Exchange of information related to your foreign financial assets

Many Belgian tax residents have recently received requests for information from the Belgian tax authorities for movable income collected abroad. These sudden enquiries are mostly based on information received by the Belgian administration from foreign tax authorities through the Common Reporting Standard (CRS) system.

CRS belongs to the wide range of instruments that have been developed at the international level in order to promote the automatic exchange of information on matters such as financial accounts. The aim is to prevent that any tax payer evade taxation by exporting income to foreign territories.

As a result of this systematic exchange of tax information, the Belgian Income Tax Code provides a specific tax period starting on the day the new information is received. During this extraordinary time limit, not only are tax authorities granted with renewed investigative powers but they are also authorised to tax any newly uncovered income.

In practice, the current trend adopted by the Belgian tax authorities is to automatically consider that a tax payer has acted with fraudulent intent whenever financial information received through CRS reveals foreign bank accounts of which the existence and income have not been fully reported in Belgium. The existence of a fraudulent intent further extends the applicable tax period and penalties.

General and specific time limits: what timeframes should the tax payer expect?

The general time limits: extraordinary tax periods for invalid, incomplete or inexistent tax return

Beside the well-known ordinary time limit, the Belgian Income Tax Code provides extraordinary time frames when a taxable income has not been validly reported by the tax payer. In those cases, the time limit is extended to a period of three years following the year during which the unreported income has been collected. This means that an income collected in year X (income year 2016, for instance) can be taxed by the fiscal administration until the 31st December of year X+3 (2019). On this basis, some tax payers might receive a rectification notice in 2019 for income collected in 2016.

This time-limit can also increase to 7 years when the administration can demonstrate the tax payer’s fraudulent intent.

In several enquiries and rectifications based on information received through CRS, the Belgian tax authorities considered that a tax payer’s fraudulent intent is sufficiently proved when this tax payer has exported financial accounts abroad and not declared the income generated on these accounts in Belgium. To bolster this strict position, the administration referred to a judgement by the Namur Court of First Instance dated 14 March 2013. The relevance of this case law, which was related to circumstances of a particularly serious nature, can however be questioned in a large number of other cases.

Following this – generally questionable – point of view, the tax payer who simply forgets to mention a financial account he owns in a foreign country is presumed to have fraudulent intent and all the income collected over the previous seven years will be subject to possible tax rectifications. This tax payer might receive a rectification notice in 2019 for revenue collected as early as 2012.

A specific time limit following country-by-country exchange of information

• The extraordinary tax period

When new information comes to light through exchange of information between countries, on the basis of the CRS for instance, a new tax period of two years starts on the year of the exchange of information. The income the Belgian tax authorities are allowed to tax within this period is not only the income from the year before but also all revenue that should have been declared during the period of 5 years before the year the exchange of information occurred.

Concretely, this means that if information is received in year X (2019, for instance) by the Belgian tax authorities, they are allowed to look back in the past for the last 5 years and tax income that should have been declared as early as year X-5 (tax year 2014, income year 2013). It may do so for a period of two years following the date it received the information, up until year X+2 (2021). A tax payer might thus be surprised to receive a notice of rectification this month, in October 2019, for income collected as early as in 2011, because the information was communicated to the Belgian tax authorities in October 2017.

When the Belgian tax authorities demonstrate the tax payer’s fraudulent intent (which they automatically presume whenever foreign accounts are uncovered), the income period the authorities are allowed to tax or revise increases to 7 years. In this case, if the information is received in year X (2019, for instance), the Belgian authorities will be allowed to tax or revise the income that should have been declared over the previous seven years, as early as year X-7 (tax year 2012, income year 2011). It may tax this income up until year X+2 (2021). A tax payer might thus receive a notice of rectification in October 2019, based on information communicated to the Belgian tax authorities in October 2017, for income collected as early as 2009!

• Renewed investigative powers

Not only will the exchange of new information trigger a new taxation period, it will also renew the tax authorities’ investigative powers. For the same period of two years following the communication of information, Belgian tax authorities will have, among other powers, the possibility to send out additional inquiries to foreign administrations and/or a request for information to the tax payer. They will do so in order to understand better the nature of the income uncovered through the exchange of information. This may ultimately lead to the issuance of a notice of rectification.