The Constitutional Court and the Minister of Finance confirm that a 10% tax increase cannot be automatically applied following a first infringement
06 Dec 2024
It is common practice for tax authorities to apply a tax increase of 10% in the event of a first infringement to the Belgian Income Tax Code without fraudulent intent. The application of an effective tax increase of 10% or more also triggers the disallowance of the use of some tax attributes (art. 206/3 BITC). In a decision of 21 November 2024, the Constitutional Court has ruled that the disallowance of tax attributes does not infringe the principles of equality and proportionality. In that same decision, the Constitutional Court also ruled that in principle, no tax increase should be applied following a first infringement committed in good faith.
Background
Article 444 of the BITC provides for a penalty consisting in a tax increase ranging from 10% to 200% that can be imposed on taxpayers for not or late filing their tax return or for filing an incorrect or incomplete tax return. According to this legal provision, the tax authorities can waive this tax increase in the absence of bad faith. To determine when the application of the tax increase can be waived, the administrative commentary on Article 444 BITC92 provides for certain guidelines.
In practice however, these guidelines are rarely followed, leading to the automatic application of a 10% increase in case of a first infringement, which leads to the forfeiture of certain tax attributes and triggers an effective cash-out. In case the ex-officio assessment procedure is applied combined with the application of a tax increase, the disallowance of the tax attributes applies to the total amount of the ex-officio determined result. A case where such an ex-officio assessment was applied combined with a tax increase for consecutive infringements and no losses could be deducted from the total taxable basis reported in the late tax return gave rise to a request for a preliminary ruling with the Constitutional Court.
The Constitutional Court’s ruling
In a previous newsflash we commented on the Constitutional Court’s answer to the first preliminary ruling that was submitted : https://www.pwclegal.be/en/news/constitutional-court-ruling-on-disallowance-of-tax-attributes.html
In the judgment of 21 November 2024, the Constitutional Court answers a second request for preliminary ruling and concludes that it does not see any unjustified discrimination of the application of Article 206/3 BITC for different situations (filing a tax return late or not at all, or filing an incorrect one).
Further the Court states that the disallowance of the tax attributes can have a different impact in case of an ex-officio assessment. However, it also states that in principle, no tax increase applies for a first offence without intent to commit fraud. This consideration, in addition to the fact that the losses can be carried forward and deducted during a subsequent tax year, leads the Court to consider that Article 206/3 BITC92 does not have disproportionate consequences and that there is therefore no infringement to the principle of equality.
What is the impact of this ruling?
The consideration of the Constitutional Court that in principle no tax increase applies for a first offence without intent to commit fraud is in line with the legal provision and administrative guidelines, and was recently confirmed by the Minister of Finance in the response to a parliamentary question. The minister clarified that the Constitutional Court confirms that it was not the intention of the legislator to automatically impose a 10% tax increase for a first offence.
What’s next?
Regarding the disallowance of tax attributes (Art. 206/3 BITC), a third preliminary question regarding the compatibility of the provision with the principles of legality and equality is still pending before the Constitutional Court. This question also focuses on the discretionary power that is granted to the tax authorities regarding the waiving of a tax increase of 10% triggering the disallowance of tax attributes, with regards to the principle of legality. It remains therefore important to continue to safeguard the taxpayers’ rights when confronted with the application of a tax increase and refusal of tax attributes.
Practical implications
The ruling of the Constitutional Court and the position of the Minister of Finance can be invoked when the tax authorities notify their intention to apply a 10% tax increase. An evaluation on a case by case basis needs to take place on how this can be challenged for closed audits and/or pending procedures.
Our legal and tax experts can provide further advice in this regard.
Véronique De Brabanter
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