International Tax Review (ITR): What advice would you give to companies about how to reduce the risk of becoming involved in a dispute with the Belgian tax authorities?
Astrid Pieron (AP) (pictured below): For companies and groups already operating in Belgium, managing tax risks in the same way as operational risks should enable them to reduce tax litigation risk.
This implies first identifying their specific tax risk areas, such as transfer pricing, remuneration schemes, legal reorganisation or changes in business model; secondly, identifying management tools such as appropriate transfer pricing and legal documentation or popularisation of accurate compliance and reporting routines; and finally an ongoing risk assessment.
Those companies as well as new entrants in Belgium also have the ability to ask for a formal advanced clearance from the Belgian ruling commission.
This commission, a part of the Belgian tax administration, has now been in place for more than 10 years and has proven effective in ensuring tax and legal certainty for taxpayers.
The commission is competent for a vast range of topics including review of the conditions required for transfer pricing, remuneration schemes or tax neutral reorganisations.
ITR: What options do Belgian taxpayers have to resolve disputes with the tax authorities other than litigation? What are the positives and negatives of these options?
AP: Outside of the characterised tax fraud cases, most tax disputes are handled at the administrative level and do not reach the courts.
There are two administrative levels – field level and regional direction.
When appropriate, settlements allow disputes to be resolved within a reasonable timeframe whereas procedures before the courts generally take years.
Procedures before courts may be more appropriate for issues of principle. For example, when compliance of the Belgian tax law provisions with the European legal framework is questioned.
Tax mediation exists within the Belgian tax administration for long-standing tax disputes but is mostly used by individual taxpayers.
Tax mediation is not seen as an efficient way to resolve tax disputes.
ITR: Are you seeing any trends in the types of dispute cases the Belgian tax authorities are taking up, and those where they are succeeding in the courts?
AP: Because of the EU context, a series of court cases are discussing whether Belgian legislation respects the freedoms guaranteed by the Treaty on the Functioning of the European Union, that is free circulation of goods, capital and persons.
The scope of the deduction of dividends by Belgian corporate taxpayers and the application of withholding taxes on dividends paid to non-Belgian investment companies have been the most recent emblematic cases discussed before the courts.
Outside of fraud cases, field tax inspectors are focusing largely on charges incurred and payments made by companies operating in Belgium.
In mid-2011 the Belgian tax authorities created some uproar in the tax community by publishing a broad interpretation of the secret commissions tax giving rise to a special 309% – although tax deductible – contribution.
Historically, those commissions were defined as any payment made by a Belgian corporate taxpayer to an unidentified beneficiary.
The interpretation evolved over years and the last one aims at covering all payments made to identified beneficiaries without having made the required disclosures, such as commission forms and salary forms.
This special contribution has been applied in a wide series of cases ranging from non-(fully) reported benefits in kind or in cash granted to employees or managers, to services fees paid to foreign companies or individuals. Cases involving those commissions are regularly brought before the courts.
Transfer pricing, specifically intra-group charges, is also a focus of the authorities. The ruling commission is competent for assessing the arm’s length character of intra-group pricing so this effectively prevents litigation.
If litigation occurs, it is most often closed with a settlement and revision of the transfer pricing policy for the future.
ITR: What do you think multinationals in Belgium can expect from the Belgian tax authorities in the future?
AP: Like elsewhere in the world, transfer pricing will most likely be a risk area.
The fight against tax fraud and abusive tax avoidance is also high on the agenda of the Belgian government, specifically when they are discussing budget.
Earlier this year the Belgian tax authorities revised the wording of the Belgian anti-abuse provision (article 344§1 Income Tax Code) to grant more flexibility in tackling tax-driven schemes and structures.
Again the ruling commission is likely to play a role in the prevention of tax litigation as they can confirm beforehand the existence of other motives than tax in a contemplated transaction or structuring.
Further reading:
How to manage a tax dispute in Portugal
