Government agreement on proposal of new general anti-abuse provision
The government parties reached an agreement on a redrafted version of the proposed anti-abuse provision for income tax purposes, registration duties and inheritance tax (Art. 344, §1 ITC 92, art. 18, §2 Code Registration Duties, art. 116 Code Inheritance Taxes).
They made several changes to the original proposal after fundamental criticism of the Council of State.
General anti-abuse provision
The new anti-abuse provision must allow the tax authorities to combat tax avoidance more efficiently as it will render a legal act or a series of legal acts inopposable to the tax authorities when these tax authorities can establish the existence of abuse of tax law.
As the three abovementioned anti-abuse provisions are drafted in the same way, the below overview on the changes for income tax purposes also applies, mutatis mutandis, for registration duties and inheritance tax purposes.
Abuse of tax law
The new provision defines the concept of “abuse of tax law”.
There is such abuse when the taxpayer:
- puts himself outside of the scope of application of a tax provision of the Income Tax Code or its related decrees in a way which is incompatible with its objectives; or
- puts himself within the scope of application of a provision of the Income Tax Code or its related decrees granting a tax benefit in a way which is incompatible with its objectives.
Burden of proof
First, it is up to the tax authorities to establish the existence of abuse of tax law, as defined above. In this respect, the tax authorities may use all legal means of evidence (including presumptions), with the exception of the oath.
If the tax authorities deem that this proof is delivered, the taxpayer may invoke the existence of other underlying objectives for his act(s) than Belgian income tax avoidance.
The tax authorities will proceed with the application of the general anti-abuse provision when:
- there is only a tax objective for the legal act(s);
- the non-tax objectives are not specifically connected with the legal act(s), but are so general that they are present for any similar legal act;
- the non-tax objectives are specifically connected with the particular legal act(s), but are so immaterial that no reasonable person would perform the legal act for this non-tax objective.
It should be noted that this provision is only aimed at legal acts with the objective to avoid Belgian income tax (and, mutatis mutandis, registration duties and inheritance tax). It is not aimed at cases of avoidance of foreign taxes or other Belgian taxes (although other specific anti-abuse measures may apply for those cases).
Inopposability of the legal act(s)
If the taxpayer fails to prove (sufficient) non-tax motives for the legal act(s), the tax authorities may reclassify the situation of the taxpayer to bring it in line with the objectives of the tax rule that was avoided or the tax benefit that was unsuitably applied.
Following the criticism of the Council of State regarding the incompatibility with the constitutional legality principle, the government has defined more clearly the limits within which the tax authorities may change the legal act(s): the tax authorities may determine the taxable basis and the tax calculation in accordance with the objectives of the tax provision as if the abuse of tax law would not have taken place.
Although the Ruling Commission may not deliver rulings on the possibility of the tax authorities to apply the general anti-abuse provision, the explanatory memorandum of the draft bill confirms that the agreement of the Ruling Commission with a classification given by the taxpayer to a legal act, excludes the possibility of the tax authorities to question the classification of the legal act (insofar all aspects of the ruling request are executed accordingly).
Entry into application
The new provision is set to apply as from tax year 2013 and to legal acts performed as from the date of publication in the Belgian Official Gazette but relating to tax year 2012 insofar the accounting period has not been closed on the publication date. As a result, it may also apply to legal acts performed in the course of calendar year 2011 so that there is some retroactive effect. Such retroactive effect may remain incompatible with the advice of the Council of State on the first draft of the anti-abuse provision.
For registration duties and inheritance tax purposes, this is not the case as the new provision would apply as from the first day of the second month after the publication of the law.
Ernst & Young welcomes the willingness of the government parties to take into account pertinent remarks of the Council of State and of tax practitioners.
At this time, it is not an absolute certainty, however, that the new proposal of general anti-abuse provision has been sufficiently adapted to meet the requirements of the constitutional legality principle as the extent of the power of the tax authorities to determine the taxable basis and the calculation of the tax may remain vast.
The provision targets wholly artificial arrangements aimed at circumventing the application of the legislation. Ernst & Young strongly recommends to analyze the potential impact of the new provision on any contemplated legal act(s), and to properly document the specific and material non-tax objectives connected with such act(s).
As it is not clear yet how this anti-abuse measure will be applied in specific cases, Ernst & Young has dedicated a team of tax specialists to further analyze the new provision and to follow-up on developments in its application.