In Belgium, tax disputes usually arise following a tax audit of an individual taxpayer, either routine or targeted, or a targeted tax audit on a specific topic (eg, a standard transfer pricing questionnaire or where the existence of a foreign bank account is revealed by an automatic exchange of information) or an audit into a specific economic sector. In disputes on matters of principle, taxpayers may choose to file their tax return to accord with the tax authorities’ views and subsequently appeal their own tax assessment, thereby avoiding incurring penalties. This strategy rules out the taxpayer being denied the facility of offsetting the additional tax base with existing tax assets (since there is now a rule against doing so if a post-audit penalty of 10% or more is imposed).
Most tax disputes involve federal income tax. Though small in money terms, local taxes (municipal and provincial) also constitute a large proportion of the judicial caseload.
Taxpayers can exclude the chance of ending up in a dispute regarding federal income tax and other taxes levied or administered by the federal tax authorities (eg, VAT) by applying for an advance tax ruling (which provides legal certainty except in certain circumstances – see 6.4 Avoiding Disputes by Means of Binding Advance Information and Ruling Requests).
It is not yet clear whether the BEPS recommendations, the EU’s recent measures to combat tax avoidance, and any subsequent amendments to double tax treaties or domestic legislation in line with them, have affected the numbers of tax disputes in Belgium. They may well lead to an increase in disputes, but it is currently too early to tell.
The right to lodge an administrative or judicial claim does not, in general, depend on any obligation to pay disputed tax, nor provide a guarantee to do so. Other than in a limited number of cases, taxpayers are not obliged to pay disputed tax, either before bringing a challenge or whilst litigation is pending, but can choose to do so and thus stop the accrual of interest in the eventuality that the challenge fails.
In recent years, the tax authorities have developed their data-mining capabilities to identify which individual taxpayers and groups of taxpayers are worth auditing; their algorithms are a closely held secret. Tax audits can also be launched upon another basis.
This answer focuses on income tax.
A tax audit can be performed in a given financial year (the taxable period) and during the three following years. In cases of suspected fraud, four years are added to this time span, though the tax authorities must give the taxpayer due notice in writing of what cause they have to suspect it. The authorities can exercise their powers for ten years if the taxpayer uses a legal construction in a jurisdiction that is not bound to exchange information on tax matters with Belgium and that is listed as having no or low tax, in order to conceal the origin or existence of assets.
If the tax authorities receive information from a foreign tax authority showing unreported income from one of the six previous financial years, they have two additional years from the time the information is received to conduct a tax audit pertaining to these years. A tax audit does not suspend or interrupt the limitation period.
There is no set manner in which tax audits are organised. They can be performed remotely (by means of requests for information), at taxpayers’ or their accountants’ premises, or at the office of the tax official doing the audit. The right to access company premises (also called "visitation" or a site inspection), whether announced or unannounced, is one of the general investigative powers available to the tax authorities. Documents are made available to them in either hard or soft copy.
Lately, tax auditors have been very much on the lookout for transfer pricing and international transactions generally. They are helped by a number of transfer-pricing documentation requirements (namely local file, master file and country-by-country reporting) and a special schedule attached to the corporate tax returns listing payments made directly or indirectly to entities established in tax havens.
The rules concerning cross-border exchanges of information and mutual assistance between tax authorities have given rise to an increase in tax audits in Belgium, with information received from foreign tax authorities triggering tax audits here (eg, revealing the existence of undeclared bank accounts).
Some joint audits are occurring with the authorities of foreign states, but they are still very rare.
The main point is to be clear on what the tax authorities can and cannot legally ask for. Experience shows that the tax authorities do not infrequently ask for things that fall outside their investigative powers, but do not raise a protest when they are reminded of the boundaries thereof.
In federal income tax matters, administrative claims against assessments should be lodged within six months, at an administrative level higher than that of the tax inspector who assessed the tax. However, there is no centralisation of such administrative claims. Taxpayers have an opportunity to discuss their file with the official in charge of investigating the claim and, if they wish, can call in the tax authorities’ internal reconciliation service to try and find common ground between the positions of the taxpayer and the tax inspector. With respect to federal income tax and some other taxes, administrative challenge is needed before court action can be launched. A special administrative procedure applies for the remission of penalties.
In income tax matters (in which the administrative claim phase is a prerequisite to court action), the tax authorities should issue their decision within six months (extended to a maximum of ten months if the special reconciliation service is asked to intervene); after that, taxpayers can choose to wait for an administrative decision or submit the dispute to the Court of First Instance, thereby ending the administrative claim phase.
Tax litigation is always initiated by the taxpayer filing an appeal with the registrar of the Court of First Instance, in income tax matters after the administrative decision or any time an administrative claim has been pending for six months (extended to a maximum of ten months if the tax authorities’ internal reconciliation service is requested to intervene, and/or by a maximum of three months if the challenged tax assessment has been made ex officio or if the taxpayer requests correction of the administrative decision) but no later than three months after any administrative decision on the administrative claim.
Taxpayers challenge their tax assessment before the Civil Division of the Court of First instance. The proceedings follow the rules of civil procedure. The taxpayer is usually represented by an attorney, the tax authorities often by a tax official. They exchange submissions and then the court hears oral arguments at a hearing that lasts one or two hours or sometimes longer, depending on the complexity of the case. A few months after oral arguments, the court issues its written judgment. Both the taxpayer and the tax administration can then lodge an appeal before the court of appeals.
As in most civil cases, witness testimony in tax cases is very rare (if not non-existent). The court relies on documentary evidence, including transcripts of interviews conducted with the taxpayer or third parties by the authorities during the tax audit. New documentary evidence can be submitted as long as it can validly be lodged and expanded on during the appellate phase.
As a rule, the burden of proof rests with the tax authorities, although it rests with the taxpayer where a deduction, exemption or credit is claimed. The burden of proving criminal intent always rests with the tax authorities – ie, in allegations that the taxpayer knowingly and wilfully evaded tax.
See 11.1 Strategic Guidelines in Tax Controversies.
All such sources are relevant, but case law plays the greatest role by far (despite the absence of a stare decisis principle in Belgian law). In practice, Belgium’s courts defer to rulings by the ECJ and ECHR, as well as judgments handed down by the Constitutional Court and the Court of Cassation; they regularly submit requests for preliminary rulings to the ECJ and the Belgian Constitutional Court.
Once the Court of First Instance has ruled, both the taxpayer and the tax authority can appeal to the Court of Appeal, where the process is essentially the same as at first instance. Appeal courts have full jurisdiction to rule on law and fact. Both the taxpayer and the tax authority can then take the appeal judgment to the Court of Cassation, whose jurisdiction is nevertheless limited to issues of law. If it quashes the appeal judgment, the Court of Cassation will remit the case to another court of appeal.
The procedure in tax appeals is the same as at first instance – see 4.2 Procedure of Judicial Tax Litigation. The procedure differs before the Court of Cassation, commencing with a writ setting out the objections to the appeal judgment (which may only embody legal issues). The purview of the Court of Cassation may not extend beyond the objections set out in the writ before it. The respondent has three months to respond to them. Subsequently, an opinion is issued by one of the advocates general, either in written form or orally at the hearing. It is customary not to present oral arguments at the hearing (other than in exceptional circumstances) and merely to refer to the written submissions.
Tax matters are heard before the Court of First Instance, the Court of Appeal and the Court of Cassation, by independent professional judges with a legal background and experience usually broader than just tax. In the Court of First Instance and the Court of Appeal they usually sit alone, in a division that specialises in tax matters; in some Courts of Appeal, tax cases are heard by a bench of three judges chosen by the President of the Court. Neither party has any say in which judge will hear the case. In the Court of Cassation, tax cases are handled by a bench of five judges sitting in the Civil Division, the procedure being similar to that in the ECJ with an advocate general issuing an opinion and one of the five judges acting as judge rapporteur, who studies the case in depth and drafts the judgment of the court.
Belgium is bound under the competent authority procedure provided for in double taxation treaties (DTTs). The Arbitration Convention, which is binding on all EU Member States, and some Belgian DTTs include arbitration provisions. At a domestic level, the only ADR mechanism available to taxpayers is to request a special department within the tax administration to investigate disputes in an endeavour to reconcile the positions of the taxpayer and the tax inspector, but that department can only make (non-binding) recommendations.
See 6.1 Mechanisms for Tax-related ADR in this Jurisdiction.
A special administrative procedure applies for the remission of penalties, which is not a mediation or arbitration procedure but more akin to petitioning for a pardon in criminal cases.
Advance tax rulings (or "advance decisions in tax matters") are issued by the Rulings Service, an autonomous section of the tax authority. Tax rulings cannot depart from the provisions of law (no "sweet deals") but do provide taxpayers with legal certainty as to the interpretation of facts and law relative to transactions contemplated by them as described in their ruling applications. Rulings are binding on the tax authorities provided: the conditions governing them are adhered to; the situation or the transactions are fully and correctly described by the applicant and their essential elements are carried out as described; and essential consequences of the situation or the transactions are not affected by one or more related or subsequent elements due directly or indirectly to the applicant. Whether the tax authorities are bound by other published or individual administrative guidance on which taxpayers might reasonably rely in good faith is currently a matter of controversy, unless the tax provisions at issue are in the implementation of an EU directive, in which case the overriding EU principle of legitimate expectation applies.
See 6.1 Mechanisms for Tax-related ADR in this Jurisdiction.
See 6.1 Mechanisms for Tax-related ADR in this Jurisdiction.
Administrative fines are often imposed by the tax authorities, together with tax assessments. For instance, in income tax matters, the tax due on unreported income is increased with a penalty ranging from 0% to 200%, depending on the seriousness of the infringement and the taxpayer’s previous conduct; an increase of 50% or more is only charged in cases of fraud – ie, where the tax authorities can prove that the taxpayer acted knowingly and wilfully in failing to report income (but not for tax assessments based exclusively on the general anti-avoidance rules (GAAR)). In addition to ad valorem tax increases, lump-sum fines can also apply to income tax (eg, general administrative fines ranging from EUR50 to EUR1,250; a fine of EUR6,250 for non-disclosure of a reportable foreign entity or trust; or fines of EUR1,250 to EUR25,000 for failure to comply with the transfer-pricing documentation requirements).
Administrative fines are imposed by the tax authorities at the same time the additional tax is levied, and such fines are reviewed by the same courts as verify whether (and how much) tax is due. Criminal penalties are demanded by the public prosecutor and imposed by the criminal courts. In 2012, the una via principle was introduced into Belgium’s legislation, under which tax infringements may be prosecuted only once, by either administrative or criminal penalty. The principle is that taxpayers may not be prosecuted twice for the same set of facts (non bis in idem, or double jeopardy). Public prosecutors decide whether to prosecute after optional consultations with the tax authorities. The una via rule provides that administrative penalties cannot be enforced while a criminal prosecution is pending. The rule was held to be unconstitutional by the Constitutional Court in 2014 (essentially on the ground that it allows the raising of a criminal prosecution after an administrative penalty has already been imposed). Criminal prosecutions are not stayed pending the outcome of fiscal procedures. According to a reform approved by the Belgian parliament on 25 April 2019, the judge who is handling a fiscal criminal procedure will also be competent to decide on the civil tax claim (including administrative fines). When determining the criminal penalty, the judge will then have to take into account the imposed administrative sanction.
Whether a particular case warrants raising a criminal prosecution is at the discretion of the public prosecutor, who has the option of consulting with the tax authorities. Criminal prosecution of tax infringements is rare. In most cases, administrative fiscal surcharges are imposed (in amounts up to 200% of the tax evaded).
The stages in the administrative tax infringement process mirror those in the tax assessment process. The fiscal criminal procedure follows the general rules of criminal procedure. According to a reform approved by the Belgian parliament on 25 April 2019, the judge handling a fiscal criminal procedure will also be competent to decide on the civil tax claim (including administrative fines).
Upfront payment of an additional tax assessment does not qualify the taxpayer for a reduction in any fine charged for the relevant tax offence.
This is indeed possible in tax criminal cases, with the agreement of the public prosecutor and the tax authorities.
Once the Court of First Instance issues its judgment, both the taxpayer and the public prosecutor can appeal to the Court of Appeal, where the process mirrors that at first instance. Courts of appeal have full jurisdiction as to law and fact. Either the taxpayer or the prosecutor can then appeal a Court of Appeal judgment to the Court of Cassation, whose jurisdiction is nonetheless limited to issues of law. If it quashes the judgment, the Court of Cassation remits the case to another court of appeal.
Tax avoidance that is only open to challenge under the GAAR is not classed as fraud, and therefore attracts only limited administrative penalties (eg, 10% tax increase). This is in general not so where a specific anti-abuse rule applies. In purely transfer pricing disputes, any administrative fine charged by the tax authorities is usually only minor.
In cases of double taxation due to duplicated tax assessments or adjustments in cross-border situations, is it common to apply both domestic litigation and the available mechanisms under the relevant double taxation treaty.
The tax authorities take the view that anti-abuse rules like the GAAR can also be applied in cross-border situations covered by bilateral tax treaties. Given the primacy of bilateral tax treaties, this may be controversial in certain circumstances if the tax authority claim is inconsistent with the applicable treaty. Case law provides no clear guidance in this respect.
The main transfer pricing adjustments are traditionally challenged under domestic law, especially the Belgian concept of "abnormal or gratuitous benefits" or the general rules on allowable expenses. In 2004, Belgium introduced the arm’s-length principle into its domestic law (inspired by Article 9 of the OECD Model Convention).
It is common to apply to the Rulings Service for a unilateral advance pricing agreement in the form of a tax ruling (see 6.4 Avoiding Disputes by Means of Binding Advance Information and Ruling Requests). The process usually starts with a pre-filing phase, in which the envisaged structure is explained and discussed. In the second phase, a written ruling application is submitted in which the facts and circumstances and tax analysis are set out in detail (together with supporting documents, such as benchmarking studies), and the decision is rendered based on this. The entire process generally takes four to six months. An anonymised version of the ruling is subsequently published. Rulings are valid for a period not exceeding five years. No fee is charged. Bilateral advance pricing agreements are infrequent. Applications go to the tax authorities’ International Relations Department and need to be submitted before the end of the first year intended to be covered. The International Relations Department co-ordinates applications with the other relevant jurisdictions. Bilateral APAs are not published. The time taken for the process varies and can extend over several years in complex files. No fee is charged in Belgium.
Tax litigation arises in the standard cross-border domains (eg, withholding tax, permanent/fixed establishments, transfer pricing). There has been a substantial increase in transfer-pricing litigation in Belgium as a consequence of the government’s development of its transfer pricing unit, a specialist team within the federal tax authority. Litigation is also on the up concerning the tax residence of corporate and individual taxpayers.
There are no costs to challenge an assessment at the administrative level.
There is no court fee in tax matters. Appeals to the Court of Cassation, however, must be served by a bailiff, which involves a cost of about EUR500, which can be recovered against the other party in the event of success.
Taxpayers represented by counsel (as they generally are) who win in court are awarded lump-sum representation costs, to be paid by the losing tax authorities. The amount is based on an official tariff applying to all civil litigation, and mainly depends on the money value of the litigation; it rarely covers the attorney’s actual fees. If the tax assessment is ruled to be reckless, the taxpayer may also be awarded damages in tort, though this is rare.
The procedures to obtain advance rulings and bilateral advance pricing agreements entail no official charge.
No general statistics are available encompassing all court tax cases in Belgium and stating their values. At the beginning of 2016, 9,229 cases were pending regarding personal income tax (of which 6,900 were at first instance), 645 regarding non-resident individuals (of which 502 were at first instance), 4,338 regarding corporate income tax (of which were 3,015 at first instance), 77 regarding non-resident companies (of which 60 were at first instance), 377 regarding withholding tax (of which 293 were at first instance) and 1,704 regarding VAT (of which 1,121 were at first instance).
See 10.1 Pending Tax Court Cases.
In federal income tax matters (which exceed all others, at least in terms of monetary value), taxpayers win completely at the administrative level in about 50% of cases and partially in about 12% (based on official statistics for decisions in 2016 and 2017). Taxpayers who do not fully succeed at the administrative level win in court in about 25% of cases. In VAT matters, taxpayers win in court in about 18% of cases.
The key point for consideration in the field of tax disputes in Belgium is generally timing: the timing for filing an administrative challenge against a tax assessment and for going to court, in light of the intricacies in computing assessments and the time taken for tax investigations; the time at which it is appropriate to raise certain legal arguments; and the time at which to pay disputed tax. Since Belgium is a small country with much inbound investment, due consideration must often be paid to whether the Belgian tax is creditable against a foreign tax and what requirements exist for it to be so. Where the first stage for any challenge is administrative, as in income tax matters, the argumentation should be presented so as to take account of the fact that the review is not necessarily performed by a civil servant with a legal background. A variety of different avenues may be open to a taxpayer wanting to challenge a tax assessment and, perhaps, a fiscal penalty; strategic considerations are therefore obviously important in deciding which avenue to choose, and when.
Such aspects aside, in a legal system where fiscal disputes are decided in courts under rules of civil procedure by a professional judiciary with legal background and experience usually broader than tax, the strategy in such disputes will not differ greatly from that in any civil cause, which means that the legal arguments are important.
The prime strategic guideline is obviously to refrain from litigating where, on an in-depth assessment, the case lacks merit. Decisions to pursue a court action must depend on the litigator having performed his or her core task of discovering the essence of the case, and then communicating it effectively to the bench.