Pension lump sums taxed at 10% in case of unemployment with company allowance (UCA) - The tax administration clarifies its position

As announced in our 11 March 2016 newsflash , the period during which the beneficiary of a supplementary pension lump sum receives unemployment benefit with a company allowance is from now on, under certain conditions, treated by the tax administration as an active period in order to determine whether the tax rate of 10% is applicable.  The tax administration clarified its position in an advice published in the Belgian State Gazette of 11 July 2016. 

In principle, workers and company directors must have carried out a continuous professional activity during the three years that immediately precede the legal retirement age (which is presently 65 years) in order to have certain supplementary pension lump sums taxed at 10%. 

However, the tax administration has treated as active periods some inactivity periods or periods during which activities are reduced. This applies, among other things, to the period during which beneficiaries of a pension lump sum have received unemployment benefits with a company allowance (the “UCA scheme”), insofar as they were suitably available for work in accordance with the unemployment regulations.

This assimilation has raised numerous questions in practice, which have in part been answered by the tax administration in an advice published in the Belgian State Gazette of 11 July 2016. According to the tax administration, a distinction has to be made between the “old” unemployed and the “new” unemployed in the UCA scheme:

The new unemployed who benefit from the UCA scheme as from 1 January 2015 are in principle obliged to be suitably available for the labour market until the legal retirement age and will be able to enjoy the 10% tax rate;

By way of exception, if unemployed individuals  benefitting from the UCA scheme have asked for and obtained an exemption from the obligation to be suitably available, they are not considered by the tax administration as “effectively active”.

The unemployed individuals who already benefitted from the UCA scheme on 31 December 2014 were automatically exempted from the obligation to be suitably available.  They are thus not “effectively active” either and will not be able to enjoy the 10% tax rate.  

Currently however, no procedure has been put in place to enable the pension institutions to determine in a practical manner whether the beneficiary of a pension lump sum is suitably available and accordingly, which withholding tax rate applies. According to the tax administration, such proof can be furnished by any form of evidence admitted under general law, other than by oath.

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Note that for end-of-career regimes, unemployed individuals who benefit from the UCA scheme will not automatically be able to enjoy the 10% tax rate on certain supplementary pension lump sums. They are obliged to be suitably available for the labour market, the proof of which lies with them.