Withholding taxes reduce the amount of declarations and checks and the general workload of the government. This may explain why withholding tax in Belgium has been in force for more than a century.

However, the simplicity of the withholding tax system has fallen prey to the nonsense that is so symptomatic of our taxes. Since 2000, employers have in some cases been entitled to retain part of the payroll tax withheld as a kind of source subsidy. This incentive has since been extended to about ten cases, the best known being the exemptions for research and development and those for night and shift work. They are crucial to support our economy. Belgium’s Court of Audit has calculated that the exemptions in 2017 amounted to around 2.3 billion euros.

Those two adjustments are a thorn in the side of the administration, inspiring it to take positions of Kafkaesque proportions. Lets’ take an example: on the basis of the exemption for research and development, the taxpayer can request advice from the Federal Public Service for Research and Development (Belspo) as to whether its activities constitute ‘research’ within the meaning of the tax law. The law literally states that that advice is binding on the tax authorities. Case law also confirms this. The legislator has introduced this option of advice precisely to provide legal certainty. However, the tax authorities still believe that they do not have to abide by it. In 2019, the Court of Audit wrote on the subject: “The FPS Finance has asked the Minister of Finance not to regard Belspo’s advice as binding. This goes against the current legislation.”

The tax authorities also consider that shift work is only covered if the work performed is the same for all shifts and the shifts are the same size. Yet, the law only refers to ‘shift work’. The tax authorities published the additional criteria regarding the same work and the same number of employees on their website. And they adhere strictly to their own standpoint.

Without complexity, tax law would not be tax law. However, a taxpayer acting in good faith should not be penalised. Due to the lack of clarity in the law, the central administration chose not to start audits until two years after the legislation took effect. It goes without saying that such a situation can only harm the taxpayer, who, for two years, lived under the impression that its liquidity position had increased. In reality, this is a ticking time bomb.

The simplicity of the withholding tax system has fallen prey to the nonsense that is so symptomatic of our taxes.

After those two years, companies may be so unlucky as to have to deal with an auditor who is forced to push through arbitrary positions imposed from above. And to add insult to injury, they will also be fined. The legislation – which the tax authorities themselves admit is unclear – should be applied correctly, they say. Yet, for crucial sectors, those exemptions are as vital as water and air. That is why the lack of legal certainty undermines our economy. Can there ever be a clear framework that is applied consistently?

1 october 2021 - Jan Tuerlinckx & Jan Van Hemelen