The European Court of Justice (ECJ) ruled in a judgment of 26 October 2016 that the withholding of the Belgian health and disability (HDI) contribution (3.55%) and solidarity (SOL) contribution (up to 2%) on pension benefits violates European rules when the pensioner at the time of the payment is covered by the social security legislation of another Member State of the European Economic Area (EEA). The judgment questions the current legislation and the practice of the Federal Pensions Service, which oblige pension providers to withhold the INAMI and SOL contributions, even when the recipient is covered by the social security legislation of another Member State.
Facts and judgment
Mr Hoogstad worked in Belgium until 2004 and built up an occupational pension here. In 2008, when he reached the age of 60 the pension lump sum was paid out. At that time, he was covered by the social security legislation of his country of residence (Ireland). “Belgian” INAMI and SOL contributions were deducted from his pension lump sum. Mr Hoogstad argued that this was against Regulation No 1408/71 (now 883/04), which coordinates the rules concerning social security within the EEA. Even though the contributions had already been reimbursed, the case ended up before the Belgian Supreme Court in 2005, which referred a preliminary question to the ECJ. The ECJ ruled that:
- occupational pensions are, as such, not subject to the Regulation, but the social contributions on these pensions are;
- a pensioner is, pursuant to the Regulation, subject to the social security legislation of one country only, in this case Ireland;
- the Belgian rules which impose an obligatory levy, also for pensioners who reside in another Member State and who are covered by the social security legislation there, violate the Regulation.
The rules on INAMI and SOL contributions were recently amended in order to make it possible to withhold contributions from foreign pensions of pensioners who are covered by the Belgian social security legislation. The reverse situation was not explicitly dealt with: the levies are as a rule still obligatory, even though the beneficiary of the pension lives abroad and is covered by the social security legislation of another Member State. In practice, the contributions are reimbursed, previously at age 65, now within six months after retirement to pensioners who live in another Member State (SOL) and who are covered there by the health insurance (INAMI).
It seems that the ECJ even opposes this withholding, albeit temporary, and that consequently the Belgian rules and the practice of the FPS will have to be modified. Pension providers should for example – by analogy with the withholding tax – be exempted from making social security withholdings when the pensioner proves that he or she is subject to the rules of another Member State.
> Action point
This judgment is important for expatriates that are subject to the social security regime of another Member State of the EEA, as well as for pan-European pension funds set up in Belgium.
The Belgian legislator will have to change the INAMI and SOL legislation in light of this judgment of the ECJ.