New and increased investigation possibilities for the Belgian tax authorities as of 2023
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Over the last few months, the Belgian legislator has enacted new measures that will expand the tax authorities' investigative powers from 2023 onwards. These measures include longer and new tax assessment periods, as well as the implementation of DAC7, which requires digital platform operators to report certain information and allows tax authorities to conduct cross-border audits.
New and longer assessment periods for income taxes
The Belgian Income Tax Code 1992 contains a general tax assessment period of three years starting as of the 1 January of the relevant tax assessment year. This period could be extended to seven years in case of tax fraud.
The law of 20 November 2022 containing miscellaneous tax and financial measures increased the seven-year period and introduced a number of new (longer) tax assessment periods for specific cases, which will be of relevance for most of our clients.
A new four year tax assessment period applies if no tax return is filed or if the tax return is filed late.
A new special tax assessment period of six years applies to tax returns that involve a cross-border element. A cross-border element exists in the following situations:
- The taxpayer is a company that needs to file the so-called “local file” or “country-by-country report” for transfer pricing purposes.
- The taxpayer is a company that has made (in)direct payments to persons or establishments located in so-called “non-cooperative jurisdictions”1which need to be reported in (an annex to) the tax return.
- The withholding tax return contains (i) an exemption or reduction of withholding tax based on a tax treaty, or (ii) a withholding tax advantage of the so-called Parent-Subsidiary Directive2 or the Interest-Royalty Directive3 attributed to a resident of another member state of the EU.
- The tax return contains an imputation or credit of the lump-sum part of foreign taxes (forfaitair gedeelte van de buitenlandse belasting/ quotité forfaitaire d'impôt étranger).
- Information on the tax return was received from abroad (based on a relevant applicable legislation on the exchange of information) that relates to (i) reportable cross-border transactions for purposes of the Belgian implementation of DAC64 or (ii) information from platform operators if the amount at stake for the relevant taxpayer is at least EUR 25,000 (so DAC7 – see more information below).
- The tax authorities can now assess tax fraud for up to ten years, instead of seven years as before.
- A new category of so-called "complex" returns also faces a ten year assessment period. A return is considered to be complex if it involves any of the following:
- A hybrid mismatch, which is a tax planning arrangement that exploits differences in the tax treatment of an entity or instrument in two or more jurisdictions;
- The rules on controlled foreign corporations, which are designed to prevent the diversion of income to low-tax jurisdictions by attributing it to the parent company in Belgium; or
- A legal construction abroad, which is a legal arrangement that is not subject to tax or only subject to limited tax in its state of residence and that must be disclosed to the tax authorities.
In light of the changes above, the taxpayer is now also required to keep the records and books for a period of ten years, instead of seven, following the relevant income year.
All the changes above apply as from assessment year 2023.
The Belgian parliament passed a law on 22 December 2022 to transpose EU Directive 2021/514 on administrative cooperation in the field of taxation, also known as “DAC7”. The law takes effect from 1 January 2023.
The law adds two new elements to the current framework for cross-border exchange of information:
1. Reporting obligations for platform operators
Digital platform operators active in the rental of immovable property, personal services, the sale of goods and the rental of any mode of transport are required to introduce due diligence procedures to identify the sellers on their platform. This obligation not only applies to platform operators established in Belgium, but also to operators which are not established in a member state of the EU but facilitate carrying out the relevant activities in a member state and are registered in Belgium (together the “reporting platform operators”). If a seller fails to provide the relevant identification information to the platform operator, such operator needs to close the seller’s account (and make sure that the seller cannot re-register on the platform) or put the payment to the seller on hold.
In addition to the due diligence obligation, for each reportable seller, the reporting platform operators need to report certain information to the Belgian authorities (by 31 January of the year following the reporting year). A reportable seller is a seller that:
- has provided one of the aforementioned activities in the relevant period (or received or credited a payment in relation to such activity);
- is resident in a member state (or rented out immovable property in a member state); and
- is not an excluded seller (such as a government entity, or a seller who has carried out less than 30 activities for a total consideration of not more than EUR 2,000).
The information that needs to be reported on such seller covers (among others):
- the identity of the seller (including the seller’s address and tax identification number);
- the number of the bank account on which payments are made to the seller (and the name of the holder of such account, if different from the seller’s name);
- the member state(s) in which the reportable seller is tax resident; and
- per quarter: the consideration paid (or credited) to such seller, the number of relevant activities performed by the seller as well as the fees paid to the platform operator.
If the activity relates to the rental of immovable property, the platform operator also needs to report the address of the immovable property and (if available) the number of days such property was rented.
2. Joint audits
A joint audit is an administrative enquiry that:
- is conducted jointly by the competent authorities of two or more Member States; and
- relates to one or more persons of common/complementary interest to such authorities.
Such joint audits allow the tax authorities of different Member States to act in a coordinated and simultaneous manner when investigating the tax affairs of one or more taxpayers. This way, Belgian tax officials can assist in an audit taking place abroad, or vice versa.
Joint audits are subject to some ground rules, such as:
- A joint audit needs to be requested by one Member State to the other (and such request can be denied on justified grounds).
- A joint audit conducted in Belgium will be subject to the Belgian laws and procedural requirements. This means, for example, that the rights and obligations of the foreign tax officials participating to the joint audit will be determined in accordance with Belgian laws (it being understood that their powers cannot exceed the scope of powers that they have in their own Member State). The taxpayers subject to the investigation will have the same rights and obligations as they do in a ‘regular’ (ie non-joint) audit.
- The foreign tax officials may interview individuals and examine records in a joint audit in Belgium (and normally vice versa for Belgian officials in case of a joint audit abroad).
- The Belgian and foreign officials have to try to agree on the facts and circumstances which are relevant for the joint audit and agree on the tax position of the audited person(s). The agrees position will be reflected in a final report which will be shared with the taxpayer.
Although a joint audit may seem more burdensome for the taxpayer, it also has the benefit of leading to a uniform and coherent position of the Member States on a given tax issue which avoids cross-border mismatches for the taxpayer.
Joint audits are a new and challenging reality for companies operating across borders. They require effective tax risk management as part of your overall strategy. To help you deal with this situation, we can develop clear and consistent guidelines for your staff on how to handle unannounced or planned joint audits and provide expert advice and support if you face a joint audit from multiple tax authorities.
Don't let joint audits catch you off guard. Contact us today to find out how we can help you prepare and protect your interests.
1 This is a jurisdiction which (i) is considered by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes as a jurisdiction that is not effectively and substantially implementing the OECD standard for exchange of information, or (ii) does not impose any corporate income tax on domestic income or foreign sourced income, or (iii) has a nominal corporate income tax rate that does not exceed ten per cent (10%), or (iv) has an effective corporate income tax rate that does not exceed fifteen per cent (15%) on foreign sourced income; or (v) is included on the EU-list of non-cooperative jurisdictions.
4 Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.