Tax authorities investigative powers expanded
Near the end of 2022, the Belgian government enacted two new laws that affect the investigative powers of the tax authorities—both Belgian and foreign—to review and audit tax returns:
- The Law of 20 November 2022 includes measures that extend the statute of limitations periods for the Belgian tax authorities to review tax returns and issue additional assessments; and
- The Law of 21 December 2022 transposes the EU DAC 7 directive into Belgian law, as a result of which foreign tax authorities can now also actively participate in tax investigations in Belgium.
The 20 November law significantly expands the possibilities for the Belgian tax authorities to audit tax returns and issue assessments. The fact that foreign tax authorities can now participate in cross-border audits with the Belgian authorities under DAC 7 means that taxpayers may be subject to enhanced scrutiny and increases the pressure to be compliant.
Overview of Law of 20 November
The law does not change the standard period in which the Belgian tax authorities can review a timely filed tax return and issue an additional tax assessment, i.e., the tax authorities can review tax returns for the previous three years for any irregularities and issue an additional tax assessment for those years. The November law extends the period to four years where a tax return is filed late or not at all. In addition, a new six-year investigation and assessment period applies to tax returns of companies engaged in cross-border activities in the following cases:
- The return concerns a company required to prepare a local file for transfer pricing purposes or the company is subject to country-by-country reporting;
- The return concerns a company that has made reportable payments to tax haven jurisdictions;
- The return includes a claim for a reduced withholding tax or an exemption (on movable income) based on an applicable tax treaty or an EU directive;
- The return includes a claim for a tax credit for foreign withholding tax levied on foreign income; or
- Information is obtained from foreign tax authorities under the EU DAC 6 and DAC 7 directives relating to reportable cross-border arrangements or certain platform operators where the amount involved is at least EUR 25,000. (DAC 6 requires the mandatory disclosure and automatic exchange of information among EU member states of reportable cross-border arrangements and DAC 7 requires digital platform operators (within and outside the EU) to collect and report prescribed information on sellers offering goods or services on their platforms, with the information then automatically exchanged among the member states).
With six years to issue an additional assessment, the tax authorities will have more time to examine, among other things, intragroup transfer pricing or other aspects with an international dimension (e.g., potential tax treaty abuse, application of the participation exemption, etc.).
The statute of limitations period is extended from seven to 10 years in cases of suspected fraud and for “complex tax returns,” i.e., returns relating to oﬀshore legal constructions, hybrid mismatches and companies subject to the controlled foreign company rules.
In fraud cases, the Belgian tax authorities are no longer required to notify the taxpayer that they intend to apply the longer investigation/assessment period when an investigation is carried out at the request of a tax treaty partner or jurisdiction that has concluded an agreement with Belgium for the exchange of information on tax matters, or that is a party to another bilateral or multilateral legal instrument. It also is not necessary for the Belgian authorities to show specific indicators of fraud—it is sufficient that the authorities suspect that fraud is present. In other cases, the tax authorities must inform the taxpayer about the indications of fraud and their intention to apply the extended period for one or more assessment years.
The main purpose of extending the periods is to give the tax authorities more time to properly investigate tax returns that have a (complex) cross-border nature and/or in cases involving fraud. Notably, these longer periods are not to be used to investigate certain straightforward aspects of a tax return, such as nondeductible car costs, restaurant expenses or corporate gifts. These investigations should be completed within the standard three-year period (or four years for a late tax return).
The effect of these changes is that taxpayers now must retain books and records for 10 years rather than seven. To compensate for the added burden, the period for a taxpayer to file an appeal is extended from six months to one year.
The Belgian tax authorities (or a tax treaty/exchange of information agreement partner) can ask a court to impose a penalty on a taxpayer if it impedes/obstructs the exercise of the tax authorities’ investigative powers.
The rules extending the investigation, assessment and retention periods apply as from assessment year 2023 and, more importantly, are prospective only. For assessment years 2022 and earlier, the previous rules remain in effect even if the relevant periods expire in or after assessment year 2023.
Joint tax audits within the EU
As from 1 January 2023, a tax official from another EU member state can actively participate in a tax investigation in Belgium provided the competent Belgian tax authority agrees. This possibility was introduced with the transposition of DAC 7 into Belgian law, as DAC 7 specifically allows joint tax audits to prevent abuse. The foreign officials are then assimilated to national officials in the sense they can directly question taxpayers concerned, review documents, etc.