No tax deduction following tax audit - Questions referred to the Constitutional Court
No tax deduction following tax audit - Questions referred to the Constitutional Court
The Constitutional Court must rule on the legality of the minimum taxable base when a tax audit imposes a tax increase of at least 10%.
When a tax audit results in an increase in taxable income, no tax deduction, except for the year's dividends-received deduction, may be applied to this increase, provided that a tax increase of at least 10% was imposed.
This deduction prohibition thus results in a minimum taxable base on which corporate income tax is always due.
Since the application of the deduction prohibition depends on the discretionary decision of the tax inspector whether or not to impose a tax increase of at least 10%, the relevant article of the law (Article 206/3, §1, paragraph 2 CIR92) has already been widely criticised in legal doctrine.
Thus, it mainly refers to a violation of the principle of legality on the basis of which the taxable base may only be determined by law. However, by imposing or not imposing a tax increase, the tax inspector can determine the taxable base himself.
In a recent case before the Antwerp Court of Appeal, the deduction prohibition resulted in an effective cash-out of more than EUR 1 million. The taxpayer in this case invoked a violation of the principles of legality and equality, arguing that the cash-out of more than EUR 1 million should be considered as a criminal sanction, disproportionate to the alleged infringement.
The Antwerp Court of Appeal also questions the legality of the deduction prohibition and submits three preliminary questions to the Constitutional Court. Among other things, the court asks whether there is a violation of the principle of legality because the application of the article of law depends on the discretionary power of the tax inspector to impose a 10% tax increase or not. Thus, the tax inspector can also determine whether or not a tax liability arises on the part of the taxpayer.
It also raises the question of whether there is a violation of the principle of equality by treating taxpayers in the same situation differently depending on the decision of the tax inspector.
It now remains to be seen how the Constitutional Court will answer these preliminary questions. If the Constitutional Court decides that the Constitution has been violated, it will be able to give rise to ex officio waivers and revisions of tax assessments that were established in the past.
We are following this closely. As soon as there is more news, you can read about it here. If you already have questions about this, you can always contact your BDO advisor or Hubert Hellraeth.
This deduction prohibition thus results in a minimum taxable base on which corporate income tax is always due.
Tax increase of 10% - discretionary power of tax inspector?
In the absence of bad faith, the tax inspector may refrain from imposing a 10% tax increase (Article 444(3) ITC92). As a result, whether or not to apply a tax increase amounts to a discretionary decision by the tax inspector.Since the application of the deduction prohibition depends on the discretionary decision of the tax inspector whether or not to impose a tax increase of at least 10%, the relevant article of the law (Article 206/3, §1, paragraph 2 CIR92) has already been widely criticised in legal doctrine.
Thus, it mainly refers to a violation of the principle of legality on the basis of which the taxable base may only be determined by law. However, by imposing or not imposing a tax increase, the tax inspector can determine the taxable base himself.
What does case law say about the deduction prohibition?
Case law has already ruled on several occasions that the application of the tax increase and the associated deduction prohibition resulted in disproportional financial consequences for the taxpayer (cf. Rb. Gent, 13 September 2022).In a recent case before the Antwerp Court of Appeal, the deduction prohibition resulted in an effective cash-out of more than EUR 1 million. The taxpayer in this case invoked a violation of the principles of legality and equality, arguing that the cash-out of more than EUR 1 million should be considered as a criminal sanction, disproportionate to the alleged infringement.
The Antwerp Court of Appeal also questions the legality of the deduction prohibition and submits three preliminary questions to the Constitutional Court. Among other things, the court asks whether there is a violation of the principle of legality because the application of the article of law depends on the discretionary power of the tax inspector to impose a 10% tax increase or not. Thus, the tax inspector can also determine whether or not a tax liability arises on the part of the taxpayer.
It also raises the question of whether there is a violation of the principle of equality by treating taxpayers in the same situation differently depending on the decision of the tax inspector.
It now remains to be seen how the Constitutional Court will answer these preliminary questions. If the Constitutional Court decides that the Constitution has been violated, it will be able to give rise to ex officio waivers and revisions of tax assessments that were established in the past.
We are following this closely. As soon as there is more news, you can read about it here. If you already have questions about this, you can always contact your BDO advisor or Hubert Hellraeth.