Investigative powers of domestic and foreign tax authorities expanded

Extension of statute of limitations periods

The purposes of the Law of 20 November is to bring national tax procedures in line with international standards.

The rules extending the statute of limitations 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.

Standard periods

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 the 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.

New period in case of cross-border activities

In addition, a new six-year investigation and assessment period applies to tax returns of companies engaged in cross-border activities, as follows:

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 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 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.).

Period in case of fraud

The statute of limitations period is extended from seven to 10 years in cases of suspected fraud and in the case of “complex tax returns”, i.e., returns relating to legal (oﬀshore) 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 avail themselves of 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 disallowed expenses relating to car costs, restaurant costs 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.

Possibility of imposing penalty payments

The Belgian tax authorities can ask a court to impose a penalty on a taxpayer if it has impeded/obstructed the exercise of the tax authorities’ investigative powers.

The penalty may also be imposed 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.

Joint tax audits in 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 that they can directly question taxpayers concerned, review the documents, etc.

How can we help?

The 20 November law significantly expands the possibilities for the Belgian tax authorities to audit tax returns and issue an assessment. 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.

We at BDO can assist taxpayers with such audits. But even better, such audits are avoided. Your local BDO advisor or one of our experts in international taxation can always assess possible risks and solutions with you. Do not hesitate to contact them.