The secret commissions taxation (“bijzondere aanslag geheime commissielonen” or “cotisation spéciale sur commissions secrètes” - hereinafter 'SCT') continues to cause turmoil. On 26 September 2019, the Constitutional Court ruled that the “escape route” infringes the principle of equality. Following this judgment, the tax authorities have published a circular letter explaining how the escape route must be applied.
What is it about?
Certain allowances, commissions, fees and benefits in kind provided by a company must be reported on an individual as well as a summary tax slip. If this is not done, the tax authorities can impose a so-called ‘secret commissions taxation’ on that company (art. 219 ITC 92 and art. 223 ITC 92 - hereafter ‘SCT’). This is a separate assessment of 100% or, in certain cases, 50% (plus the additional crisis contribution, if applicable).
The SCT will not be applied “if the recipient was unambiguously identified within 2 years and 6 months after 1 January of the assessment year” (art. 219(6) ITC 92 and art. 223(4) ITC 92). This escape route is based on the reasoning that the SCT only has a compensatory character. The aforementioned period should allow the tax authorities to still tax the recipient within the standard 3-year statute of limitations (art. 354 ITC 92).
However, if the recipient is identified and taxed outside the period of 2 years and 6 months but within the extended or extraordinary statutes of limitations, the escape route cannot be applied.
Judgment of the Constitutional Court dated 26 September 2019
In its preliminary ruling dated 26 September 2019, the Constitutional Court ruled that the escape route infringes the principle of equality and non-discrimination if it cannot be applied in the event that the recipient of the commission is identified outside the period of 2 years and 6 months but is still subjected to effective taxation.
The Constitutional Court states, among other things, that: "the secret commissions taxation should therefore not be applied where the recipient of the benefit in kind was effectively taxed within the legal statutes of limitations" (B.7 - unofficial English translation).
Circular letter 2020/C/77 dated 5 June 2020
In its circular letter 2020/C/77, the tax authorities explain how the escape route must be interpreted and applied, so it would no longer infringe the principle of equality. The tax authorities describe the following situations:
- If the recipient is unambiguously identified within the period of 2 years and 6 months, no SCT will be applied;
- If the recipient is unambiguously identified outside this period but the statutes of limitations have not yet lapsed, the tax authorities will by priority establish a tax assessment on behalf of the recipient. However, only under the following conditions, no SCT will be established:
- the recipient must explicitly agree with the taxation on his/her behalf;
- the company must acknowledge in writing that the recipient has been provided a benefit in kind.
If the recipient does not agree with the taxation on his/her behalf (e.g. in cases where the existence or value of the benefit in kind is contested), the tax authorities will also establish a SCT on behalf of the company. The tax authorities thus explicitly create a situation of double taxation in such cases.
However, if the tax assessment on behalf of the recipient becomes final, relief of the SCT on behalf of the company will be granted, but only after a tax claim or a request for ex officio relief has been filed.
Key takeaway
The tax authorities set out the conditions under which no SCT will be applied where the recipient is unambiguously identified outside the period of 2 years and 6 months. However, the tax authorities also introduce specific conditions in order to apply the escape route. In our opinion, it is questionable that the tax authorities impose additional obligations via a circular letter.
Taxpayers who are confronted with a SCT and a taxation on behalf of the recipient must act in a timely manner in order to avoid the double taxation becoming final. Possibilities also exist to request relief from double taxation.
