April 2011 How to compute the one-month period under Article 346,3rd indent Income Tax Code, as applicable before 7 June 2010, in pending tax litigations? Contents The Tax Administration has to respect a one-month waiting period which is given to the taxpayer to respond to a notice of rectification - How to compute the onemonth period under Article 346, 3 rd indent Income Tax Code, as applicable before 7 June 2010, in pending tax litigations? 1 Applicable provisions and case-law When the Tax Administration purports to amend a taxpayer s annual tax return, it must send the taxpayer a so-called notice of rectification of the tax return ( Avis de rectification / Bericht van wijziging ) mentioning the reasons justifying the proposed amendments. The taxpayer has one month to reply in writing to the notice of rectification. The Tax Administration cannot issue a supplementary assessment before the end of that one-month period, unless the taxpayer agrees to the proposed amendments or the rights of the Treasury are jeopardized by other reasons than the statute of limitations (Article 346 Income Tax Code 92 ( ITC 92 )). Except for these two circumstances, the Tax Administration must respect the one-month waiting period under penalty of annulment of the entire supplementary taxation. 1 Applicable provisions and caselaw... 1 2 Application of case-law to pending tax litigations... 2 3 Consequence: annulment of the assessment and no possibility to issue a new assessment in case of violation of a rule related to statute of limitations or in the absence of a decision from the Regional Director... 3 4 Impact in practice on pending tax litigations and recommendations... 3 A new version of Article 346, 3 rd indent ITC 92, as applicable since 7 June 2010 1, states with respect to the computation of that one-month waiting period that it starts running as from the third working day after the handing over of the notice of rectification to the postal services. Before 7 June 2010, Article 346, 3 rd indent ITC 92 stated that the one-month period began as from the sending, i.e. as from the date of handing over of the notice of rectification to the postal services. The amendment of Article 346, 3 rd indent ITC 92 was introduced in May 2010 in order to anticipate an imminent preliminary decision of the Constitutional Court requested by the Court of Appeal of Antwerp concerning the way of 1 Entry into force of the Law of 19 May 2010. 1
computation of the one-month waiting period under Article 346, 3 rd indent ITC 92. On 2 June 2010, the Constitutional Court held that computation of that period as from the date of handing over of the notice of rectification to the postal services is disproportionate and violates the rights of defence of the taxpayers and is therefore contrary to Articles 10 and 11 of the Constitution. Indeed, Article 346, 3 rd indent ITC 92, as applicable before 2 June 2010, implied that the period during which the taxpayer may respond to the notice of rectification started to run before the taxpayer actually received the notice of rectification. The Constitutional Court suggested that the starting point for the one-month period should be the third (working) 2 day after the notice of rectification has been handed over to the postal services. In fact, the Constitutional Court applied to the one-month period provided for under Article 346, 3 rd indent ITC 92 the so-called receipt theory that it had already applied in the past to compute the starting point of the period in which tax protests can be filed by taxpayers. The Supreme Court also adheres to the receipt theory. However, the position of the Supreme Court with regard to presumptive receipt of registered letters by a taxpayer differs from that of the Constitutional Court. The Supreme Court considers that the earliest point of the presumptive receipt of a registered letter by the taxpayer is the next working day after the letter has been handed over to the postal services. 2 Application of case-law to pending tax litigations As a result of the Constitutional Court decision of 2 June 2010, the receipt theory is applicable as from 2 June 2010 to all those notices of rectification for which the one-month period has not expired yet on that date. The Minister of Finance has recently confirmed that this computation method is also applicable to all pending administrative and judicial tax appeals. Although some case-law applies the receipt theory suggested by the Constitutional Court, other case-law even considers that the computing method suggested by the Constitutional Court cannot be applied because there is a gap in the law as a result of the decision of the Court which can only be remedied by the legislator. According to that case-law, the application of the receipt theory of the Constitutional Court leads to the conclusion that the one-month period never validly started to run and hence never expired. 2 The wording of the decision of the Constitutional Court is not entirely clear as to whether or not it refers to three working days in accordance with Article 53bis of the Judicial Code or to any three days. 2
3 Consequence: annulment of the assessment and no possibility to issue a new assessment in case of violation of a rule related to statute of limitations or in the absence of a decision from the Regional Director If a supplementary assessment has been issued before the end of the onemonth period during which the taxpayer may reply to the notice of rectification, it is null and void. If the Tax Administration s right to issue a supplementary assessment is timebarred, assuming the one-month period had been respected, there is an issue of violation of a rule related to the statute of limitations. In that situation, the Tax Administration is precluded from issuing a new assessment after the annulment of the supplementary assessment (Articles 355 and 356 ITC 92). In addition, even if there is no issue of violation of a rule related to the statute of limitations, but the one-month waiting period has been violated by the Tax Administration and the supplementary assessment has been annulled by a Court, there is also no possibility for the Tax Administration to submit to the Court a new assessment (Article 356 ITC 92) in the absence of a decision from the Regional Director (i.e., in the case where the taxpayer has decided to submit the case directly to a Court without waiting for the decision from the Tax Director). However, the Tax Administration may in the event of the annulment of the supplementary assessment try to re-assess the taxpayer under an old version of Article 355 ITC 92, which might arguably still be applicable to assessments relating to assessment years prior to 1999. 4 Impact in practice on pending tax litigations and recommendations In pending tax litigations and in light of the receipt theory as endorsed by the Constitutional Court, it is possible to claim and obtain the annulment of the issued supplementary assessment without any possibility for the Tax Administration to issue a new assessment in certain cases, where the Tax Administration has issued a supplementary assessment before the end of the one-month period granted to the taxpayer to respond to a notice of rectification. Therefore, in order to invoke an argument of nullity of the assessment in all pending tax litigations (especially those where the Tax Administration issued a supplementary assessment at the end of the three-year assessment period), it is strongly recommended to verify whether the one-month period granted to the taxpayer for response has been respected by the Tax Administration. To make that check, we recommend: 3 first, verifying whether the date mentioned on the notice of rectification corresponds with the date of its effective handing over to the postal services. The forms which are commonly used by the Tax Administration to send registered letters are Nr 605 B or F 407. Such a form must carry a stamp of the postal services which shows the date on which the notice of rectification has been handed over to
the postal services. The taxpayer is entitled to request from the Tax Administration a copy of the form used either pursuant to the Law on the publicity of the administrative acts or pursuant to Article 877 Judicial Code (only if the tax dispute has been brought before a judge). We know of cases where there was a difference between the date mentioned on the notice of rectification and the date when that notice was effectively handed over to the postal services. Only the second date is relevant for the computation of the one-month period; second, verifying whether the one-month period during which the taxpayer may reply to the notice of rectification has been respected by the Tax Administration before issuing the supplementary assessment. To make that check, in light of the case-law of the Constitutional Court, one needs to consider that the starting point for the one-month period is the third (working) day after the notice of rectification has been handed over to the postal services. If the last day of that period is a Saturday, Sunday or a public holiday, both the Tax Administration and the Courts admit that the period is to be extended until the first working today pursuant to Article 53 Judicial Code. third, in light of the case-law of certain Courts that consider that the one-month period never started to run as a result of the decision of the Constitutional Court, one could envisage to invoke that position in pending tax cases. However, please note that in such a case it is not clear whether the annulment of the assessment based on this position as such could preclude a new assessment. Indeed, it is not certain that in such a case there is a violation of a rule related to the statute of limitations. 4
Contacts For further information please contact: Angélique Puglisi Counsel (+32) 2 501 94 82 angelique.puglisi@linklaters.com Svjatoslav Gnedasj Associate (+32)2 501 94 70 svjatoslav.gnedasj@linklaters.com Author: Angélique Puglisi This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2011 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an independent consultant or, outside of Belgium, an employee of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England, or on www.linklaters.com. Please refer to www.linklaters.com/regulation for important information on our regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by emailing us at marketing.database@linklaters.com. Rue Brederode 13 B - 1000 Brussels Telephone (+32) 2 501 94 11 Facsimile (+32) 2 501 94 94 5