Notification obligation for legal constructions
The Court of Appeal of Liège rejects a fine imposed by the tax authorities for
failing to declare a foreign legal arrangement. After all, there was no
intention on the part of the taxpayer to evade the tax. The Court of Appeal thus
goes further than the Flemish courts and tribunals.
Société de gestion Patrimoine Familiale
In 2011, a resident of the Grand Duchy of Luxembourg founded a so-called Société
de gestion Patrimoine Familiale; that is a Luxembourg company form. The
Luxembourg resident subscribes to the start-up capital all by himself, but he
has some family members turning up as co-founders. It concerns his wife, his
in-laws, his son and his daughter with her husband. But the company is already
being liquidated after a few years. In the meantime, it has not paid any
dividends or other income to its shareholders.
However, some of the co-founder family members live in Belgium. Since tax year
2014, every Belgian taxpayer has been obliged to report each 'legal arrangement'
of which he, his wife or partner with whom he legally lives, or the children
over whom he exercises parental authority, whether a founder or a third-party
beneficiary, via the tax return. And the Belgian relatives never did that.
The tax authorities responded by imposing an administrative fine of EUR 6.250
euros per year on Belgian taxpayers for the tax years 2016 and 2017.
The
taxpayers lodge an objection and ultimately go to court.
No fraudulent intentions
Both the court of first instance and the Court of Appeal in Liège can only
establish that the tax law has been infringed: every co-founder of a legal
arrangement is obliged to state the existence of that arrangement in his tax
return. There is no dispute as to whether a Luxembourg SPF should be qualified
as a foreign legal construction; the answer to that is 'yes'.
The penalty for failing to report was only introduced in 2016. And that sanction
is effectively an administrative fine of EUR 6.250 euros per year, imposed in
application of article 445 §2 ITC 1992.
However, we must immediately make a comment here: the law does not provide for a
graduated system for that sanction, nor does it provide for the possibility of
imposing a lower fine, granting a postponement, etc. However, the Constitutional
Court normally considers that as a fine has a criminal character, the judge must
have the last word on the amount of that fine.
And it is precisely on that
article 445 §2 ITC 1992 that the Constitutional Court ruled on 14 October 2021
that that provision violated the Constitution because it does not allow the
court to allow the prescribed fine to be accompanied by postponement.
The Court of Liège then finds that:
the taxpayers did not receive any income from the Luxembourg SPF,
they themselves do not have any professional knowledge or experience in tax or
financial matters, and
they have not invested their own funds in the SPF.
Because art. 445 §2 ITC 1992 does not provide for the possibility to grant an
extension, the provision is unconstitutional according to the Court of Appeal
and the resulting fines are therefore also null and void. The fine will be
annulled in full.
Flanders versus Wallonia
Flemish courts do not go as far in this type of situation. On the basis of the
judgment of the Constitutional Court, they simply measure themselves the right
to assess the proportionality of the fine and to take this into account in their
judgment. Flemish courts therefore tend to soften the fine, but still to impose
a fine, because in the end a violation of the law was committed.
By declaring the provision unconstitutional, the Liège court goes a step
further.
An amendment to the law that was partially declared unconstitutional could
already bring a lot of clarity.