During tax audits, management fees are often, rightly or wrongly, severely targeted on the side of the company buying the services, usually on the basis of the so-called Article 49 ITC. Recent judgements have increasingly found in favour of the administration.
We outline briefly why certain fees might not be accepted by the tax authorities:
- The description of the services to be provided is too vague in the agreement;
- No details are included on the invoice, nor is there a reference to the agreement;
- There is either no or insufficient proof that the services have actually been provided;
- A fixed lump-sum amount is always charged for the services provided without substantiation.
In short, merely having a written agreement is not sufficient for the tax deductibility of the costs charged.
To avoid problems in the event of a tax audit, we recommend referring to a specific service agreement rather than just the general concept of a management agreement.
In our opinion, it is very important to describe the services accurately and in detail and to substantiate what the service provider is called upon to provide. In addition, we recommend having a comprehensive document flow available that clearly reflects the nature and scope of the services provided. This makes the performance of the services demonstrable and verifiable. For example, a clear job description, reports, internal meeting notes, signing in the appropriate capacity, etc., all provide substantiation. In addition, the costs borne for providing the services can also be an important indication of the extent to which the services were effectively provided and whether or not they were remunerated at market rates.
Moreover, the tax authorities often have difficulties with the fact that persons who perform services or sign documents do not indicate clearly whether they do so on the basis of a mandate (e.g. as managing director) which they have in the operating company or on behalf of and for the account of the management company.
In short, much importance is attached to the role, duties and function that the person concerned is fulfilling at that moment. However, when a cost is correctly entered in the accounts on the basis of actual services rendered, it is difficult for the tax authorities to refuse the professional cost on the sole basis that the services were not performed by or on behalf of the recipient of the payment.
The key point to remember is that the deductibility of fees charged depends on the actual circumstances. If one can prove, as a taxpayer, that the services have actually been performed and that the fee is in line with market norms, it is difficult for the tax authorities to cast doubt on it. Thorough, proactive substantiation of your file is therefore crucial.
Our BOFIDI experts are happy to help
Do you still have specific questions on this subject? Please do not hesitate to contact us. We are always ready to assist in drafting a service agreement. You can count on us for professional advice and guidance in this area.