Internationally active companies, beware! Tax authorities are given more time to check and correct the tax return
Belgian tax law sets the time limits within which the tax authorities can establish an assessment. Last year, this investigation and assessment period was typically set at 3 years, unless fraud was suspected. In the latter case, a 7-year period applied. A 10-year investigation and assessment period was also possible, but only in rather exceptional circumstances.
The legislator has extended the examination and assessment deadlines through the law of 20 November 2022 containing various tax and financial provisions. These new deadlines apply to corporate income tax, VAT, withholding and property tax and will take effect from assessment year 2023.
The aim of this extension is to give tax authorities more time to examine tax returns. As the focus will be on tax returns with an international component, certain Belgian tax returns of foreign entities will also fall under the scope of the new legislation.
Below, we have summarized the main changes that will apply as of assessment year 2023.
New investigation and assessment deadlines
- The basic deadline is maintained at 3 years. This is the case for timely filed tax returns to which the tax authorities want to make a change (read: a higher tax due).
- If you fail to file the tax return or file it too late, a new examination and assessment period of 4 years will apply.
- Specifically for tax returns with an international component, you must now take into account a 6-year investigation and assessment period. The tax legislator refers to “semi-complex” tax returns in this context. The scope includes, among others, tax returns of companies subject to transfer pricing documentation requirements and tax returns that (have to) report payments to tax havens.
- Finally, there is the extended investigation and assessment period of 10 years. This constitutes the new standard period in case of fraud. In this respect, it is no longer required that the tax authorities disclose their indications of tax evasion. It is sufficient that they communicate their intention to apply the extended period for the assessment years for which a fraud investigation is initiated. In addition, the 10-year period also applies to “complex” tax returns, by which the legislator envisages some more exceptional situations (such as, for example, when there is an artificial legal scheme abroad).
If the tax authorities, using their additional time limits, make other important determinations, such as, for example, a general tax abuse or misuse of a double tax treaty, they are allowed to investigate further and possibly issue an assessment based on this.
On the other hand, the tax authorities are not allowed to use this additional time to investigate simpler aspects of the tax return. Regarding the latter, the new tax law talks about rectifications regarding a number of non-deductible expenses, such as non-deductible car expenses, business gifts, restaurant expenses, social benefits and so on. Investigation of these latter aspects will therefore always have to be done within the standard period of 3 years (or 4 years in case of a late or non-declaration).
Retention period of books and records
The extension of the examination and assessment periods also results in an extension of the retention period of books and records. Whereas a taxpayer was required to keep its books and records for 7 years, it must now keep them for 10 years.
Good news is that the period within which an objection against the assessment can be filed has also been extended. First, the period was 6 months, where it has now been extended to 1 year.
If a taxpayer does not cooperate with the tax authorities’ investigation, an administrative fine of up to EUR 1.250 could be imposed. Now, with the introduction of the new tax law, it is possible for the tax authorities to ask the court to impose a periodic penalty payment.
What does that mean for you?
The new tax law imposes fewer rules on tax authorities and gives more time and resources for a tax audit. If your company operates internationally, a six-year examination and assessment period will often become the new standard. Consequently, it is very important to ensure that you have a well-substantiated transfer pricing policy in place, as the likelihood of time-consuming (transfer pricing) audits will only increase.
Of course, our experts at Van Havermaet will be happy to assist you in drafting and implementing a well-substantiated and well-considered transfer pricing policy within your group, as well as drafting the necessary documentation and legal contracts.
In addition, you can count on us for assistance with any tax audit.
Gert De Greeve / Joke Gysens / Simon Dehertog