Reporting obligation for payments to "tax havens": landmark ruling from the Court of First Instance of Antwerp
Locations
On 19 February 2024, the Court of First Instance of Antwerp (the "Court") issued a landmark decision concerning the tax reporting obligation of payments made to "tax havens" under Articles 198, §1, 10° and 307, §1, §1/2 of the Belgian Income Tax Code of 1992 ("BITC").
Reporting obligation for payments to "tax havens"
(Non-) resident corporate taxpayers are required to report certain payments made to jurisdictions considered as "tax havens" ("tax havens"), i.e. jurisdictions:
- which do not comply with the OECD’s Global Forum Standard of Transparency and Exchange of Information for Tax Purposes; or
- on the Belgian list of jurisdictions with no or low-income taxation (set out in article 179 of the Royal Decree implementing the BITC); or
- on the European Union list of non-cooperative jurisdictions.
If taxpayers either (i) fail to comply with this reporting obligation and (ii) fail to prove that their payments, although correctly reported, were not made in the context of "genuine and sincere transactions" and with persons other than "artificial constructions", such payments to "tax havens" are not tax deductible (Article 198, §1, 10°, of the BITC).
Until 31 December 2023, this obligation only applied if the total payments made during the taxable period reached at least EUR 100,000. As from tax year 2024 (law of 28 December 2023), the reporting obligation applies as soon as both (i) paid and (ii) unpaid amounts (booked as debts) during the same taxable period exceeds EUR 100,000 (see our previous newsflash on this specific topic).
Decision from the Court
Facts
The case concerned tax year 2020, for which the taxpayer reported payments to entities in "tax havens" through a self-completed PDF version of Form 275 F attached to its corporate tax return (which is a rather commonly used method).
However, as these payments had not been reported using the Biztax-integrated Form 275 F, the Belgian tax authorities (the "BTA") first rejected their tax deductibility. The BTA then also challenged whether such payments had been made to persons other than "artificial constructions" (without questioning the transactions' "sincere" nature).
Nevertheless, the Court rejected the BTA's argument on both aspects, as described below.
- Less formalistic approach
The Court found that the taxpayer had properly fulfilled its reporting obligation by attaching the self-completed PDF version of Form 275 F, which accurately reported all relevant payments to "tax havens". The primary goal of the reporting obligation is to combat tax fraud and ensure effective tax audit, which, in the case at hand, had clearly been achieved as the PDF attached form enabled the BTA to effectively and immediately audit payments made to "tax havens".
- "Artificial Constructions" concept only aims at combatting Belgian tax evasion
In line with the Circular n° 2021/C/112, the BTA argued that payments should be scrutinized for potential global tax evasion, notably implying that even the tax deductibility of transactions with non-related parties should be rejected if they involved "tax havens".
The Court however dismissed the BTA's broad interpretation, clearly stating that Article 198, §1, 10°, of the BITC specifically targets constructions intended to evade Belgian taxes only (not global tax evasion).
The Court thus concluded that the taxpayer had sufficiently evidenced that transactions were indeed conducted with persons other than "artificial constructions" designed to evade Belgian taxes.
Key takeaway
The Court's decision is definitely to be welcomed as it first underscores the importance of the "substance over form" interpretation of the reporting obligation. Second, it strictly limits the scope of "artificial constructions" to Belgian taxes evasion only, thereby conforming with the initial purpose of Article 198, §1, 10°, of the BITC.
In a nutshell, the Court's decision is a logical, although visibly needed, reminder for the BTA…
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In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.