Third action plan against tax fraud takes shape

Read this article in Dutch | French

The federal government reached an initial agreement on the third action plan against tax (and social security) fraud a few days ago. The planned broadening of the general anti-abuse provision will not happen in the end. But the government did reach an agreement on other important measures. In this newsflash, we focus on two procedural measures that cause quite a stir, namely an additional information duty for companies that are part of an international group and the introduction of a legal framework on so-called pretaxation disputes.

Additional information duty

What is on the table?

The draft bill provides for additional obligations for domestic companies that are part of an international group. They will have to provide certain data/information from foreign group companies regarding transactions they have entered into with them.

The draft contains a non-exhaustive list of data from the foreign company that need to be available to the Belgian tax authorities, such as "annual accounts, tax returns and reports of the board of directors". The obligation exists under the condition that there is a legal obligation abroad to keep these data. The obligation does not apply in case the provision of the data by the foreign company would be in conflict with legal obligations to which the foreign company is subject.

The current requirement that the requested information needs to be necessary to determine the amount of taxable income of the Belgian taxpayer, is maintained. In this regard, the explanatory memorandum to the draft bill mentions that a proportionality test should therefore always be carried out.

The explanatory memorandum further states that this additional information duty is envisaged because the current system of exchange of information with foreign authorities often delays the audit considerably and often even results in an incomplete response or no response at all.

The preparatory works indicate that if there is a clear link between the transaction involving the Belgian company and an underlying transaction between two other related companies of the same group, the information relating to the latter transaction will also be in scope. This is the case, for example, when the Belgian company's lender, in turn, finances the loan in question with a credit obtained from another related company.

Proportionality, EU principles at risk?

The government has not yet finalised the bill and will first await the advice of the Council of State. After all, there is a lot to be said about the additional information duty. Requiring not clearly defined information, which is not at the taxpayer's disposal and linking this to potential sanctions (failure to submit can lead to administrative fines, penalty payments or a reversal of the burden of proof) is contrary to principles such as recognition of legal personality, territoriality, legality... By only imposing the additional information duty exclusively in foreign situations, it immediately becomes clear that questions can be raised regarding EU conformity.

It seems that the government also realises that the proposed measure may create many more problems and discussions. It is now up to the Council of State to shed its light on the matter.

Pretaxation disputes triage

Pretaxation disputes

A separate draft bill seeks to incorporate into law the existing practice of so-called pretaxation disputes. This concerns, for example, disputes about investigative acts (where the tax assessment is not the subject of the dispute).

The draft bill provides that the taxpayer has one month to contest an investigative act, for example if he believes that the administration exceeded its competences and requests information that falls outside the scope of its investigative competences.

Such a pretaxation dispute will, in the future, suspend the investigation, assessment and retention periods. Therefore, the taxpayer will not be able to benefit from contesting investigative acts at that point. Incidentally, there is no obligation to contest an investigative act immediately; this can still be done at a later stage when objecting to the tax assessment.

Triage

Another important novelty are the proposed rules on triage when a taxpayer opposes the legality of the administration taking or copying (digital) data. Although case law and an administrative practice already exists in this regard, the legislator now intends to create a binding legal framework.

A taxpayer may object when data involved is covered by a "protected right". According to the preparatory works, “protected rights” is understood to include confidential correspondence between a lawyer and his client or data containing private information that is not relevant for tax purposes.

Paper books and records will then be kept in a sealed cover and digital data as an immutable copy. The procedure that will be used is yet to be defined in a future Royal Decree.

The Minister of Finance will appoint at least four "independent officials" to determine whether there is indeed data involved which is covered by  "protected rights". The draft bill offers no further clarification on what is meant by "independent" other than that the officials concerned must not be in charge of conducting the audit or tax investigation. This condition makes perfect sense, but seems to offer few guarantees about genuine independence. These officials can request advice from the deontological authority, but they are not subsequently bound by that advice. The taxpayer will be able to initiate a pretaxation dispute against the officials' decision.

Making use of this procedure of triage entails an extension of the investigation, assessment and retention periods included in the Belgian Income Tax Code.

What’s next?

The texts are far from final. The Council of State and numerous deontological authorities (cf. triage) will still have to deliver advice. Given the question marks that the current texts still raise, it is to be expected that some amendments will still be made.

In any case, taxpayers have been warned. The government’s policy intentions are clear: companies involved in international transactions are being targeted. It will therefore become even more important to thoroughly prepare for a possible tax audit. To the extent that these intentions will indeed be translated into policy, it will be essential to thoroughly document internal transactions within the group and properly assess whether information about them should be kept available in Belgium in preparation for a possible tax audit. Needless to say, Deloitte Legal's Tax Dispute Resolution team can assist you in this regard, as well as with any specific questions you may have.