1 March 2024 Jan Van Cauwenberghe Tax

Payments to tax havens are deductible if not made to avoid Belgian taxes

Taxpayers can only deduct payments made to tax havens if (i) they are reported in their corporate income tax return; and (ii) they have been made in the context of real and genuine transactions, whereby the recipient of the payment is not an “artificial construction” (Article 198, §1, 10° ITC).

The Tribunal of First Instance of Antwerp has now confirmed that this sanction of non-deductibility only applies if the payments were made to an artificial construction which was set up to avoid Belgian income taxes. It would not apply when artificial constructions are set up by non-related co-contractors (with the aim of – potentially – avoiding foreign tax).

1. Decision of the Tribunal of First Instance

The judgment relates to a Belgian taxpayer who made payments to third party suppliers established in tax havens. These payments were reported and were also made in the context of real and genuine transactions.

The Tax Authorities argued that the payments were made to “artificial constructions” set up by third party suppliers and that the taxpayer did not prove that these payments were not made to avoid Belgian income taxes. 

The Tribunal rejected this position of the Tax Authorities based on a two-step reasoning: 

  • first, the Tribunal ruled that Article 198, §1, 10° ITC can only be applied to artificial constructions set up to avoid Belgian income taxes. This follows from the intention of the legislator and also from European case law on the notion of “artificial construction”; 
  • second, the taxpayer should only demonstrate that it is ”likely” that the artificial construction of its third party supplier was not set up to avoid Belgian income tax, as the standard of proof for a “negative fact”’ is lower. 

In this case, the Belgian taxpayer established, on the basis of a series of documents (invoices, bills of lading, photographs, account statements etc.), that the third party suppliers had no connection with Belgium and that it was likely that the artificial constructions of these suppliers were not set up to avoid Belgian income tax. 

Hence, the Tribunal held that the Belgian taxpayer could deduct the payments made to its suppliers. 

2. Takeaways

This judgment  brings welcome guidance for multinationals who often have no choice other than to contract with third party suppliers established in tax havens. 

It confirms the Belgian taxpayer may deduct these payments if they are not made to artificial constructions set up to avoid Belgian income taxes. This can be demonstrated by proving by any legal means, including factual presumptions, why it is unlikely that the co-contractor has a taxable presence in Belgium. In this respect, it might be helpful to use a questionnaire to be filled in by the supplier. 

Note that the Belgian State can still lodge an appeal against this judgment.