Court of Appeal confirms application of secret commission tax to disallowed expenses

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Executive summary

In a recent judgment, the Antwerp Court of Appeal confirms that disallowed expenses may constitute hidden profits to which the secret commission tax applies (Court of Appeal of Antwerp decision of 6 December 2011).
This judgment adds to the string of court decisions that do not limit the interpretation of the concept of “hidden profits” to concealed turnover, but also allow the application of the 309% tax to disallowed items.


In the case at hand, the tax authorities applied the secret commission tax to payments by a Belgian company to another Belgian company for certain services because the paying company could not prove the existence of these services. There were no underlying contracts for these payments and the beneficiary of the payments was convicted for issuing fictitious invoices by a criminal court.


The Antwerp Court of Appeal agrees with the application of the secret commission tax.
According to article 219 ITC 92, the secret commission tax applies to:

  • Unreported expenses and certain benefits in kind;
  • Hidden profits that are no longer part of the assets of the company;
  • Financial or other benefits resulting from bribery.
For the application of this levy to hidden profits, it is up to the tax authorities to prove both the existence of hidden profits and the fact that they cannot be found in the assets of the company anymore.
In the case at hand, the Court rules that the disallowed expenses relate to fictitious services and hide part of the profits by reducing the taxable result of the paying company.
Moreover, by recording the payments as expenses in its accounts, the paying company admits that these hidden profits are no longer part of its assets.
The Court confirms that the secret commission tax is applied when the payments are actually made and the funds have left the company. If no actual payments are made, the secret commission tax cannot be applied on the hidden profits. In that case, the tax authorities can already increase the taxable basis with these hidden profits based on article 24, 4° ITC 92 (overvaluation of the liabilities of the company) and apply the secret commission tax in the tax year in which the funds actually leave the company.


The extensive interpretation of the concept of hidden profits, according to which these can include disallowed expenses, is increasingly adopted by the tax courts. The scope of the concept is certainly no longer to be restricted to cases of concealed turnover.
As a result, it is important for corporate taxpayers to sufficiently document the reality of the existence of goods and services for which arm’s length payments are made in order to avoid the application of the secret commission tax.