31 May 2018

Another good reason to check the municipal tax

Provinces, cities and municipalities have tax autonomy that allows them to impose and collect taxes. It is up to the local authorities to decide on the criterion and the amount of the tax, but always in accordance with higher authorities.  And there’s the rub….

1. Taxes on economic activity and office space

If you are professionally active in the industrial, commercial or agricultural sector (through a company or sole proprietorship), it is likely that you will owe an annual tax on economic activity to the city or municipality in which you carry out this activity.  The amount of that tax however may vary depending on, for example, the form and place of residence.

In a given municipality, natural persons who carry out an economic activity in that municipality and who also have their place of residence there are liable to a lower level of taxation than all other natural persons and companies which also carry out an economic activity in that municipality.  One company successfully contested this distinction.  According to the Council of State, there is no justification for this distinction and the tax regulations therefore violate the constitutional principle of equality.  The regulations will be annulled and the entrepreneurs who have contested the tax will receive a refund with interest.

Recently, the Brussels Court of Appeal ruled that the tax on office space of another municipality is discriminatory because certain institutions are exempt from this tax.  Because of this discrimination, the entire tax regulation is unconstitutional and not just the exemption. Any taxpayer liable for this tax will be entitled to recover it.  A common local tax that has been successfully challenged in the past is the so-called “tax on motive force”.  That tax is unlawful if it is imposed solely on the basis of the location of the registered office, without motive forces actually being used for professional activities at that registered office.

2. Local taxes are increasingly under attack

The above examples show that there is often a fundamental basis for contesting local taxes. This is not only the case for business-related taxation.  Recently, several municipal taxes on second homes have also been declared unconstitutional because of the discriminatory tariff distinction.  The tax on outdoor recreational stays is subject to the same fate. In all these cases, the persons concerned receive a refund of the tax.

3. Equal treatment

Municipal and provincial authorities have the power to impose taxes, but must respect fundamental rules such as the equal treatment of taxpayers.  A distinction between taxpayers must be justified.  If there is no such justification or if the reason behind it is irrelevant, the tax regulations may be annulled and the tax refunded. However, as tax regulations are rarely identical, the relevant regulations must always be analysed.

BVBA De Langhe Advocaten

Evert Moonen – Frank De Langhe

Published in Business Vlaanderen, Edition 02 2018 – May – June 2018.

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