R&D Wage withholding tax exemption – Tax authorities maintain position regarding notification to be sent for projects and programs to Belspo before 1 August 2023
23/05/23
The partial withholding tax exemption for research and development has been the subject of tax audits more and more frequently in recent years. Ambiguities in the applicable laws have often led to varying interpretations by Belspo and the tax authorities, specifically with regard to the question of whether it is necessary to send a prior notification for a project/program to qualify for the R&D exemption.
Furthermore, in a recent judgement, the Court of Cassation adopted a much stricter interpretation than the tax authorities (cf. also https://news.pwc.be/rd-wage-withholding-tax-exemption-strict-interpretation-of-start-dates-confirmed-in-case-law-leading-to-altered-interpretation-of-fiscal-authorities/).
This lack of clarity in combination with the increasing number of audits has resulted in many (pending) tax disputes and court cases. A recent circular letter has brought some good news for taxpayers who had been relying on the FAQ published on the tax authorities’ website and offers a limited window of opportunity for those hoping to qualify for the R&D exemption.
Requirement to send a notification for a project/program to Belspo – the tax authorities’ original position
If the conditions as stated in the law are met, a company can exempt up to 80% of the wage withholding tax of the applicable employees. One of the crucial conditions for this partial withholding tax exemption for scientific research is that Belspo must be notified of the project/program. The notification must include the expected start date and estimated end date of the project/program.
However, the law itself does not specify when exactly the notification must be sent, nor what the possible consequences will be if the notification is not sent prior to the start date of the project/program in question. Until recently, according to the FAQ on the tax authorities’ website, a project/program would only qualify for the exemption from the date the notification was sent to the Belspo via the portal even if the project/program had already started.
Belgian Court of Cassation – strict interpretation
However, during many audits, the tax authorities often adopted a much stricter interpretation which contradicted their own FAQ. As was to be expected, this inconsistent approach led to discussions with taxpayers which resulted in divergent case law. Earlier this year, however, the Court of Cassation ruled in favour of a strict interpretation.
On 6 January 2023, the Court of Cassation deduced that since Article 275/3 ITC92 states that the expected start date should be included in the notification to be sent to Belspo, that the exemption can only be applied if the application is made before the start of the project/program and prior to the period to which the eligible remuneration relates. In other words, the exemption cannot be applied at all if the notification is sent after the R&D-project/program has already started.
This position is open to criticism and is moreover out of touch with reality. It implies that when a notification is sent one day after the project/program has started (which also raises the question: what defines the exact starting point of a project/program), the project/program no longer qualifies for the exemption for its entire duration. This is clearly a disproportionate measure. As this case law contradicts the position taken in the FAQ published on the tax authorities’ website, as well as the position issued by Belspo, this raises the question: how should the tax authorities apply this case law, especially in the light of the principle of legal certainty.
New circular letter – tax authorities to follow strict interpretation as of 1 August 2023
A circular letter of 27 April 2023 clarifies that the above case law should be applied and makes the following distinction:
- For projects/programs that are ongoing on 1 August 2023, or that start on 1 August, but for which no notification has been sent prior to that date, it will no longer be possible to apply an exemption. In other words, as of 1 August 2023 the tax authorities will apply the new, strict position of the Court of Cassation.
However, for projects/programs for which a notification has already been sent and for projects/programs for which a notification will be sent by 31 July 2023 at the latest, the less strict, previous position of the tax authorities will remain applicable. This means that for projects/programs for which a notification was sent in the past, the exemption will still apply as of the month in which the notification was sent to Belspo.
- For those projects/programs, this circular letter confirms the legitimacy of the tax authorities’ previous position as published in the FAQ. It shows that the tax authorities honour the principle of legal certainty and stresses that citizens’ legitimate expectations as created by the public authorities must be met.
This explicit clarification of the earlier position is good news for taxpayers who have pending tax disputes as it can be invoked as an additional argument. In the event of pending administrative disputes, we would therefore strongly recommend submitting an additional administrative tax claim given these recent developments.
The deadline of 31 July 2023 is particularly important for current, ongoing projects/programs for which a notification has not yet been sent. These projects/programs may still qualify for the exemption as long as a notification is sent by 31 July 2023 at the latest. As of 1 August 2023, the new, strict interpretation applies – too late is too late!
If you have any questions regarding the above or are looking for more guidance, don't hesitate to reach out to us!
