyone who lived in Switzerland or worked for a Swiss company for at least a year), requires contributions to the AVS fund, unrelated to employment. Contributions, although deducted from wages of employees and self-employed persons, can also come from individuals such as the unemployed, stay-at-home parents, or students, granting them entitlement to an AVS pension.
Nevertheless, in 2021 the Ruling Commission concluded that AVS pensions indeed fall within the scope of Article 18 DTA. The condition stipulated in Article 18, § 2 a) DTA is fulfilled (i.e., the contributions paid have resulted in a tax deduction), and both the payment of the Swiss statutory pension (AVS) and the payment of the second-pillar pension capital originate from a contracting state, namely Switzerland. Consequently, according to Article 18 DTA, both the payment of the Swiss statutory pension (AVS) and the second-pillar pension capital were considered taxable in Switzerland (and therefore tax-exempt in Belgium).
Why The Sudden Change of Heart?
The recent administrative instruction dated February 3, 2025, explicitly adopts the opposite interpretation.
Furthermore, the instruction also suggests that if the entitlement to an AVS pension was not accrued through professional activity (for instance, if the individual resided in Switzerland for a period without performing any remunerated activity there), the absence of a link between professional activity and the pension benefit renders this pension non-taxable. However, the Belgian Tax Authorities conclude their analysis that an AVS pension paid to a resident of Belgium is always taxable in Belgium:
- 1. if the pension was paid or granted from January 1, 2017, onwards.
- 2. if, and to the extent that, the pension accrued from contributions linked to professional activity when the pension was paid or granted before January 1, 2017.
This issue is reminiscent of the discussion a few years ago concerning Dutch AOW pensions. Under the old tax treaty with the Netherlands, uncertainty arose regarding whether AOW pensions should fall under the pension-related article or the residual article. This treaty lacked specific provisions addressing social security benefits. Considering that an AOW pension does not necessarily have a direct link to previous employment, the Dutch authorities held the view that AOW pensions should not be equated with private pensions. Therefore, according to the Dutch authorities, an AOW pension would not automatically be covered by Article 18 (pension article) but rather by Article 22 (residual article). This viewpoint was supported by Belgian case law. However, the Belgian tax authorities did not adopt a clear and consistent position on the matter. As a result, the discussion with Belgian taxpayers dragged on for years…
Case-by-Case Analysis?
In legal doctrine, it was suggested that no single treaty provision can automatically be applied to AOW pensions. Instead, each case must be evaluated individually based on its specific circumstances—this is known as the in concreto approach, which has also been endorsed by the Belgian Supreme Court.
In cases where a tax treaty lacks explicit provisions regarding social security benefits, the following interpretation should be applied: since AOW pensions do not inherently constitute remuneration for past employment, an AOW pension paid to an individual with an employment history must necessarily fall under Article 18 of the OECD Model Tax Convention. Conversely, if there is no employment history, the residual article should apply.
The Belgian legislator swiftly intervened. With the Law of 25 December 2017, the legislator amended Article 34, §1, 1° of the Belgian Tax Code. Since then, income granted within the framework of a statutory social security scheme is explicitly taxable as ‘pension’ income, thereby ruling out any interpretation issues. This amendment applied retroactively to pensions paid since 1 January 2017. The legislator thus intended to ensure Belgium could fully exercise its taxation rights regarding Dutch AOW pensions in all circumstances.
However, the tax treaty with Switzerland differs significantly from the treaty with the Netherlands. Whereas Article 18 DTA with the Netherlands grants pension taxation rights to the country of residency (Belgium), the treaty with Switzerland adopts the opposite approach, allocating taxation rights exclusively to the source state (Switzerland).
Instruction Contradicts Tax Treaty
In our view, the recent administrative instruction violates Article 18 of the DTA with Switzerland. By explicitly referencing the amended Article 34, §1, 1° of the Belgian Income Tax Code—which explicitly classifies statutory social security scheme benefits as taxable pension income—the instruction incorrectly concludes that Swiss AVS pensions paid after January 1, 2017, to a Belgian resident, are always taxable in Belgium. This interpretation fails to comply with the taxing right provisions of the bilateral agreement with Switzerland.