Commencing disputesi Audit of the taxpayer's situation
Most taxes are assessed on the basis of tax returns filed by taxpayers.3 In the absence of a timely return, the taxpayer must demonstrate the exact amount of income (Article 352 of the Income Tax Code 1992 (CIR1992)). Also, proportional surtaxes apply (Article 444 CIR1992). In addition, a taxpayer subject to corporate tax is taxed on a minimum tax base of €40,000. If the infringement is repeated, the latter amount may be increased up to €80,000 (Article 342 CIR1992).
Tax disputes most often commence with a review of tax returns. Any means of evidence, including minutes drawn up by the tax authorities' agents4 but excluding an oath, may be used (Article 340 CIR1992).
The tax authorities may investigate the taxpayer's situation for a period of three years from the beginning of the assessment year.5 The three-year period is suspended pending the review of a complaint filed during this period for six months at a maximum. The initial three-year period may be extended for an additional four years, provided that the authorities first notify the taxpayer in writing about any signs of a wilful attempt to defeat or evade tax related to the period under examination (Article 333 CIR1992). The taxpayer must be notified also when the authorities request information from other persons.6 However, the consultation of databanks does not qualify as an investigation.7 Signs of fraud are sufficient; the authorities do not need to demonstrate the wilful attempt to defeat or evade tax at the time of this notification.89
The tax authorities may also investigate during a seven-year period without prior notification upon request of another country with which Belgium is bound by an exchange of information agreement (Article 333 CIR1992).
If the authorities receive information from a foreign country bound by an exchange of information agreement, they are allowed to further investigate for the purposes of establishing that the taxpayer omitted to report income that should have been reported within the five-year period before the year during which the information from the foreign country has been made available to them. They may do so for two years after the day on which they receive the information from abroad (Article 333/2 CIR1992).10
The tax authorities are also allowed a one-year extension to investigate on withholding tax on income from movable property from the time an investigation shows that the taxpayer misapplied that tax once over the previous five years (Article 333/3 CIR1992).
If a taxpayer files a complaint against a tax bill, the tax authorities may also conduct further investigations for the purposes of deciding on the taxpayer's grievances (Article 374 CIR1992).
Investigations may thus be conducted long after the seven-year period during which taxpayers must keep their books (Article 315 CIR1992; see Article III. 86 to 88 of the Economic Law Code).
The tax authorities may request that the taxpayer show them any document necessary to determine its tax liability (Article 315 CIR1992). The tax authorities may require the taxpayer to supply information within one month; they may allow a time extension (Article 316 CIR1992). Taxpayers who keep data in a computerised system must deliver such information in the form that the tax authorities require (Article 315 bis CIR1992).11
The tax authorities may also access the premises where the taxpayer conducts a business during business hours (Article 319 CIR1992). The right to access the premises cannot lead to a raid.12
The tax authorities may keep the taxpayer's books and documents that they deem necessary to determine the amount of taxable income. They are not allowed to take books that are not closed (Article 315 ter CIR1992).
Information obtained on the occasion of the audit of a taxpayer may be used for the purpose of taxing other taxpayers (Article 317 CIR1992).13 The tax authorities may also request from any taxpayer information deemed necessary to determine the tax liability of any other taxpayer (Article 322 CIR1992). They may require bulk information on transactions of persons and groups of persons directly or indirectly involved in such transactions (Article 323 CIR1992).
Investigations may be conducted upon request of another country's tax authorities, pursuant to a double tax treaty or Directive 2011/16/EU on Administrative Cooperation.14
In principle, information requested by or provided to foreign countries is not disclosed to the taxpayer before the investigation by the foreign country is closed (Article 337/1 CIR 1992).
If investigations show the existence of the preparation of fraudulent mechanisms, the tax authorities may request to see the records of a bank (Article 318 CIR1992). They may also request information from a bank with the purpose of taxing targeted customers if they identify signs of fraud or intend to impose a tax on the basis of signs of wealth, unless the taxpayer (who must be informed of the intent to proceed with bank investigations) provides the requested information within one month.15
For the purposes of satisfying a request from another country, the tax authorities may investigate banks' files provided they notify the taxpayer within 90 days after the exchange of information unless the other country explicitly requests not to inform the taxpayer or if the other country demonstrates that it has already notified the taxpayer (Article 333/1 CIR1992).16
In criminal matters, pieces of evidence obtained irregularly cannot be set aside unless the irregularity affects the reliability of the evidence or the right to a fair trial or if compelling formalities have been disregarded (Article 32 of the Criminal Procedure Code). The Supreme Court has expanded this rule to pieces of evidence obtained by the tax authorities and used to establish a tax.17ii Debates prior to assessment
If the tax authorities intend to adjust the taxpayer's liability, they must send it a notice of deficiency (Articles 346 and 351 CIR1992). The notice of deficiency, which is an invitation to discussion, must mention all the elements on which the intended adjustment is based. No tax can be imposed on elements other than those in the notice.18
The taxpayer is allowed one month to answer the notice of deficiency (this is not applicable in respect of withholding taxes or if the rights of the Treasury are jeopardised). The one-month period starts running from the third working day following the sending of the notice of deficiency. The tax cannot be assessed before the end of this one-month period.
Before assessing the tax, the tax authorities must reply to the arguments of the taxpayer (notification of assessment)19 (Articles 346 and 352 bis CIR1992). Although the assessment must be justified by elements mentioned in the notice of deficiency, the tax authorities may still change their legal analysis of the same elements. They may also use the same reasons in the notification of assessment as in the notice of deficiency if the taxpayer does not submit new arguments.20
Despite the taxpayer's disagreement, the tax may be assessed and established as a debt.21iii Limitations on assessment
When the taxpayer files an accurate tax return in a timely manner, the tax must be assessed before 30 June of the year following the assessment year or six months after the filing of the tax return, whichever is later (Article 353 CIR1992).
However, if the taxpayer fails to file its return in a timely manner, or the tax authorities determine that the amount of tax due is higher than the amount resulting from the items reported in the return,22 the tax may be assessed within three years of the beginning of the assessment year.23 The three-year period may be suspended for six months at a maximum if the taxpayer files a complaint within that period (Article 354 CIR 1992).
The initial three-year limitation period is extended for a further four years in cases of wilful attempt to defeat or evade tax (Article 354 CIR1992). If the authorities do not need to further investigate during the additional four-year period, they are not required to previously notify the taxpayer signs of fraud.24, 25 The tax may be assessed within the seven-year period even if the authorities did not firstly make use of the three-year period of Article 354 CIR1992 in the absence of a timely tax return.26, 27
The tax may be assessed beyond the above-mentioned limitations in the following circumstances (Article 358 CIR1992):
- withholding tax on movable property income and PAYE unpaid during the five preceding years may be assessed during the year following the statement of the infringement;28
- if it appears from information received from a foreign country bound by an agreement on the exchange of information, or from further investigation lead by the Belgian authorities, that items of income have not been reported when they should have been during one of the five years (or seven years in case of fraud) preceding the year during which the information passed on by the foreign authorities is received by the Belgian authorities, the tax on such income may be assessed during 24 months after the exchange of information took place;
- if a judicial procedure shows that items of income should have been reported within the five years before the year of the commencement of the proceedings, the tax may be assessed on such income during the 12 months after a court decision on the case has become final;29
- when evidence shows that income should have been reported during the five years before the year during which the evidence became known to the tax authorities, the tax on that income may still be assessed during the 12 months following the time that the authorities obtained the information; and
- taxes still due after a mutual agreement procedure or an arbitration procedure may be assessed within the 12-month period following the closure of the procedure.
There is no time limit for adjusting the value of understated assets or overstated liabilities: they are deemed to be income of the year under examination unless the taxpayer demonstrates that they have already been taken into account to determine its tax situation (Article 361 CIR1992).30
The tax authorities may challenge the amount of deductible previous losses when they are used to offset taxable income. This means that they can challenge the profits and burdens of previous years that resulted in the losses carried over, regardless of the year to which they relate.31 Conversely, the taxpayer is allowed to request a revision of elements of previous years carried forward to the relevant year.32
If the tax director invalidates a tax bill further to a complaint filed by the taxpayer (see below) on grounds other than the statute of limitations, the tax authorities may assess an alternative tax computed on the same items as those on which the invalid tax had been computed within three months after the tax director's decision becomes final (Article 355 CIR1992).iv Limitations on collection
The Treasury is time barred if it does not collect taxes within five years after those taxes become undisputedly due. Statute of limitation is interrupted by the taxpayer's acknowledgement of its tax debt or by a writ of summons served by a bailiff or registered mail (Articles 23 and 24 of the Recovery Code).
Statute of limitations on collection is suspended pending an administrative appeal or a petition filed by the taxpayer (Article 25 of the Recovery Code).33v Tax complaints
The taxpayer may bring a complaint against a tax bill before the tax director. The complaint is an administrative appeal against the tax and is a prerequisite before bringing the dispute before a court (Article 1385 undecies of the Judicial Code). The same rule applies to self-assessed taxes.34
The complaint must be filed within six months and three working days of the tax bill being sent (Article 371 CIR1992). The stamp of the post office on a registered mail is deemed to be the date of application.
If the complaint is filed in a timely manner, the collection of the contested amount of tax is restricted for the period during which the proceeding is pending (Article 61 of the Recovery Code). Despite the fact that the taxpayer may retain the payment of the contested tax, it will owe interest on the amount if it is unsuccessful. If the taxpayer pays the tax assessed (or if the authorities use a tax refund to offset the contested tax) and if it wins the case, interest will be paid to it provided that the taxpayer served a summons (Article 418 CIR1992). The legal annual interest rate in tax matters is 4 per cent in favour of the Treasury, and 2 per cent in favour of the taxpayer (Articles 414 and 418 CIR1992).35
Before making a decision, the tax director must invite the taxpayer to argue orally the points therein, and to consult the tax authorities' file, if the request is made in the complaint. The tax director's decision is expected within six months of the filing of the complaint, or nine months in the absence of a tax return filed in a timely manner or in assimilated circumstances. Usually, the tax director takes much longer than six months to review a file; he may even take several years. In the absence of a decision after this six- or nine-month period, the taxpayer may bring its case before a court (Article 1385 undecies of the Judicial Code). In the absence of a decision six months after the filing of the complaint, late interest stops running on the disputed tax debt until the tax director's decision is made or the case is brought before a court (Article 414 CIR1992).
The tax director cannot impose additional tax or use relief to offset any new deficiency that he may find (Article 375 CIR1992). Nevertheless, the tax director's interpretation of the facts presented by the tax inspector may support the assessment, provided that he does not make the taxpayer's situation worse.36 However, the fact that a taxpayer has filed a complaint does not hamper the tax authorities from further investigating the taxpayer's situation and adjusting its tax liability within the time limits mentioned above (see Section II.iii).
A complaint against tax assessed on the basis of contested elements amounts to a complaint against any tax assessed on the basis of the same elements (Article 367 CIR1992). If the complaint relates to the deduction of expenses made during a given taxable period, and such expenses cannot be fully deducted from the profit of that taxable period, the complaint also affects the taxes relating to subsequent periods during which the excess of these expenses have been deducted.37
An additional tax assessed after an adjustment of the taxable basis (understated or hidden items of income) is never considered as assessed on the same elements as those taken into account when determining the initial tax bill before adjustment. If the taxpayer is time-barred to complain against the initial tax bill, it cannot rely on a complaint against the additional tax bill to obtain the invalidation of the initial one. However, it may criticise elements taken into account when computing the initial tax bill to obtain the rescission of the additional tax bill.38
If the tax authorities base an additional tax for an assessment year on elements that have already been taxed in another assessment year, the taxpayer may file a complaint against the previous tax bill based on the same elements within six months and three working days of the sending of the additional tax bill (Article 373 CIR1992).
The taxpayer may request the tax director to revisit the case within the month after the decision regarding the complaint has been made. The tax director's decision on the complaint or on the application for revision becomes final if the taxpayer does not bring its case before the court within three months and three days (Article 375 CIR1992; see Section III.i.).vi Tax rescission
The tax director may also rescind surtaxes resulting from clerical errors or misunderstandings of facts, double taxation or evidence that could not be invoked in a timely fashion for reasons beyond the taxpayer's power, provided that the surtaxes are brought to the director's attention within five years from 1 January of the year during which the tax has been assessed, and no decision has yet been made on a complaint against the contested surtax (Article 376/1 CIR1992).39
An error that results from a standpoint of the taxpayer when filling in the tax return is not a clerical error.40 When the reported profit appears from the financial statements, the taxpayer cannot amend the results of a choice it made when establishing those statements, as opposed to an erroneous recording of a transaction.41
New legislation or case law cannot be viewed as new circumstances that may lead to rescission.42 However, if the Constitutional Court holds that a tax law provision conflicts with the Constitution, the taxpayer may request that a tax imposed by virtue of such a provision be rescinded even if the Constitutional Court's decision has been officially released within the six-month period allowed to file a complaint and the taxpayer omitted to file a complaint in a timely manner (see Section II.iv).43, 44
The tax authorities admit that a ruling of the European Court of Justice (ECJ) stating that Belgian law conflicts with EU Law may also lead to rescission.
If a Belgian legal provision is annulled by the Constitutional Court the taxpayer may file a complaint against a tax imposed pursuant to the annulled provision although ordinary time limits have expired. The issue is whether a ruling of the ECJ stating that a national provision is conflicting with EU law amounts to a ruling of the Constitutional Court annulling a notional provision and, as a consequence, the same time limits would apply to contest a tax established pursuant to a provision criticised by the ECJ or pursuant to a provision annulled by the Constitutional Court.
The tax director may also rescind surtaxes that appear on the occasion of a mutual agreement procedure organised under a double tax treaty or a procedure provided by the European Arbitration Convention of 23 July 199045 (Article 376 CIR1992).
A decision to rescind a tax need not to be reasoned (Article 376 ter CIR1992).