Withholding tax exemption for R&D: decision on appeal in favor of taxpayer?

The application of the withholding tax exemption for research and development is subject to multiple conditions, one of which being the notification of the taxpayer’s R&D activities (projects/programs) to the Federal Science Policy Office (BELSPO).

Referring to legal doctrine (and our previous alerts), there have been considerable discussions regarding the validity of BELSPO notifications. Companies applying this tax measure make every effort to meet the requirements set forth by the Belgian administration and BELSPO. Nevertheless, the BELSPO notification remains the primary focus during recent tax audits. Jurisprudence also clearly indicates that this condition is the most contentious issue.

This was also evident in the recently published decision of the Court of Appeal in Antwerp (dated 18 June 2024 - 2023/AR/312). The judgment of the Court favored the taxpayer, and the positions taken by the Court are significant for other companies facing ongoing tax audits where similar discussions arise.
 

Definition of an R&D ‘Program’

The definition of a "program" can be challenged during tax audits. However, the legal framework clearly distinguishes between a project and a program, as the law provides an option for a "project or program". If the Belgian administration argues that the application of the tax measure through an R&D program is not possible, this position contradicts the legal framework, according to the Court of Appeal. In addition, the Court clarified that structural or recurring R&D activities can resort under a qualified R&D program.

Guidelines Related to a Program Notification at BELSPO

When a taxpayer applies for the withholding tax exemption through an R&D program that has been notified to BELSPO, this notification should not be considered a less stringent obligation, as the same legal formalities still apply. The Belgian administration often raises this issue during tax audits, arguing that not all projects are included in the notification. However, it has been reaffirmed that there is no requirement to notify each project individually, if it can be demonstrated that the projects are genuinely part of a program, which has been timely notified.

Additionally, a program notification should include a clear and detailed description of the R&D activities within the program, along with an estimated start and end date. The end date could be the end of December, as the Court noted that it is merely an estimate. Furthermore, this end date can be extended if necessary. The possibility of extending a program does not mean that the condition of a "realistic end date" is not fulfilled. An annual review and update of the notification is considered reasonable and useful and certainly not contradictory with the legal provisions.

It remains imperative to have a comprehensive defense file, with detailed underlying proof and accurate data, for each tax year.

If you would like to understand the impact of this Court decision on your current withholding tax exemption process, please do not hesitate to contact us.

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