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16 April 2018 / article

Corporate Income Tax compliance: 10 common pitfalls

Tax compliance is more than just submitting a tax return. It comprises various aspects, such as respecting all filing and reporting obligations, reporting the correct amount of income and paying the amount of tax due.

Corporate Income Tax compliance: 10 common pitfalls

Overlooking one or more of these tax obligations exposes you to a variety of sanctions. In this respect, it is noteworthy that the recent Corporate Income Tax Reform Act introduced a rule which result in an effective payment on tax audit adjustments: no deduction of current year tax losses and deferred tax assets (e.g. carried forward tax losses) is allowed against a taxable basis determined as a result of a tax audit. An exception is made for the participation exemption for dividends received during the same taxable period. The new rule does not apply to infractions committed negligently and for which no tax increases are applied. An increased attention for tax compliance therefore arises. In addition, shortcomings may hinder a strong relation with the tax authorities and may have a negative impact on the reputation of an organization.

Due to the increased tax reporting obligations, companies may face a higher level of scrutiny from the tax authorities in the future.

In a rapidly changing tax environment, the following tax compliance checklist can help you as a first step to avoid 10 common pitfalls in corporate income tax compliance.

Content

  1. A correct annual tax return should be filed, including all the enclosures
  2. All transfer pricing reporting requirements should be complied with
  3. The fees, commissions, trade rebates, etc. paid or granted should be reported
  4. Withholding tax obligations should be complied with upon payment of a dividend, interest or royalty
  5. A wage withholding tax should be withheld on payments to certain non-resident service providers
  6. Payments made to persons or permanent establishments in so-called tax havens should be reported in the annual tax return
  7. The presence of a permanent establishment and income allocable to the permanent establishment should be reported correctly in the annual tax return
  8. Intercompany transactions should be at arm’s length and the group’s transfer pricing policy should be applied correctly
  9. Transactions performed by your company should pursue a business purpose and substance requirements should be complied with
  10. Expenses are only tax deductible if the reality and amount can be demonstrated. Even if sufficient proof is available, not  all expenses are tax deductible

 

1. A correct annual tax return should be filed, including all the enclosures 

How to file a correct tax return?

Each year a company that has its place of effective management in Belgium needs to file a corporate income tax return that is certified, dated and signed. It should be verified whether all income and disallowed expenses are reported correctly, taking into account any recently introduced legislative change. With respect to expenses, reference is made to pitfall 10 below. With respect to the income, please note that Belgium offers taxpayers numerous opportunities to reduce the taxable basis through exemptions and deductions. Examples are the participation exemption regime, the innovation income deduction, the investment deduction, the notional interest deduction and a federal tax exemption on a number of regionally awarded subsidies. In order to qualify for such exemption or reduction, various conditions need to be complied with.  A thorough review of the specific conditions therefore need to be performed.

The filing occurs in principle electronically. The report of the statutory auditor and the general meeting of shareholders should be enclosed as well as the annual accounts if the company does not have the obligation to submit these accounts at the National Bank of Belgium. If a company benefits from an exemption of profits resulting from a reorganisation plan or an amicable settlement, the relevant documents should also be enclosed. In order to benefit from certain provisions, the required forms should be filed together with the tax return.

What is the deadline for filing a tax return?

The tax return should be filed not earlier than one month as of the approval by the general meeting of shareholders of the annual accounts or the accounts of receipt and expenses and may not be later than 6 months after the closure of the financial year. Practice shows, however, that the corporate income tax return form is often not yet available upon approval of the annual accounts and an extension for filing the tax return (electronically)  is in principle provided by the tax authorities (if the tax year follows the calendar year this is in general the end of September following the calendar year). Special terms apply for example to dissolved (as a result of a merger or otherwise) companies.

What is the deadline for filing a tax return?

What are the main consequences of non-compliance?

Not or not timely filing the annual corporate income tax return or the filing of an incomplete or incorrect return leads to various sanctions. The most important sanctions include: 

  • An administrative fine up to 1.250 EUR per infringement or a tax increase up to 200% of the taxes on the income that was not properly reported
  • A reversal of the burden of proof in case of no or late filing of the tax return (through an ex officio assessment)
  • An assessment on a minimum taxable basis can be imposed if the tax return is not or not timely filed. This minimum taxable basis equals EUR 34,000 as from 2018 and will increase to EUR 40,000 as of 2020. This amount will be indexed annually as from 2021. In the event of repeated infringements, the minimum taxable basis will be increased with a percentage ranging from 25% to 200%. The taxpayer maintains the possibility to provide evidence to the contrary. If no (sufficient) evidence is provided, this measure results in the following minimum corporate income tax to be paid:
    Year Minimum basis Standard CIT rate CIT (EUR)
    2018 34,000 29.58% 10,057.20
    2020 40,000 25% 10,000
  • If the taxpayer had the intent to commit fraud, criminal sanctions can be imposed. Please note that, more generally, legal entities are jointly and severally liable for criminal fines that result from a conviction of a director based on the Income Tax Code

2. All transfer pricing reporting requirements should be complied with

On 5 October 2015, the final Base Erosion and Profit Shifting (hereinafter ‘BEPS’) Action 13 Report was released which contains new TP documentation requirements. The required documents included in BEPS Action 13 are a (i) country-by-country report (‘CbCR’) (ii) master file (‘MF’) and (iii) local file (‘LF’). These requirements have been implemented in the Belgian Corporate Income Tax law.

Who needs to prepare a country-by-country report and what does it contain?

Belgian resident parent companies (or the Belgian company that is appointed as the surrogate ultimate parent company) of multinational groups with consolidated gross revenue of EUR 750 million must file a country-by-country report (in one of the three official languages or in English). In certain circumstances (e.g. if there is no agreement for the exchange of information contained in the CbCR between Belgium and the reporting entity’s country), the Belgian entity of a multinational group will nonetheless be obliged to file a CbCR. The report includes amongst others information regarding the income, taxes paid, activities and substance of the group in each country. 

Will the country-by-country report be exchanged with foreign tax authorities?

The information contained in the CbCR will be exchanged with the tax authorities of other EU countries based on the EU Directive on Administrative Assistance in Tax Matters. In addition, information will be exchanged with non-EU countries if qualifying agreements exist that provide for the automatic exchange of information (i.e. the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax treaties or Tax Information Exchange Agreements).

What is the notification obligation of a Belgian group entity?

A Belgian entity that belongs to a multinational group with consolidated gross revenue of EUR 750 million will need to notify to the Belgian tax authorities that it is either the ultimate or surrogate group company. If it is neither, it must report the identity and the residence of the group entity that will comply with the CbC reporting requirements. The notification must be done annually at the latest on the last day of the financial year of the group by means of the online tool of the tax authorities.

Who needs to prepare a master file and local file and what does it contain?

Belgian taxpayers belonging to a multinational group are required to submit a master file and a local file (in one of the three official languages or in English) when exceeding one of the following criteria on an unconsolidated basis during the previous financial year:

  • Total amount of revenue including financial but excluding non-recurrent income of EUR 50 million;
  • Balance sheet total of EUR 1 billion; or
  • Annual average of 100 full-time employees.

The master file provides an overview of the multinational group: the nature of its business activities, its intangible assets, the intragroup financial activities, the consolidated financial and tax position of the group, its general transfer pricing policy and the worldwide allocation of income and economic activities. This information obviously supports the tax authorities to assess transfer pricing risks.

The first part of the local file contains general information on the local entity. The second part of the local file contains a more specific questionnaire on financial information regarding cross-border intercompany transactions and the applied transfer pricing methodology.

This second part should only be completed when at least one of the business units of the Belgian entity has realized intra-group cross-border transactions of more than EUR 1 million. Belgian tax law defines a business unit as each part, division or department which is centralized around an activity, product group or technology.  No further explanation is given. The guidance to the local file only mentions that the presence of business units will depend on the organization and reporting structure of each entity. 

In our opinion, the division of an entity into multiple business units for purposes of the local file should only be considered if it concerns different activities that require different business strategies, a separate organization structure and therefore a separate(financial) reporting structure (even if only used for internal purposes).

Is it compulsory to include a transfer pricing study to the master file and local file?

According to the official Belgian forms of the master file and local file, it is not required to enclose transfer pricing policies, transfer pricing studies and intercompany agreements (those documents can however voluntarily be included), although it is required to indicate whether such documentation is available. It follows that Belgian taxpayers are not explicitly required to provide transfer pricing documentation containing a functional analysis, economic analysis and benchmark studies. However, in practice, it is highly recommended to have transfer pricing documentation (in line with OECD guidance) available as indicating that no such documentation is available will increase the odds of triggering an audit.

What is the deadline for filing the country-by-country report, the master file and the local file?

The CbCR must be filed annually with the Belgian tax authorities within twelve months following the end of the financial year of the multinational group (form 275.CBC). 

The master file must be filed annually with the Belgian tax authorities within twelve months following the end of the financial year of the multinational group (form 275.MF).

The local file needs to be filed within the same deadline as the corporate income tax return (form 275.LF). Whereas the first part of the local file should already have been submitted, the second part should be submitted for financial years starting on or after 1 January 2017.

All these documents need to be filed by means of the online tool.

Example 
Belgian company with a tax year that equals the calendar year and that forms part of a group whose financial year corresponds to the calendar year (based on last years’ experience)

10 common pitfalls timeline

What are the main consequences of non-compliance?

The law establishes a specific administrative fine as of the second infringement of these transfer pricing reporting requirements ranging from EUR 1,250 to EUR 25,000. If the infringement is attributable to the lack of good faith or to tax fraud, a penalty of EUR 12,500 can be imposed as of the first infringement, which is increased to EUR 25,000 as of the second one. 

3. The fees, commissions, trade rebates, etc. paid or granted should be reported

What are the reporting formalities that need to be fulfilled?

Certain payments (such as commissions, brokerage fees, commercial or other rebates, service fees or benefits in kind or cash) made by a Belgian taxpayer that qualify  as professional income in the hands of a resident or non-resident beneficiary must be reported on the forms 281.50 and the summary statement 325.50. The forms have to be filed before 30 June following the calendar year in which the costs were made.

According to the Official Administrative Guidelines, the obligation to file the forms 281.50 (and the summary statement) only relates to fees, commissions, etc. attributed or paid:

  • either to persons which are not subject to the Belgian accounting obligations laid down in the Code of Economic Law (for example foreign beneficiaries);
  • or to persons that are subject to said Belgian accounting obligations but who, according to the VAT Code, are not required to issue an invoice to their customers for the delivery of certain goods and or services (for example in case the exemption based on article 44 VAT Code applies).

What are the main consequences of non-compliance?

Failure to comply with this formality may result in the application of the so-called “tax on secret commissions” amounting to 100% (if the beneficiary is a natural person) or 50% (if the beneficiary is a legal entity) calculated on the amount of the payments that have not been properly reported on the forms. These percentages are to be increased with surcharges until 2020. As of 2020 this tax will no longer be tax deductible. If this tax is levied, the fees remain tax deductible subject to the general rule (see below).

The tax on secret commissions will not be levied if:

  • the Belgian taxpayer can prove that the beneficiary of the payments has declared this income in his tax return or
  • the beneficiary can be identified within 2,5 years following 1 January of the applicable assessment year.

4. Withholding tax obligations should be complied with upon payment of a dividend, interest or royalty

What are the withholding tax obligations of a Belgian company upon payment of a dividend, interest or royalty?

Withholding tax should in principle be withheld by a Belgian taxpayer upon attribution or payment of interest, royalty’s or dividends and the relevant forms need to be filed within 15 days as of the attribution or payment. The withholding tax rate equals 30% according to Belgian domestic law. However, various exemptions (or reductions) apply based upon Belgian domestic law, a double tax treaty or an EU Directive. It is therefore necessary to carefully examine whether an exemption (or reduction) can be relied upon in a specific case and what conditions need to be fulfilled. In order for an exemption to apply, it may be required that the beneficiary provides the debtor with a certificate confirming the conditions are met.

What are the main consequences of non-compliance?

If the withholding tax is not correctly withheld or the formalities are not complied with, administrative fines and tax increases (and – if applicable – criminal sanctions) can be imposed (see 1). In addition, withholding tax can become due in the hand of the Belgian company (debtor) on a grossed-up basis.

Note: the Corporate Income Tax Reform Act introduced the following two amendments that are relevant in this respect (for more information, reference is made to our Corporate Income Tax Reform brochure):

  1. Capital reimbursements
    Prior to 2018, no withholding tax was in principle due on capital reimbursements. Capital reimbursements decided upon as of 1 January 2018 will be deemed to relate proportionally to taxed reserves and certain tax-free reserves. Withholding tax will now become due on part of the amount of the capital reimbursement that is deemed to relate to these reserves as it qualifies as a dividend distribution, unless a withholding tax exemption applies. 

  2. The ‘Tate and Lyle’-case of the European Court of Justice
    Provided certain conditions are met, a new exemption of withholding tax is introduced if a Belgian company distributes a dividend after 1 January 2018 to a shareholder having a holding in the capital of the Belgian company of less than 10% but with an acquisition value of at least EUR 2,500,000. The distributing company should have a certificate confirming that the various conditions are met.

5. A wage withholding tax should be withheld on payments to certain non-resident service providers

What are the conditions to withhold a wage tax on payments to service providers?

A Belgian company (debtor) is obliged to withhold a wage withholding tax on payments made to a non-resident service provider with whom the Belgian company has a direct or indirect link of mutual dependence. The obligation does not apply if the services are provided by an individual who does not act within the framework of his professional activity.

The wage tax only needs to be withheld if the non-resident service provider is located in a jurisdiction with which Belgium has:

  • concluded no double tax treaty and the Belgian taxpayer does not demonstrate (e.g. via a tax assessment or a certificate obtained from the foreign tax authorities) that the income has been or will be effectively taxed in the service provider’s residence state.
  • concluded a double tax treaty which contains a specific provision that gives Belgium the right to levy taxes on the income. Those taxing rights are often limited to fees paid in respect of certain services rendered, such as e.g. technical assistance, consultancy services or management services. At present this concerns the double tax treaties that Belgium has concluded with Argentina, Brazil, Ghana, India, Morocco, Romania, Rwanda and Tunisia.

The withholding tax amounts to 33% of the net service fee. As a lump-sum deduction of 50% as business expenses is allowed,  the effective tax rate amounts to 16,5% (unless the double tax treaty provides for a reduced rate). The payment needs to be reported by the Belgian taxpayer on a form 281.30 and filed before 1 March of the following calendar year. 

What are the main consequences of non-compliance?

If the wage withholding tax is not properly withheld or the form is not timely filed, administrative fines or tax increases (and – if applicable – criminal sanctions) can be imposed (see 1). Please note that directors can be held jointly and severally liable for shortcomings in the payment of wage withholding taxes.

6. Payments made to persons or permanent establishments in so-called tax havens should be reported in the annual tax return

What are the conditions to report payments made to persons established in a tax haven?

Belgian companies and Belgian permanent establishments (‘PE’) of foreign companies are required to report in their annual tax returns all (direct and indirect) payments exceeding €100,000 or more on an annual basis made (1) to persons or PEs that are established in tax havens;  (2) on bank accounts that are managed or held by persons or PEs in a tax haven or (3) on bank accounts that are managed by or held with a financial institution established in a tax haven or by their PE located in such jurisdiction.

What is a tax haven?

The law defines a first category of tax havens  Guatemala (for payments between 4 November 2016 and 21 June 2017), Panama (for payments between 4 November 2016 and 21 June 2017), Trinidad and Tobago as jurisdictions that are considered by the OECD Global Forum on Transparency and Exchange of Information as not having effectively or substantially implemented the OECD exchange of information standard. Payments should be reported if they were made in the course of the period during which the jurisdiction was non-compliant.

The second category of tax havens  Abu Dhabi, Ajman, Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Dubai, Fujairah, Guernsey, Jersey, Isle of Man, the Marshall Islands, Federated States of Micronesia, Monaco, Montenegro, Nauru, Uzbekistan, Palau, the Pitcairn Islands, Ras al Khaimah, Saint-Barthelemy, Sharjah, Somalia, Trinidad and Tobago, Turkmenistan, Turcs and Caicos Islands, Umm al Qawain, Vanuatu and Wallis and Futuna. are jurisdictions that appear on a list of countries having no tax or a low tax. A country with no or a low tax is defined as a country outside the European Economic Area that (1) does not levy corporate income tax on domestic or offshore income, (2) that has a nominal corporate income tax rate lower than 10 %, or (3) that has an effective corporate tax rate on foreign income lower than 15%. A list of these states was adopted by Royal Decree.

What are the main consequences of non-compliance?

Failure to report these payments will make these payments non-deductible for tax purposes. Once reported, a payment will be tax deductible only if the taxpayer can demonstrate that the payment was made in the context of an actual and genuine transaction. For the sanctions of an incomplete tax return, reference can be made to the above.

7. The presence of a permanent establishment and income allocable to the permanent establishment should be reported correctly in the annual tax return

What is the relevance of the PE-concept?

Tax treaties generally provide that the profits of  a company shall be taxable in the residence state of that company, unless the company carries on business in another state through a permanent establishment situated therein to which the profits are attributable. The definition of a PE is therefore crucial in determining whether a Belgian company must pay income tax in another state or whether a foreign company must pay income tax in Belgium.

New business realities create a bigger PE exposure and the tax authorities are worldwide increasingly questioning the presence of a permanent establishment in their country in order to raise revenues. It is therefore imperative that companies monitor the presence of potential PE’s in order to be prepared in case of a tax audit and to avoid potential double taxation situations. A quick scan performed by an independent party can be helpful in this respect.

What recent developments could impact your business model?   

Recent changes to the definition of a PE on an international and national level
On 5 October 2015, the final BEPS Action 7 Report was released which called for a review of the PE definition to prevent avoidance strategies used to circumvent the existence of a PE through commissionaire arrangements, the splitting up of contracts between closely related enterprises with respect to building constructions and the exploitation of the specific activity exceptions to the PE-definition as currently provided by most double tax treaties (e.g. via the fragmentation of activities).

The proposed changes to the PE definition were included in the Multilateral Convention that was signed on 7 June 2017 by 68 jurisdictions, including Belgium, which allows – dependent on the choices that a country makes - the implementation of the key BEPS measures into a large number of bilateral tax treaties. Belgium has only chosen to apply the anti-fragmentation rule for the specific activity exception. Although Belgium has for the time being chosen to reserve the right for the “commissionaire PE” definition not to apply to its Covered Tax Agreements, the PE-concept under national law has recently been extended so as to include PE’s created via the commissionaire (or similar) arrangements. The amendment to the national law will therefore at this moment only be relevant in case no double tax treaty applies or if a certain double tax treaty specifically deals with commissionaire arrangements. The latter is for example the case with respect to the double tax treaty that Belgium recently concluded with Japan but which has not entered into force yet. Belgium has however announced to withdraw its reservation once more clarity is provided by the OECD on the profit allocation rules to such commissionaire PE’s.

Recent changes to the tax treatment of foreign PE’s losses
Tax losses incurred by a foreign PE of a Belgian company or with respect to assets of such a company located abroad and of which the income is exempt in Belgium by virtue of a double tax treaty, can no longer be deducted from the Belgian taxable basis as of tax assessment year 2021 (relating to the taxable period starting the earliest at 1 January 2020). The tax treatment of these losses in the foreign state is irrelevant. An exception is made for so-called definitive losses within the EEA. Definitive losses are losses that exist in a certain Member State upon the final termination of the activity or possession of the asset if these losses have not been deducted in that state and cannot be deducted by another tax subject in that state. If an activity is restarted within three years after the termination, there is a recapture of the losses deducted from the Belgian taxable basis.

If a double tax treaty does not provide for an exemption of foreign PE profits but does foresee a reduction of the Belgian taxes, the foreign PE losses can be deducted to the same extent. This is the case for the tax treaties that Belgium concluded with the Isle of Man, Uganda and the Seychelles. Only the latter treaty has currently entered into force. 

8. Intercompany transactions should be at arm’s length and the group’s transfer pricing policy should be applied correctly

How is transfer pricing applied in Belgium?

Under Belgian tax law, transactions with related parties should be remunerated at arm’s length in order to avoid adverse tax consequences.

Belgian legislation does not provide specific guidelines or recommendations regarding the methods to be used in determining the arm's length price of a transaction. Therefore, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines) are generally followed in Belgian tax practice and accepted by the Belgian tax authorities, in particular by the special transfer pricing unit and the Belgian Service for Advance Decisions (Ruling Commission) 

How do recent developments affect transfer pricing in Belgium?   

On 5 October 2015, the final BEPS Action 8 to 10 Reports were released in order to ensure that transfer pricing outcomes are aligned with value creation. The OECD guidelines were recently amended in order to reflect the clarifications and revisions agreed upon in these BEPS reports. These amendments are particularly relevant in Belgium. The Belgian Minister of Finance indeed stated that the new OECD Guidelines will be followed and will be applied in transfer pricing audits.

As a result of the increased international attention on the abuse of transfer pricing rules, transfer pricing is the subject of increasing scrutiny in countries, including Belgium. The fact that transfer pricing has become one of the priorities of the Belgian tax authority is evidenced by the allocation of additional means to the specialized transfer pricing unit and the increased number of transfer pricing audits.

The OECD's new approaches will continue to impact the attitude of the Belgian tax authority. As the Belgian tax authority takes into account all OECD publications in the framework of base erosion and profit shifting (BEPS), these future developments will continue to shape the Belgian transfer pricing practice. It is expected that the OECD's general focus on value creation, ''significant people functions'' and substance in transfer pricing will determine the future of Belgian tax practices. This is also obvious from the recently introduced controlled-foreign-companies (‘CFC’) rule that will enter into force in 2019. For more information on the implementation of the CFC rule, please see our article of 29 December 2017. This rule has the effect of re-attributing the income of a low-taxed controlled subsidiary to its parent company. Belgium opted for a transfer pricing approach which means that the CFC-rule only applies to income which has been artificially diverted to a controlled low-taxed subsidiary. This is the case if the significant people functions which generated diverted income at the level of this subsidiary are carried out in Belgium. 

Transfer pricing is currently the biggest issue facing multinational businesses

It can be derived from the above that it is imperative for Belgian taxpayers to have transfer pricing policies, transfer pricing studies and intercompany agreements readily available and to align the company’s activities with such documentation.

What are the main consequences of non-compliance?

If the transfer prices are not considered at arm’s length, the Belgian tax authority could adjust the taxable basis of the Belgian taxpayer upwards for any profit that was not recognized.  A downwards adjustment is under certain circumstances possible if it can be demonstrated that the Belgian taxpayer’s accounting result exceeds the arm’s length result. In order to avoid that profits are shifted to a Belgian taxpayer, it is furthermore foreseen that certain deductions (for example current year’s and carried forward tax losses) cannot be offset against abnormal or benevolent advantages that a Belgian taxpayer receives.

In addition, administrative fines or tax increases (and – if applicable – criminal sanctions) can be imposed (see 1). Please note that the Belgian tax authorities can also establish an ex officio assessment in case the taxpayer does not provide the authorities (a sufficient answer to) the requested information, which implies that the burden of proof is reversed.

9. Transactions performed by your company should pursue a business purpose and substance requirements should be complied with

During the last few years much more emphasize is placed on combatting tax avoidance. Various measures have been introduced by the Belgian legislator, many of which result from initiatives on an international (the BEPS-project) and European level. These initiatives pursue more coherence, transparency and substance in order to ensure that taxes are paid where value is created. Examples of recent developments in this respect are the following: 

  • Belgium signed the Multilateral Instrument on 7 June 2017 (following BEPS Action 15) and opted to include to 98 tax treaties the principal purpose test provision as a general anti-avoidance rule. This anti-avoidance provision complements the already existing beneficial ownership condition with respect to the eligibility for treaty relief for cross-border dividend, interest and royalty payments.

  • Implementation of Directive 2015/121 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (amending the Parent-Subsidiary Directive) which introduced an anti-avoidance rule that restricts the entitlement to the benefits provided for in the Directive (such as the participation exemption or exemption from dividend withholding tax) in case of abuse.

  • Implementation of Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market. The Directive requires Member states to implement amongst others CFC-rules and a general anti-avoidance rule in their national legislation and to apply those provisions as of 2019. Please note that Belgium already has a general anti-avoidance rule in place which is similar to the one that the Directive foresees. For more information on the Directive, please refer to our article of 21 June 2016.

As a result, taxpayers should be aware of the fact that all these developments entail potential risks for their structures, arrangements and transactions. In order to avoid a successful application of these measures by the Belgian tax authorities, taxpayers should ensure that their international tax structures are substance compliant and can be legitimized by valid commercial reasons. In this respect, it can also be useful to verify whether it is desirable for certain transactions to be coordinated beforehand with the tax authorities (i.e. a ruling is requested). Finally, please note that substance is not only relevant in relation to anti-avoidance measures but is equally relevant in relation to the notion of tax residence, as does recent Belgian case law shows. Taxpayers could therefore consider to perform a substance assessment.

10. Expenses are only tax deductible if the reality and amount can be demonstrated. Even if sufficient proof is available, not  all expenses are tax deductible

As a general rule, expenses are tax deductible provided that they relate to business activities and are made or borne by the taxpayer within the taxable period in view of acquiring or maintaining taxable income.  In addition, the reality and amount of the expenses should be evidenced by supporting documentation.

However, not all expenses are tax deductible, even if the above mentioned conditions are met. Some expenses are not tax deductible, others are only tax deductible for a certain percentage or under specific conditions. A high level overview of the general tax treatment of the most common expenses (which are not already discussed above) is depicted herewith (exceptions may apply though):

10 common pitfalls table


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