Co-operative compliance: a paradigm shift in the Belgian tax landscape

Complementary to the corporate tax reform, the Belgian Government recently announced several changes to the tax procedural rules. On the one hand, more severe sanctions will be imposed, like the minimum taxable basis for corrections further to a tax audit. On the other hand, the government wants to implement a pro-active and cooperative procedural framework – so called co-operative compliance, offering the opportunity to taxpayers to prevent tax controversies.

This cooperation would be shaped according to the Dutch model of “horizontal monitoring”, based on trust and transparency. The “horizontal monitoring” model implies an intensive cooperation between taxpayers and tax authorities in order to timely track possible tax risks and to solve them before the filing of the tax return.

More specifically, the “horizontal monitoring” procedure consists of two steps:

  • Firstly, the company or the company’s representative, has to demonstrate a highly qualitative tax framework enabling them to control the tax function of the company. This framework should result in possible tax risks appearing before the filing of the tax return;-
  • Secondly, possible tax risks should be communicated to the tax authorities as soon as possible by the company or its representative, in order to find a solution before filing of the tax declaration.

The practical arrangements with regard hereto, such as deadlines for replies and the tax return process are to be determined in a covenant that will serve as the basis for the “horizontal monitoring”. In the Belgian system of co-operative compliance, large companies would directly conclude such covenants with the tax authorities. Other (smaller) companies, would be able to participate to covenants concluded on a sectoral level.

Evidently, a co-operative compliance model offers several advantages to the taxpayer:

  • It grants far more certainty on the tax position of the company as tax risks will be cleared with the tax administration prior to the filing of the tax return.
  • A co-operative compliance model also leads to more frequent and better communication with a dedicated team on both taxpayers’ and tax administration’s side.
  • It is an open debate model, i.e. in the Dutch model of “horizontal monitoring”, it is commonly accepted that the taxpayer and the tax administration “agree to disagree”. The taxpayer can choose to bring the question before court as a principal discussion, without having to wait for a tax correction and possible sanctions.
  • Finally, another key element of the co-operative compliance model, is that taxpayers who participate in this model should not expect a burdensome tax audit further to their tax return, with the exception of some selective checks. After all, by closely monitoring the tax return process, it is expected that the tax return has been correctly filed.

With this new measure, Belgium follows the trends in several other countries having already adopted a form of horizontal monitoring such as the Netherlands, France and Italy, but also recent OECD’s recommendations presenting cooperative tax compliance as a useful policy instrument.