The Court of Appeal of Ghent further tightens limits on tax dawn raid

The Court of Appeal of Ghent adds a new chapter to the saga of tax dawn raids. During a tax dawn raid, the tax authorities visit a taxpayer on-site to conduct an investigation, usually without any prior notice. This time, the tax authority entered on its own accord through an open gate and clearly went beyond its remit.

The tax authorities literally came barging in

A tax dawn raid took place as part of a fraud investigation. When the inspectors arrived at the company premises, they found that business operations had not yet commenced. The main entrance was closed and no one seemed to be present to open the front door. They decided to let themselves in through an open gate.  Once they arrived in the office areas, they found an administrative assistant who did not resist the dawn raid.

The Court of Appeal of Ghent gives the tax authorities a slap on the wrists

Before proceeding with a dawn raid, the taxpayer must consent. If the taxpayer does not consent or withdraws its consent, then the search must stop immediately.

Formal proof of this consent is not required. Thus, implicit consent may be evident from the facts. Taxpayers who provide access to the tax authorities and cooperate in the on-site investigation should therefore be aware that by doing so they are implicitly consenting to the dawn raid.

During this inspection, the inspectors walked through an open gate that was not freely accessible to third parties, such as the tax authorities. However, it is not tolerated that the tax authorities enter a company building, without prior permission, in search of a representative. After all, there is no such legal basis. The tax authorities should (i) present themselves at the normal entrance door and (ii) ask to enter the business premises. If no one is present, the dawn raid cannot be initiated. While an open gate may be tempting, inspectors should not regard it as a free pass to enter the premises to enter the company building. 

Furthermore, the inspectors had only sought permission once they had already entered the building. Moreover, this permission was given by an unauthorized person. In fact, it proceeded from an administrative assistant who did not have representative authority. The fact that the assistant was the only one present could not imply that he/she had such authority.

Finally, it appeared that the assistant had asked questions about the lawfulness of the investigative acts, after which he was handed a number of legal texts. Consequently, there was no question of “consent” since good administration implies that in such a situation the person concerned is informed in an objective manner of his/her duties as well as rights (such as the right to refuse consent).

The Court of Appeal of Ghent ruled in this case that the inspectors acted in a manner contrary  to what can be expected of a properly acting government that the evidence obtained becomes inadmissible. 

Conclusion

This ruling further refines the rules for the tax authorities when conducting a tax dawn raid.  The importance of prior and valid consent remains a point of attention for the tax authorities with a view to a legally valid dawn raid. The Court of Appeal of Ghent teaches us that taxpayers must remain vigilant at all times so that there is no appearance of implicit consent. In the event that a taxpayer is confronted with an unexpected visit from the tax authorities, the tax authorities cannot enter the premises without permission. An open door or gate does not change this requirement.

Mathias De Schijver and Evert Moonen
De Langhe Attorneys