In brief
As a follow-up on the second Action Plan for the fight against social and tax fraud (see our prior newsflash on this Action Plan here), a bill was recently submitted to the Belgian Chamber of Representatives, which contains a number of relevant tax controversy measures. Amongst the main measures is a significant extension of the tax investigation and assessment periods for income taxes and VAT. This measure and other key income tax measures are discussed below. Overall, the bill significantly extends the powers of the Belgian tax authorities and limits to a certain extent the taxpayer’s procedural rights.
The expectation is that the Chamber of Representatives will adopt the bill still this year. The various tax controversy measures will then apply as of different dates, with the main measures related to investigation, assessment and retention periods applying for taxable periods as of tax year 2023 (for companies with a financial year that coincides with the calendar year, this means that the prolonged periods would apply as of financial year 2022).
Key takeaways
- The bill provides for a significant extension of the income tax investigation and assessment periods. The current standard investigation and assessment period of three years is maintained only if the relevant income tax returns or VAT returns are filed on time. In case of non- or late filing of an income tax return or a VAT return, the period is extended to four years. A further extension to six years is provided for a limited number of situations with a cross-border aspect (such as the filing of transfer pricing documentation, the reporting of tax haven payments, the claiming of withholding tax reductions or exemptions on the basis of tax treaties or the EU Directives, etc.). Finally, a period of 10 years is provided when it regards tax fraud or when the tax return covers CFC (controlled foreign companies), hybrid mismatch arrangements, and/or so-called legal constructions.
- A prior notification to the taxpayer is still required under the bill if the tax authorities want to apply the extended investigation and assessment period, but only in the context of tax fraud. Furthermore, such notification no longer needs to contain specific indications of tax fraud but can be limited to the mere mention of a presumption of tax fraud and of the tax authorities’ intention to apply the prolonged tax assessment period.
- In line with the prolonged investigation and assessment periods, the bill provides for an extension of the document retention period from seven to 10 years.
- The deadline for the taxpayer to file a tax complaint against a tax assessment would be extended from six months to one year.
- The bill provides for the possibility for the Belgian tax authorities to request Belgian courts to impose a periodic penalty payment (“dwangsom/astreinte”) if a taxpayer or a third party unlawfully refuses to cooperate with the Belgian tax authorities.
- The bill provides for the possibility for the Belgian tax authorities to use the information included in the Belgian UBO register for data mining purposes.
In depth
Following the Belgian Government’s aim to continue the fight against fraud, the Belgian Ministerial Board for the fight against social and tax fraud issued a second Action Plan for a coordinated anti-fraud policy (see our alert on this Action Plan here). A bill was recently submitted to the Belgian Chamber of Representatives in order to implement some of the identified actions of the Action Plan. The bill includes a number of important tax measures, including VAT and income tax controversy measures which we will discuss in more depth below.
Firstly, the bill provides for a significant extension of the income tax investigation and assessment periods. These periods start to run the first day after the closing of the financial year in question.
- The current standard investigation and assessment period of three years is maintained, but only if the relevant income tax return or VAT return that the tax authorities want to amend is filed on time and none of the other longer periods apply.
- In case of non-or late filing of an income tax return or of a VAT return, the investigation and assessment period is automatically extended to four years.
- A further extension to six years is provided for a limited number of situations with a cross-border aspect, such as: (i) the fact that the taxpayer needs to file transfer pricing documentation (i.e., a local file or CbC report); (ii) if the taxpayer made reportable payments to tax havens; (iii) if certain withholding tax exemptions or reductions are claimed on the basis of a tax treaty or an EU Directive; (iv) if a foreign tax credit is claimed in the return; (v) if information is received under the DAC 6 or DAC 7 implementing provisions that could be relevant for the taxable period in question.
- Finally, a period of 10 years is provided when it regards tax fraud (both for income tax and VAT purposes) or when the income tax return is deemed to be a “complex tax” return, which is the case when the tax return covers any of the following: (i) CFC (controlled foreign companies); (ii) hybrid mismatch arrangements; and/or (iii) so-called legal constructions (such as tax haven companies and trusts or similar vehicles) set up by individuals or entities subject to the legal entity tax.
The bill also provides that the extended periods of six and 10 years cannot be used by the Belgian authorities to amend the tax return for a list of matters which are considered more “straightforward”, such as disallowed car, restaurant, reception expenses, penalties and social advantages. Such list is limited, however, and the question is whether such measure is proportionate. Indeed, under the current text, the tax authorities would be able to apply an investigation and assessment period of six or 10 years when one of the aforementioned elements which triggers such prolonged period is present (e.g., the return covers a CFC), not only in relation to that particular element (the CFC inclusion) but also in relation to any other tax item other than those mentioned in the limited list of excluded items provided in the bill.
If the bill is adopted, the extended investigation and assessment periods will apply for taxable periods as of tax year 2023 for income tax purposes (for companies with a financial year that coincides with the calendar year, this means that the prolonged periods would apply as of financial year 2022) and as of 1 January 2023 for VAT purposes. The draft bill would hence not extend investigation and assessment periods applicable to prior tax years that are not yet statute-barred.
Prior notification to the taxpayer is still required under the bill if the tax authorities want to apply the extended investigation and assessment period, but only in the context of tax fraud (i.e., no prior notification is required under the other extended investigation and assessment periods). Furthermore, the scope of such notification is significantly limited under the bill as it no longer needs to contain precise indications of tax fraud but can be limited to the mere mention of a presumption of tax fraud and of the tax authorities’ intention to apply the prolonged tax assessment period. The bill hence limits the taxpayer’s procedural rights in this context. Failing to notify the taxpayer in advance will lead to a tax assessment that is null and void.
In line with the prolonged investigation and assessment periods, the bill also provides for an extension of the document retention period for taxpayers from seven to 10 years. This measure also applies with respect to taxes which are due as of tax year 2023 for income tax purposes and as of 1 January 2023 for VAT purposes.
The bill also extends the deadline for filing a tax complaint against a tax assessment from six months to one year. This measure would apply as of 1 January 2023. The practical relevance of this measure is limited, however, as in practice taxpayers are often required to file a tax complaint sooner to avoid that the tax collectors takes enforcement measures.
In addition, to ensure the effectiveness of tax investigations, the bill provides that the Belgian courts will be able to impose periodic penalty payments (“dwangsom/astreinte”) in summary proceedings if they consider that, within the framework of an investigation by the Belgian tax authorities, taxpayers or third parties unlawfully refuse the provision of certain information or access to, for example, digital data and/or premises. This will allow the tax authorities to request the courts to impose such periodic penalty payments in case they are confronted with a taxpayer or third party who refuses to cooperate and provide access to data or documentation. In the context of dawn raids, some taxpayers have refused the tax authorities access to their data servers, for example, and this could provide the tax authorities with an additional measure to exert pressure on taxpayers in this context. We expect that this measure will be a new impetus for tax dawn raids, particularly by the Special Tax Investigation Office.
The bill also provides for the possibility for the Belgian tax authorities to use the information included in the Belgian UBO register for data mining purposes. The Belgian tax authorities could already consult this register but only with respect to a given taxpayer.
It is clear that the bill considerably expands the current investigation powers of the Belgian tax authorities without limiting this to cases of tax fraud. The extended deadlines are the same, irrespective of whether the taxpayer filed a timely and complete return. It is hence clear that good faith taxpayers will equally be impacted by these measures as the bad faith taxpayers, which does not seem proportionate.
The expectation is that the Chamber of Representatives will nevertheless adopt the bill still this year. The various tax controversy measures will then apply as of different dates, with the main measures related to investigation, assessment and document retention periods applying as of tax year 2023 (for companies with a financial year that coincides with the calendar year, this means that the prolonged periods would apply as of financial year 2022).
Please reach out to your regular Baker McKenzie contact if you would like to discuss further the implications of these developments.
