Draft law with important tax implications, submitted in Parliament

A new draft law, containing various tax and financial provisions, was submitted to the Belgian Parliament on 3 October 2022 (NL FR). Besides various technical amendments and clarifications relating mainly to income tax, VAT and customs and excises, this new draft legislation implements the Finance Minister's 2nd Action Plan focusing on measures against international and complex fraud and granting the tax authorities with more power against taxpayers.

In this alert, we highlight the most significant measures related to income taxes and VAT. Certain topics will be further explained in separate alerts.

Note that, since this is draft legislation, provisions can still be amended during the legislative process.
 

Alignment of tax procedures with international standards

With the intention to strengthen the fight against international and complex tax fraud and to create more transparency, the draft law contains several proposed measures, extending the tax authorities’ means and tools in investigating and assessing taxpayers.

First of all, the new draft law contains two smaller provisions which give the tax authorities the possibility - on the one hand -  to extract data from the UBO register in bulk for data mining applications (no limitation to one specific taxpayer) and – on the other hand – to introduce before the tax court a claim for a penalty payment under the condition that they demonstrate the taxpayer’s refusal to cooperate in a tax investigation.

However, the most significant measures in this draft law relate to the extension of the investigation and assessment periods, the retention period and the period for filing an administrative appeal.

With respect to income taxes, the standard investigation and assessment period remains to be 3 years. However, the proposition is to extend the investigation and assessment period  up to 4 years in case of no or late filing of the  income tax return.

In case of no or late filing  or in case the tax due would exceed the tax, based on a timely filed tax return, a new 6 years investigation and assessment period is proposed as a standard rule for tax returns with specific cross-border elements.  Those cross-border elements include: filing of the local Transfer Pricing form (275.LF, not to be mistaken with the BEPS 13 documentation for which no filing obligation exists); the entity is subject to country-by-country reporting (CbCR); presence of payments to tax havens; application of withholding tax reductions or exemptions; a foreign tax credit and if information would be received from reportings a.o. under the DAC6/MDR legislation.

Finally, a new assessment period of 10 years is proposed in case of a ‘complex’ tax return. A tax return will be considered ‘complex’ in three specific cases: legal constructions subject to the so-called Cayman tax, hybrid mismatches and companies that are subject to CFC (controlled foreign companies) rules.  

Important to note that the prior existing obligation for the tax authorities to motivate the indications of tax fraud is now proposed to be replaced by a mere notification that fraud is suspected, as a consequence of which the extended term of 10 years would be applied.

In view of harmonizing the assessment, investigation, and retention periods in the case of fraud, the retention period for books, records, other documents and for information on computer systems ‘based on which the amount of the taxable income may be determined’ is also proposed to be extended to 10 years as from the end of the taxable period.

All the above-mentioned new periods would become applicable as from tax year 2023. Current legislation continues to apply to previous tax years.

To compensate for the extension of the investigation and assessment periods allocated to the tax authorities, the draft law proposes that the taxpayer is granted extra time to file an administrative appeal.  The period is proposed to be prolonged from 6 months up to one year as from the 1st of January 2023.

To harmonize VAT with direct taxes, a retention period of 10 years will also be introduced in the VAT code as well as an extension of the investigation period up to 4 years in the event of no or late filing of the VAT return and up to 10 years in case of tax fraud.
 

Harmonization of interests rates and terminology in income tax and VAT

The draft law proposes to align the concept of interest in direct taxes and VAT. 'Interests for late payments' are payable by taxpayers, ‘moratorium interests’ by the tax administration.

As for the interest rates themselves, though, there would be no complete harmonization.  As far as income taxes are concerned, the interest rate for late payment interest is proposed to be calculated annually according to the rules of the Belgian Income tax code (interest for OLO bonds at 10 years of the previous year, for the months of April to June), with a minimum of 4% and a maximum of 10%, and 2% less each time for moratorium interest. For 2023, the interest rate for late interest is set immediately at 4 pct. Consequently, the moratorium interest rate is 2%.

For VAT debts, a uniform rate will be introduced which is 4% higher than the rate applicable to other debts managed by the FPS Finance, which implies that the interest for late payment is 8% and the rate for moratorium interest will then be 6%.

The new rules are proposed to be applicable as from 1 January 2023.
 

Mobility and charging stations

Previously published legislation introduced a tax reduction for expenses paid by taxpayers for the purchase and placement by a professional of an intelligent charging station at their home address. The tax reduction can be claimed on a maximum amount of 1.500 EUR per home charging installation and per taxpayer for expenses made between 1 September 2021 and 31 August 2024. The new draft law proposes to increase the amount of 1.500 EUR up to 1.750 EUR.

Furthermore, the new draft law includes a proposed new tax reduction for the installation of a bidirectional charging station (charging station that can also receive electricity back from the electrical car for other use). Subject to conditions, the reduction amounts up to maximum 8.000 EUR as of 1 January 2023.
 

Payroll withholding tax

The new draft law includes various technical amendments and clarifications regarding the application of the withholding tax exemption, merely intended to improve the readability of the applicable legislation. Most important to mention are:

• The provision of a legal basis for recognized employer organizations for dock workers as well as for port companies, regarding the way in which they have to apply the withholding tax exemption. It is proposed that the recognized employer organization for dock workers should be considered as the employer of all dock workers employed in a given port area and thus the withholding tax exemptions have to be applied on the level of that organization.  It will therefore no longer be the individual port companies on whose behalf the conditions for an exemption must be fulfilled.
• A proposed clarification about how the 1/3rd rule should be applied for the calculation of the withholding tax exemption for shift work, related to on-site immovable works. As of 1 April 2022, only hours for which a shift premium of at least 2% or a night premium of at least 12% was paid should be considered for calculating the 1/3rd rule for night and shift work. In order to clarify what this implies for the 1/3rd rule for this particular construction-related measure, the draft law clarifies that the shift premium is assumed to be included in the specific minimum hourly rate (13,75 EUR, to be indexed per income year; 14,61 EUR for income year 2022) linked to this withholding tax exemption. This implies that the obligatory 2% shift premium is not required on top of the minimum salary in order to be able to apply the withholding tax exemption for shift work in the construction sector performed on location.
• As to the withholding tax exemption for employers who let their employees attend additional trainings, the draft law clarifies that the exemption does not apply to trainings for which the cost is supported through a government-financed leave system (e.g., educational leave).
• Deductibility of withholding tax withheld from remunerations for association activities, paid and qualified as professional income until 15 May 2022.

Other proposed tax measures

• Non-justified expenses, subject to the special secret commissions tax, are to be considered as disallowed expenses.
• Boarding taxes, recharged to third parties are deductible as professional expenses provided they are explicitly and separately stated on the invoice.
• As to the lump-sum kilometer allowances granted as compensation for the use of a private car for transfers on behalf of the employer:
  • Indexation of the lump-sum kilometer allowance for civil servants (0,402 EUR/km from 1 March 2022 to 30 June 2022);
  • Conditional introduction of a new temporary and progressive tax credit for lump-sum allowances paid by private companies to employees, at the latest on 31 December 2022, for business trips made from 1 March 2022 until 31 December 2022.
• Tax exemption of COVID-19 compensations paid by the regions, communities, provinces, or municipalities until 30.06.2022.
• Clarifications with respect to specific personal income tax exemptions, i.e., the exemption of allowances received by volunteer firefighters, volunteer ambulance drivers and volunteers of the Civil Protection and the exemption of the job bonus introduced by the Flemish Region in 2022.

Should you have any questions, or would you like additional information with respect to this alert, feel free to reach out to your regular contact within EY Belgium, who may direct you to an appropriate specialized colleague.