Bill regarding combat of tax fraud approved by Committees in the House of Representatives

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A new chapter is about to start in the fight against tax fraud. The “Bill containing urgent provisions relating to the combat of fraud” of 22 April 2013 has been approved by the different competent Committees in the Belgian House of Representatives

The main measures in this Bill deal with:

  • The introduction of the concept of “serious tax fraud” in the Code of Companies, the Criminal Code and the Anti-money laundering legislation;
  • The possibility to strike companies from the register “Kruispuntbank van Ondernemingen/Banque-Carrefour des Entreprises” when they do not submit their annual accounts for three successive years;
  • More restrictions regarding the possibility to pay for precious metals in cash.

The Bill will now have to pass the plenary session of the House of Representatives, after which the Senate must decide whether or not to also treat it.

Serious tax fraud

The Bill introduces the concept of “serious tax fraud, whether it is organized or not” in the Code of Companies, the Criminal Code and in the Anti-money laundering legislation. It replaces the current and complicated concept of “serious crime of organized tax fraud with use of specifically complex mechanisms or mechanisms of an international level”. That replacement entails a broader notification requirement in the framework of the preventive Anti-money laundering legislation as it is no longer required that the tax fraud is organized in an international or complex mechanism for the notification obligation to apply.

The “Bill containing tax and financial provisions” d.d. 17 April 2013, which is currently also pending in Parliament, introduces the same concept in the different Tax codes and makes it punishable with imprisonment between 8 days and 5 years and/or a fine of EUR 250 to EUR 500,000 (please click here for the full text of this bill). The mere violation of a provision of the ITC 1992 or RD/ITC 1992 with intent remains punishable with imprisonment between 8 days and 2 years and/or a fine of EUR 250 to EUR 125,000.

The “serious” character of tax fraud may be deduced from the fact that forged documents are used. It may also be assessed on the amount at stake (and the abnormal character of the amount compared to the activities or the equity of the taxpayer) or the presence of one of the following indicators, as mentioned in the Royal Decree of 3 June 2007:

  • The use of a shell company located in a tax haven, in an off-shore location or at the premises of a front man, the use of a shell company which performs atypical activities compared to its statutory objective and the use of a shell company with an unclear or incoherent statutory objective;
  • The use of a company of which the statutory objective has been changed shortly prior to the suspicious financial transactions;
  • The use of an intermediary party for a financial transaction, acting for the account of the tax payer;
  • Performing financial transactions that are atypical or suspicious (in the light of the normal activities of the company) in market segments that are highly competitive or prone to VAT carrousel fraud;
  • The considerable increase of the turnover on a recently opened bank account that has not been used or has not been used much before, due to an exponential increase of the number and the size of the transactions within a short timeframe;
  • Irregularities in invoices relating to financial transactions;
  • Channeling payments through accounts and the existence of successive transactions through those accounts, which only have a minimal positive balance;
  • Channeling payments through accounts of other people than financial professionals, making it more difficult to identify the beneficial owner and the destination of the payments;
  • The international dimension of the financial transactions;
  • The refusal or inability to produce proof of the reason for the payments or their origin;
  • Organizing the insolvency of a company through the sale of its assets to affiliated persons or at non-arm’s length conditions;
  • The use of back-to-back loans, resulting in a situation in which the company in fact lends to itself;
  • Payments of fees to foreign companies without commercial activities and payments in the opposite direction.

Also the organized character of the tax fraud may be considered as a factor to determine the seriousness of the fraud, without being a conditio sine qua non.

Automatic striking of inactive companies from the register “Kruispuntbank van Ondernemingen/Banque-Carrefour des Entreprises”

Currently, interested parties and the Public Prosecutor may ask for the dissolution of dormant companies, i.e. companies which have not submitted their accounts during three successive accounting periods. However, this procedure has been found to be too time-consuming.

Therefore, the government has decided to strike such companies automatically from the register “Kruispuntbank van Ondernemingen/Banque-Carrefour des Entreprises”. Moreover, the Bill provides other criteria under which companies are stricken from the register.

The decisions to strike companies from the register will be published in the Belgian Official Gazette.
The Bill also provides the conditions under which a company can be registered again after being stricken.

Restrictions to payments in cash

Traders will no longer be allowed to pay or be paid in cash for the trading of precious metals for an amount of EUR 5,000 or more (EUR 3,000 or more as from 1 January 2014), both in case of a sale or a purchase of such metals.
Traders in precious metals will be made subject to the notification requirement imposed by the preventive Anti-money laundering legislation.

Conclusion

EY Tax Consultants supports the combat of tax and other fraud as it is necessary for a just society and to ensure a level playing field for all economic agents, but stresses the need for a more objective criterion.

The vague character of the new concept “serious tax fraud” may cause its introduction in tax and criminal law to have an unfathomable impact on economic life. Where the “serious” character of tax fraud is deduced from more objective elements, the seriousness can be assessed quite objectively.
This is, however, not the case where the seriousness of the tax fraud is deduced from the amount at stake (compared to the activities or the equity of the company). Such a subjective criterion is bound to lead to divergent assessments by judges, public prosecutors and tax officials for similar cases and to unwarranted tax and criminal persecutions. It should be borne in mind that such unwarranted persecutions have a significant (personal, commercial, economic, emotional, etc.) impact on the taxpayers in general and on the activities of enterprises in Belgium. Even the use of forged documents cannot always be considered as a more objective element. Attention has to be paid here to the description of the vague concept “forged documents” and the consequences thereof. It may lead to a kind of arbitrariness in order to determine serious tax fraud. It also has to be mentioned that some professions, such as accountants, controllers and lawyers, are most often unknowingly confronted with forged documents even if they do not recognize the danger of the use of forged documents.

Moreover, it is important for every taxpayer to have legal certainty regarding the scope of application of the new concept “serious tax fraud” in the different legislations (Code of Companies, Criminal Code and Anti-money laundering legislation).