The Belgian tax authorities are once again starting to conduct tax audits on the application of wage withholding tax exemptions for research and development. The most recent round of audits relate to income year 2020.
In our earlier newsflash we put together some important key takeaways from the tax audits of income year 2019. The 2020 information requests are quite similar to those of 2019 but we have noticed that the audits themselves are becoming more and more stringent.
Mind the formalism and be prepared to substantiate the incentive claimed!
Mind the (ever-expanding) formalism
First and foremost, the tax authorities (and case law) are taking a very formalistic approach to these tax audits with regard to Belspo registration. More and more frequently they are refusing exemptions on purely formalistic grounds relating to this registration. Therefore, it is of the utmost importance to complete your registration as correctly as possible.
Moreover, the tax authorities are beginning to request an export of the Belspo registration well in advance of the tax audit. Once a request for information has been received, you can no longer make any adjustments to your registration.
Furthermore, there have been several new developments on the Belspo portal. These new developments and requirements are based on recent case law and messages from the Belgian tax authorities and the Minister of Finance. Consequently, as well as providing all the usual information requested on the portal, you will now need to provide some additional information..
Therefore, please bear in mind the below comments for income year 2020 to help make sure your registration is in order.
- Some tax inspectors are now requesting/demanding a ‘realistic’ start and end date. Failure to indicate a realistic start and end date for your research program on the Belspo platform could mean that you lose the R&D incentive claimed.
- The tax authorities believe that providing confirmation of the structural character is insufficient to demonstrate R&D activities and are demanding more detail. It is therefore important to upload the project overview for the relevant year to the Belspo portal.
In brief, we see that more and more formal conditions are being added and expanded upon by the tax authorities, which results in a larger administrative burden.
Although the R&D wage withholding tax incentive is a substantial cash benefit to companies, it is in essence very different to regular ‘grants/subsidies’. This is because in most cases there has been no binding upfront confirmation before the benefit is granted. Although the benefit is granted through payroll (under certain conditions and procedures), it may still be audited by the tax authorities at a later date.
In the event of a tax audit, the burden of proof falls on the taxpayer. From recent tax audits (and case law) it has become clear that this burden of proof is not easily fulfilled. Therefore, it is especially important to provide details on the R&D time spent, the R&D projects, the formal conditions, etc. However, be aware that this may give rise to discussions with the tax authorities on substantial amounts where the time to reply is limited.
For this reason we would recommend that you build up a good defence file in advance which demonstrates that all the conditions and formalities have been met.
The way forward
Based on numerous tax audits and other files related to this exemption, PwC has developed an approach to help your company adhere to this burden of proof and to mind the formalism. We aim to assist you in the event of a tax audit and /or to help your company to prepare a defence file for the future.
Should you receive a request for information with respect to the application of wage withholding tax incentives, do not hesitate to contact your PwC team. We have extensive experience in this matter and will be able to assist you from strategy through to execution. The support PwC can provide includes:
- determining how your company can gather and deliver the required information efficiently to the tax authorities;
- requesting an extension of the one month reply term;
- assisting with an on-site visit by the tax authorities;
- analysing whether the position taken by the Belgian tax authorities is correct;
- assisting your company in both the administration phase (i.e. pre-court) and the legal phase (i.e. court).
For more information on this topic, please don’t hesitate to contact Thomas Goemaere.