Constitutional court finds general anti-abuse rule for income taxes, registration duties and inheritance taxes compatible with Constitution

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On 30 October 2013, the Belgian Constitutional Court rejected the requests to annul the new general anti-abuse rule (GAAR) in article 344, §1 Income Tax Code 1992, article 18 Registration Duties Code and article 106 Inheritance Tax Code.
Please click for the full text of the judgment (non-corrected version):

Framework

The GAAR was rewritten in 2012 to provide the tax authorities with a more effective tool to combat tax avoidance (please click here for more details on the GAAR).

These were the most important changes made to the old GAAR to meet this objective:

  • The object of the non-opposability was changed;
  • A concept of “abuse of tax law” was introduced;
  • The burden of proof was allocated more clearly between the taxpayer and the tax authorities;
  • The application of the provision now results in the repair of the tax situation of the taxpayer.

For registration duties purposes and inheritance taxes, the redrafted version of the GAAR applies as from 1 June 2012. For income tax purposes, it applies as from tax year 2013 in general and, in some cases, to legal acts relating to tax year 2012.

Decision of the Constitutional Court

Several taxpayers submitted requests to the Constitutional Court to have these provisions annulled based on their presumed incompatibility with:

  • The constitutional rules relating to the allocation of competencies between the federal level and the regions (for the application for immovable withholding taxes, registration duties and inheritance taxes);
  • The constitutional legality principle;
  • The principle of non-discrimination.

    The Constitutional Court now ruled that the GAAR is compatible with the constitutional principles mentioned above.

    As far as the allocation of competencies between the different state levels is concerned, the Constitutional Court considers that the GAAR does not deal with the determination of the tax base but rather constitutes a method of proof. Consequently, the federal legislator was indeed competent to modify the GAAR, not only for income tax purposes, but also for registration duties and inheritance taxes.

    In relation to the constitutional legality principle, the classification as a method of proof, the application of which is subject to many stringent restrictions, does not allow to consider the GAAR as a provision that authorizes the tax authorities to determine the taxable basis themselves. In this respect, the Constitutional Court confirms that the proof of abuse of tax law in this context is only possible when the objectives of the tax law can be clearly identified from the text of the law or, if this text is not clear, from the parliamentary documents. It also adds that the tax authorities must take into consideration the general context of the relevant tax provision, the general practices at the time of its entry into application and the existence of potentially relevant specific anti-abuse provisions. Based on these elements, the Constitutional Court concludes that the GAAR is not incompatible with the legality principle.

    Finally, the GAAR is also compatible with the constitutional principle of non-discrimination since it applies equally to all taxpayers. The Constitutional Court does not deem the possibility that the GAAR would be applied differently in specific cases, a result of the provision in general and, thus, does not rule on its application in concreto. In the cases at hand, the application of the GAAR and its compatibility with the non-discrimination principle will have to be assessed by the competent courts.

    Conclusion

    Following this judgment of the Constitutional Court, the matter of the constitutionality of the GAAR in general seems to be closed. As indicated in the decision, it is not excluded, however, that the way in which the tax authorities apply the GAAR in specific cases may still raise issues with regard to the compatibility with the non-discrimination principle or may prove to go beyond the limits put forward in the parliamentary documents or by the Constitutional Court (see above).

    The possible application of the GAAR remains an important point of attention for all decisions and transactions. Consequently, EY Tax Consultants strongly recommends to analyze its potential impact on any contemplated legal act(s), and to properly document the specific and material non-tax objectives connected with such act(s).

    EY Tax Consultants has dedicated a team of tax specialists to follow-up on developments in this matter. Do not hesitate to get in touch with the contact persons listed here or with your regular contact at EY Tax Consultants for more information or assistance in this matter.