The amendment of the investigation, assessment, objection, and retention periods is the primary focus of the draft bill's procedural measures.

Assessment periods

The most notable changes are those relating to the assessment periods. In all cases, the assessment period starts from the end of the relevant financial year. 

The three-year assessment period would be retained for situations when the tax administration wishes to amend a tax return filed on a timely basis. When a taxpayer either fails to file or files a late return, a new extended four-year assessment period is proposed. 

According to previous media reports, the government also had intended to create a 10-year assessment period for “complex tax returns.” This intention apparently has evolved and the draft bill proposes two different periods, a sixyear period and a 10-year period. The six-year period would apply when the tax return includes certain international elements (e.g., transfer pricing documentation, payments to tax havens, or relief for foreign tax). Such returns are deemed “semi-complex.” A 10-year period is foreseen for “complex” tax returns. A return is deemed complex when it involves the use of legal constructions, hybrid mismatches, or controlled foreign companies.

When a return contains one of the three elements necessary to be deemed complex, the tax administration could use the six- or 10-year period to amend any element of the return. The bill aims to reduce the impact by not allowing certain “easily auditable” disallowed expenses to be taxed within these new periods (e.g., nondeductible car expenses or nondeductible reception expenses). However, there are numerous elements that are equally easily auditable but remain liable to taxation in the new extended periods (e.g., depreciation expenses and general professional expenses).

The assessment period for tax fraud is extended from seven to 10 years.

Investigation and retention period, and notification of simplified income tax fraud investigation

Linked to the modification of the assessment periods, the draft bill also proposes modified investigation periods, with a parallel investigation period for each new assessment period. The tax administration would be able to conduct an investigation for four years when a tax return is either not filed or filed late; for six or 10 years when the tax return is semi-complex or complex, respectively; and for 10 years in the case of tax fraud. The tax administration would be able to apply the extended investigation periods to semi-complex or complex returns without prior notice to the taxpayer.

The so-called “fraud notification” would be necessary to apply the extended investigation period in the case of tax fraud and is likely to be the most controversial proposal. Under the current regime, before the extension of the investigation period, the tax administration must notify the taxpayer “accurately” of “the indications of tax fraud.” The draft bill aims to simplify this and proposes that it would be sufficient for the tax administration to “give notice of fraud suspicion and of its intention to apply this extended period.” This is a further erosion of taxpayers' procedural rights, since assessments during the fraud period could no longer be annulled on procedural grounds, as stated in the explanatory memorandum. The “simplified” prior notification would be obligatory and if not provided, the assessment issued following the investigation would be invalid. 

The retention period for which taxpayers are required to retain documentation also would be extended to 10 years to ensure that a taxpayer still has all relevant documentation when potentially subject to a 10-year period of investigation and assessment.

Objection period

In order to “compensate” for the extension of the investigation and assessment periods, the draft bill also proposes to extend the taxpayer’s objection period from six months to one year. In practice, the relevance of this extension probably would be limited, since the payment period has not been correspondingly extended. Taxpayers wishing to file an objection notice could therefore be forced by the collector to do so sooner in order to suspend collection of the tax. 

The tax administration would be entitled to impose a penalty payment when the taxpayer, or a third party, obstructs a tax investigation (in the broad sense of the term). This would include noncompliance with the provisions regarding an onsite audit of the books or a request for information, or the refusal to allow a tax visit to take place.

Moreover, the draft bill clarifies that penalty payments also may be imposed where when the tax investigation is carried out at the request of a foreign tax authority, to facilitate the imposition of penalties in such cases.

The tax administration would be required to obtain approval from the court to impose a penalty on the taxpayer. This ensures judicial oversight. The claim would be brought before the tax chambers of the Court of First Instance. Cases would be dealt with similarly to preliminary relief proceedings and heard as soon as possible. The court’s ruling on the penalty payment would be considered as a final judgement on the merits of the case.

The draft bill does not provide for a specific date of entry into force for the penalty payment provisions. Therefore, these rules will enter into force on the 10th day after the law’s publication in the Belgian official journal. 

The amendments to the investigation, assessment, objection, and retention periods would enter into force as from tax year 2023. The draft bill further clarifies that the provisions regarding the objection period would apply as from 1 January 2023.

The bill also provides for a transitional regime for tax years prior to tax year 2023 which would remain subject to the current legislation. Therefore, the new or amended terms could not be applied to tax years preceding tax year 2023, even if the statute of limitations had not expired. For example, for tax year 2022, the assessment period in the case of tax fraud would be a maximum of seven years, despite the fact that the statute of limitations would not have expired at the time the new legislation (including the 10-year assessment period in cases of tax fraud) entered into force.

This would create an important degree of legal certainty for taxpayers which would be welcomed, having regard to the significant impact the proposed changes could have on taxpayers.

This draft bill is expected to be adopted shortly, since the fight against tax fraud is seen as important and is high on the legislator’s agenda. Once adopted by the Chamber of Representatives, the bill will need to be published in the official journal.

Some may question whether the provisions of the draft bill are proportionate to its aim. After all, many of the extended assessment and investigation periods are directly linked to obligations imposed on taxpayers by the legislator. No distinction is made, however, between taxpayers who comply with the legislation, making complete and transparent declarations, and those who do not. This seems unusual for legislation supposedly intended to combat tax fraud.

The proposed changes indicate that in the coming years, taxpayers should anticipate more tax audits and sanctions in the form of penalties, resulting in it becoming even more important to prepare thoroughly for a possible tax audit.