New preliminary draft law to combat tax fraud: broader powers for tax authorities in the offing

A while ago, the Minister of Finance announced in the media that an action plan aimed at combating tax fraud was being finalized. This should generate annual revenues of one billion euros for the government from 2024 onwards. In the meantime, this action plan has already been transformed into a preliminary draft law. This grants even more powers to the tax authorities, but what about the protection of the taxpayers?

Extension of the investigation and assessment periods

The general investigation and assessment periods are currently three years.  Amongst other things, when there are indications of fraud, these are extended to seven years, provided that the taxpayer has taken prior written and accurate notice of them.  In addition, the tax authorities have an investigation and assessment period of ten years in the case of foreign legal arrangements in a tax haven, which are intended to conceal the origin or existence of an asset.  

The preliminary draft law intends to further extend the investigation and assessment periods in the future.  For “late tax returns” and in the event of non-tax return, a period of four years would apply instead of three years.  A declaration is currently considered delayed if the filing deadline has not been met.  

In the case of indications of fraud, the fraud period would be extended from seven to ten years.  Also in the case of “complex tax returns”, the period would be ten years, even in the absence of indications of fraud.  The term “complex tax returns” was defined very broadly in the preliminary draft law.  Not only international structures and multinational companies, but by extension all situations with a cross-border character are targeted.  Moreover the following situations would indicate a tax return of a complex nature:

• the exemption of profits or gains on the basis of a double tax treaty; 
• the set-off against the fixed portion of the foreign tax; 
• companies that are required to file a country report;  and 
• reporting the existence, in another state, of a legal arrangement.

If any of the aforementioned situations occur, the tax return will be complex in its entirety and therefore fully subject to the ten-year investigation and assessment periods.  This very broad definition of “complex tax returns”, however, involves legal uncertainty for taxpayers.  The fact that the entire tax return is subject to the ten-year investigation and assessment period, and not just the cross-border aspect contained therein, is also disproportionate.  Moreover, the ten-year investigation and assessment period is also accompanied by a ten-year retention obligation for the taxpayer. 

Finally, the preliminary draft law provides that the prior notification of indications of fraud, when the tax authorities want to apply the fraud term, will be abolished.  It is argued that the aim of abolishing this prior notification is to bring the procedure for direct taxes into line with the procedure in VAT, where no such notification is required.  According to the legislator, this change would lead to clarity for the taxpayer. 

Penalty payments for preventing inspections by the tax authorities  

The tax authorities have the possibility to carry out an inspection of the taxpayer within the investigation deadlines.  Since the tax authorities often interpret this right broadly in practice, for example by taking a copy of the entire server and not only of the relevant fiscal data, it happens that a taxpayer obstructs such audits by, for example, provoking an electronic malfunctioning.  The preliminary draft law seeks to reinforce taxpayers’ duty to cooperate by imposing penalty payments.  These penalty payments can only be imposed by a judge, acting in summary proceedings, on taxpayers who refuse to cooperate with the audit.  

Various other extensions of powers

Apparently the powers of the tax authorities will also increase in other cases.  For example, the consultation by the tax authorities of the UBO register and the Central Contact Point would be extended.  In addition, measures are being taken that will broaden the scope of application of the Common Reporting Standard.  

In addition, a legislative proposal has been issued on data retention legislation.  As a result, telecom operators will have to keep track of who you called, when you called and how often you called.  The tax authorities would be able to request these telephone data without the prior intervention of an investigating judge.  By rummaging through telephony data, the tax authorities would be able to track down a lot of information that they could use to subsequently launch a tax investigation.  

Once again, the rights of the taxpayer are clearly at risk.  First of all, the Constitution states that the secrecy of letters is inviolable.  This provision should be interpreted broadly so that it also includes the protection of all communications.  In addition, the right to privacy, the protection of private life and the protection of personal data, among others, are also violated.  

Conclusion   

The preliminary draft law provides for far-reaching power extensions for the tax authorities in various areas.  The investigation and assessment periods of ten years would apply both to indications of fraud and to “complex tax returns”.  As a result, taxpayers who are in a cross-border situation, even in the absence of indications of fraud, would be treated in the same way as fraudsters.  Moreover, the broad definition of the term “complex tax returns” includes far-reaching undesired consequences and legal uncertainty for taxpayers.  

The impact of the preliminary draft law is certainly not insignificant.  However, it remains to be seen whether this preliminary draft law will actually be approved.  Several points are already not without discussion…   

Evert Moonen – Eline Depaepe
De Langhe Attorneys