Transitory period for strict application of secret commission tax
In the “Internal Instruction” of 27 July 2011, (click here to read our previous alert) the Belgian tax authorities announced a stricter application of the “secret commission tax” at the rate of 309% on unreported benefits in kind. This strict application gave rise to two parliamentary questions requiring some clarification in this respect. As announced by the Minister of Finance, the Belgian tax authorities now issued an addendum to their initial circular letter (Ci.RH 421/605.074 of 1st December 2010) introducing a transitory period until 1st July 2012 for the strict application while clarifying some other points.
Article 219 of the Belgian Income Tax Code allows the Belgian tax authorities to levy the secret commission tax at a rate of 309% on certain remunerations and other payments which are not reported by the taxpayer on the appropriate forms. Based on the internal instruction of 27 July 2011, the tax inspectors were required to apply the secret commission tax on the taxable benefit in kind unless:
- the benefit is reported on the specific form and in the beneficiary’s filed tax return;
- the benefit is included in the beneficiary’s filed tax return even though it is not reported on the specific form; or
- the beneficiary pays the invoiced amount of the benefit, or the value of the benefit is added to the beneficiary’s current account in the year during which the benefit is granted.
Upon the Finance Minister’s request, a new addendum has been issued by the tax authorities with retroactive effect introducing a transitory period until 1st July 2012 with the aim of giving taxpayers the necessary time to comply with their legal obligations based on the strict application of this legal provision.
Transitory period until 30 June 2012
According to this addendum, the tax authorities may decide not to apply the secret commission tax to benefits in kind that are taxed on a lump sum basis (and to benefits resulting from the private use of a mobile phone), which have been discovered during a tax audit prior to 1st July 2012 and which are not (or not sufficiently) reported, provided these benefits can still be taxed in the hands of the beneficiary during the legal assessment period.
With regard to benefits in kind that have not been discovered prior to 1st July 2012 and with regard to benefits in kind that are not taxed on a lump sum basis, the secret commission tax will apply unless these benefits are spontaneously reported by the beneficiary prior to 1st July 2012.
As of 1st July 2012
As of 1st July 2012, the secret commission tax will be strictly applied, taking into consideration the following:
- the secret commission tax should not apply to benefits which are recorded on the debit side of the current account of the beneficiary in the year during which they have been granted;
- not submitting the appropriate forms and waiting until the tax audit to record the amount of the benefit on the debit side of the current account of the beneficiary will no longer be accepted;
- in order to avoid a substantial increase of administrative and legal proceedings, the tax authorities will take into consideration other elements, such as the good faith of the taxpayer who has simply forgotten or has mistakenly not reported the benefit, the exceptional nature of the failure to report and the materiality of the error (i.e. in comparison with the other tax obligations which the taxpayer has complied) when assessing whether or not to apply the secret commission tax.
Furthermore, a new administrative tolerance will be introduced in the administrative commentaries (n° 219/11): the secret commission tax will not be applied when the failure to report the benefit results from the classification of the benefit by the taxpayer as an advantage with a social or cultural character (i.e. social advantages, meal vouchers, sport/culture vouchers or eco- vouchers), provided the benefit can still be taxed in the hands of the beneficiary during the legal assessment period.
This transitory period allows taxpayers to make the necessary arrangements to regularize their situation. Since the addendum applies immediately, it can be relied upon in any phase of the procedure.