Abolition of automatic 10% tax increase in practice: historical recovery possible?

In tax recovery files, the tax authorities have for years generally imposed a tax increase of (at least) 10%. The Minister of Finance has stopped this by deciding that a 10% tax increase will no longer be automatically applied in a case of a first offence committed in good faith. The Minister bases this on a recent judgment of the Constitutional Court.

Abolition of the 10% automatic tax increase

The general principle in the Income Tax Code is that a tax increase of at least 10% is imposed in case of a failure to file a tax return, a late return or an incorrect or incomplete return. However, there is an exception to this where the tax authorities have the option of not imposing a tax increase if there is no intention of  fraud. In practice, however, in recent years the tax authorities have always automatically imposed a 10% tax increase in case of a first offence committed in good faith.

A recent Constitutional Court judgment ruled on the deduction prohibition for late returns. Meanwhile, the Court also confirmed the legislator’s intention not to apply a 10% tax increase in case of a first offence.

The Minister of Finance then addressed this issue by confirming that in case of a first offence committed in good faith, a 10% tax increase should in principle not be applied. For this, the Minister referred to the recent judgment of the Constitutional Court. 

Note that this nuance relates only to income taxes and therefore cannot be extended to fines imposed on first offences committed in good faith in, for example, VAT or registration and inheritance taxes.

Implications (for the past?)

The judgment of the Constitutional Court and the Minister’s position have a significant impact for taxpayers who will commit a first offence without the intention of fraud. For them, a 10% tax increase will (expectedly) no longer be applied.

Taxpayers who faced a 10% tax increase in the past may also still be able to contest it.

The first possibility is to file an objection if the one-year objection period has not yet expired. If it has, it may be possible to file a petition for ex officio exemption; provided that there is an overcharge arising from a new fact. According to one interpretation, the Constitutional Court’s judgment can be considered a new fact if it has an enhanced effect on all courts and taxpayers who were sanctioned with a 10% tax increase in other judgments. This may be subject to dispute with the tax authorities since the Court did not find a formal unconstitutionality, but only took a position on the tax increase.

The last option is a request for remission of the tax increase with the Fiscal Mediation Service. To invoke this, the administrative penalty must be final. This means that no more proceedings may be pending and an administrative or judicial appeal cannot be filed.

Conclusion

The Minister of Finance’s position on the judgment of the Constitutional Court confirms the legislator’s intention not to impose a 10% tax increase on taxpayers in the event of a first offence without bad faith. Taxpayers can therefore make a one-off offence when they act in good faith and make unintentional mistakes, without the risk of incurring a tax increase.

Taxpayers who faced such a tax increase on an initial good faith offence can thus (in certain circumstances) contest the increase.

Lan Yi Verbauwhede and Evert Moonen
De Langhe Attorneys