Every year, the Belgian Federal Public Service (FPS) Finance provides transparent communication about a number of planned and current inspections. The aim of this announcement policy is to encourage taxpayers to meet their fiscal obligations correctly. Target groups that run a higher risk of inspection or of being asked to provide further information are identified for both individuals and businesses.
The tax payer is an individual
Individuals run a higher risk of inspection or requests for further information if they:
- claim the tax deduction for maintenance payments, particularly if these are transferred abroad. This tax deduction is often used creatively. The tax authorities will therefore actively check that the natural person is actually held to payment of this money and that these maintenance payments are actually received by the beneficiary abroad.
- demonstrate their actual professional expenses, and therefore do not choose to apply the fixed deduction. In concrete terms, managers and salaried employees will need to be able to prove the professional character of these expenses.
- have not correctly declared income from the rental of real estate, of which they are the owner in Belgium, and which is used by the renter for professional purposes. In the case of professional use, the landlord is in fact obliged to declare the gross rental income in his or her tax return, with the tax authorities applying a fixed cost deduction of 40% (limited to 2/3 of the revalorised rateable value) to this gross rental income. If there is no professional use, the landlord will be taxed on the indexed rateable value, increased by 40%, which is significantly lower than the actual rental income.
- did not declare moveable assets from abroad. Accounts abroad should be declared. Dividends and interest that Belgian citizens receive abroad are also in principle subject to Belgian withholding tax. The tax authorities will be checking this explicitly this year and handing out fines. Many taxpayers have already received a letter from the tax authorities drawing their attention to the existence of a foreign account. In a number of cases, this may be an incorrect notification (e.g. the individual is a beneficiary of the account but not an account holder), in which case they are advised to proactively contact the relevant department in order to clarify everything.
- do not submit a personal income tax return, despite the reminder sent. The administration will pay particular attention to those who regularly fail to submit their tax return.
The tax payer represents a business
A business runs a higher risk of being inspected if it:
- has not observed the terms and conditions for setting up a liquidation reserve (Article 184 Belgian Income Tax Code 1992). From the fiscal year 2015 onwards, a small company can set aside (part of) its profit for the financial year – after corporate tax – in a separate reserve account, in order to pay no or less withholding tax in the event of a later distribution of these reserves. However, the company must pay a one-off tax of 10% on the reserved amount when setting up this kind of liquidation reserve. The tax authorities will pay extra attention to ensure no abuse has taken place and that the terms and conditions have actually been met.
- did not declare all its income, particularly income from abroad.
- has declared non-recurring expenses of unusual scope or unusual impact. The company must at all times be in a position to demonstrate the nature of these costs.
- presents an abnormal revenue figure, in connection with the revenue of companies who find themselves in a similar situation. The tax authorities can also apply various parameters to determine whether the revenue figure is evolving abnormally in and of itself. Significant shifts in the revenue figures have also been used as criteria for selection of companies to be subjected to a tax inspection in the past.
- is set up as a holding company, and has successively implemented a capital increase and an untaxed capital reduction. In fact, a capital reduction is often chosen as an alternative to a dividend payment, as a way to avoid the withholding tax. Holding companies merely established to avoid dividend tax are therefore also a target since the introduction of the updated anti-abuse provision. The fiscal administration will class certain capital reductions as dividend payments subject to withholding tax, on the basis of tax abuse.
We recommend that you document everything well and gather the necessary supporting documents in good time.
If you have any further questions on this subject, please do not hesitate to contact us.