Legal certainty prevails even if position of the Tax Authorities was contra legem
Milestone decision of the Supreme Court on the principle of legal certainty
On 21 April 2022, the Supreme Court rendered a milestone decision on the principle of legal certainty (as part of the general principles of good administration). The Court ruled for the first time that taxpayers may rely on a position taken by the Tax Authorities, regardless of whether this position is a correct interpretation of the law. Previously, the Supreme Court consistently ruled that this was only possible if that position is not contra legem.
Conflicting positions of the Federal and regional Tax Authorities
The dispute revolved around the application of a legal provision in the Flemish Tax Code which provides that, under certain circumstances, the amounts received by a person from a life insurance are subject to inheritance taxes.
In the case at hand, a donor had made several donations of life insurances in 2013. At that time, the Federal Tax Authorities took the position – in a non-published letter – that these donations would not be subject to inheritance taxes in the hands of the beneficiaries at the time of the donor’s death. This was also confirmed in a tax ruling of 2017 (in an unrelated but similar case).
The Flemish Tax Authorities (“Vlabel”), however, took the view in a decision of 2015 that such donations are nonetheless subject to inheritance taxes (even though the text of the relevant legal provision in the Flemish Tax Code did not change). Based on this “new” position, Vlabel taxed the beneficiaries in 2016, i.e. upon the moment of the donor’s death.
Decision of the Supreme Court
The Supreme Court confirmed that this taxation was contrary to the principle of legal certainty. The donor has reasonably relied on the position of the Federal Tax Authorities that was applicable at the time of the donation (in 2013), and that hence, the sums obtained by the beneficiaries at the time of the death of the donor (in 2016) would not be subject to inheritance taxes. Whether the position taken by the Federal Tax Authorities (on which the donor relied) was correct or incorrect is irrelevant according to the Supreme Court.
Key take-aways
In the framework of tax audits and litigations, taxpayers could now invoke the principle of legal certainty regardless of whether the position previously taken by the Tax Authorities (on which the taxpayer relied) would be contra legem or not.
This is particularly relevant in today’s tax audit climate where Tax Authorities often come back on their own positions (rulings, administrative decisions, agreements with taxpayers…) based on the argument that their position would not (or would no longer) be a correct application of the law.
Needless to say that this is a very welcome decision in an increasing uncertain tax landscape.
Feel free to contact us for analysis whether this new case law may offer new opportunities in your ongoing tax disputes.
