The Belgian Constitutional Court , followed by the Minister of Finance , both recently stated that a 10% tax increase is not applicable in case of a first offence, committed in good faith.

Based on these outcomes, taxpayers who were penalized for their first offense without the intention to commit fraud, can contest this tax increase.

What’s the issue?

Article 444(1) of the Belgian Income Tax Code 1992 (hereafter ‘ITC92’) provides that in the event of a failure to file a tax return, a late return or an incorrect or incomplete return, a tax increase between 10% and 200% may be imposed, depending on the nature and severity of the offense.

However, the same article provides in its third paragraph that in case of a first offence and in the absence of bad faith, the 10% tax increase may be waived.

In practice, the tax authorities often ignore the application of art. 444(3) ITC92, imposing a 10% tax increase, even in cases involving a first offense, committed in good faith. The application of this increase leads to an automatic stand-alone taxation of the changes to the taxable basis with-out the possibility to deduct tax attributes such as a loss of the year or carried forward deductions. This is the main reason why tax authorities have started to automatically apply the 10% increase for all adjustments.

A recent judgment of the Constitutional Court on 21 November 2024 in response to a preliminary question on the constitutionality of article 206/3 ITC92 states that article 444(3) ITC92 must be applied in such a way that in the case of a first offense, without the intention to commit fraud, the 10% tax increase should always be waived.

In an answer to a parliamentary question, the Minister of Finance confirmed on 28 Novem-ber2024 the interpretation of the Constitutional Court, referring to the intention of the legislator to not apply the 10% tax increase in case of a first mistake.

This will have an important impact on the outcome of future and pending tax audits, in particular when the company has available tax attributes to set off against the adjustment of the increase in taxable basis.

Practical consequences for pending cases

The importance of the case law of the Constitutional Court should not be underestimated when evaluating various tax files.

In tax files with ongoing tax audits, it will be important to emphasize the view of the Constitutional Court and the confirmation of this interpretation by the Minister of Finance during negotiations with the tax authorities.

In files with a final assessment, this argument can still be raised if the statute of limitations has not yet expired. Additionally, in cases where an administrative appeal has already been filed, an additional appeal can be filed, as long as no final decision has been rendered by the tax authorities.

A more difficult question concerns cases where the statute of limitations has already expired.

Although a judgment of the Constitutional Court declaring a tax provision unconstitutional in its entirety or in some of its interpretations, may generally be considered as a new fact, giving rise to the possibility to request an ex-officio relief, in this case the preliminary question presented to the Constitutional Court did not concern the application of article 444(3) ITC92, but rather the application of article 206/3 ITC92. Therefore, it seems not possible to consider the judgment as a new fact for the application of article 444(3) ITC92.

An answer to a parliamentary question neither qualifies for the definition of a new fact.

For those cases where the statute of limitations for the administrative appeal has already expired, a potential solution might be to request a cancellation or reduction of the fines imposed.

Finally, the tax increase can always be challenged before the courts and tribunals. In prior cases, the court often correctly applied Article 444(3) ITC92, and frequently waived or reduced the 10% tax increase in case of a first offense.

In case of any further questions regarding these developments, please do not hesitate to reach out to your trusted EY person of contact.

(1) – Constitutional Court 21 November 2024, 129/2024, Arr. GwH 2024, (8057) consid. B8.

(2) – Q. and A. Chamber 2024-25, 26 Nov. 2024, 16 (q. Nr. 14 J.-L. CRUCKE, B. PIEDBOEUF and S. MATHEI).