Columnn J. Tuerlinckx in Trends: Getting withholding tax from company managers: an ongoing battle (29/2/2024)
We need to talk about withholding tax. As natural persons, we all pay taxes on our professional income. The personal income tax is settled for each calendar year. You declare your income in the middle of the calendar year following the one in which you received that income. And a little later the tax authorities issue the tax assessment. As a result, on average, one and a half years elapse between the time you receive the income and the time you pay the personal income tax on it. Evidently, the State saw that as a problem. And that’s why the system of advance payments on this tax was devised: the withholding tax in other words. Persons and entities that pay out professional income are requested to withhold a tax advance on the remuneration. The withholding tax is therefore withheld by the person who pays out the remuneration.
For a long time, the tax authorities did not care whether the withholding tax was withheld and paid to revenue correctly. But the situation has now changed dramatically. The tax authorities have noticed that the correct withholding tax is not always withheld. This is often the case with company managers. And the State doesn’t like that either. From a business economics perspective, advances on taxes must be collected as quickly and as much as possible, as it is an efficient way to finance the work resources.
An audit campaign is currently underway at companies. If audits establish that too little withholding tax has been withheld in the past, these amounts will now be recovered from the companies. But often those advanced withholding taxes relate to the personal income tax of the beneficiary – the company manager – which has long been paid.
Let’s use an example to understand what’s going on. Suppose you buy a car. The dealership asks you for an advance. Due to unforeseen circumstances, you ask a family member to pay for it. However, the car production turns out to be exceptionally fast. Three weeks later, you receive a call from the dealership informing you that the car is waiting for you. Of course, you must pay the garage in full in advance. So, you do it and get the car. The question that arises in this hypothesis is whether this dealership can still claim the advance from your family member? Obviously, the answer to this question must be ‘NO’, because the garage has nothing more to claim: The car has already been paid in full.
Well, the recovery of withholding tax on salaries on which personal income tax has already been paid by the taxpayer can be compared to this. At this stage, there is no point in collecting the withholding tax anymore, because the personal income tax – for which the withholding tax was an advance – has finally been paid. However, the auditing services are required to see this in a different light. They have been instructed to recover the non-withheld withholding tax and accordingly to levy additional taxes on the non-withheld withholding tax of the already assessed beneficiary of the income. Many technical elements can be used to argue against this practice. And courts have also already ruled that this is not correct.
In my car sale example, this would actually mean that the garage owner believes that the advance payment still has to be paid. And that the car has become more expensive due to the late payment of the advance.
Put under pressure by the many ensuing disputes, the tax authorities are still carrying out the audits and tax adjustments, but they have stopped the administrative disputes. And this until further notice. A central unit in Brussels will adopt a common position. Or in other words, the tax authorities themselves are no longer sure. The most logical outcome would be for the withholding tax to be refunded to the companies. They do risk a small fine.
And that the manager obviously did not receive any additional income from the withholding tax that wasn’t withheld. In the worst case scenario, it could have been said of the company manager that he had an advantage. And this is because he was allowed to pay the personal income tax in the amount of the non-withheld withholding tax one and a half years later. From a certain standpoint, the manager could be subject to very limited additional tax on the fictitious interest benefit he has enjoyed.
But that, too, is debatable. Loyal readers will know that my co-columnist Jef Wellens revealed here this month that the Belgian state systematically withholds too much withholding tax in order to wrongfully benefit from a free loan at the taxpayer’s expense. Jef’s valuable insight will also be added to the debate.
And the discussion could well end up in a question to the Constitutional Court. Because taxes should only be levied on real income.
Today’s lesson is that company managers and their accountants should remain particularly vigilant when conducting withholding tax audits to at least avoid double taxation. Definitely to be continued.