Can taxpayers proactively adjust their tax return after filing by introducing a tax protest?
It happens. Taxpayers file their corporate income tax return and some time later it dawns on them that a tax benefit was not claimed. Can this still be rectified by filing a tax protest against the tax return?
The Tax Authorities traditionally take the position that such a tax protest is only admissible if the taxpayer made an “error in fact or in law" in his tax return, and not when he made a conscious decision. This position is, however, too narrow according to the Court of Appeals of Ghent: taxpayers must be able to rectify any inaccuracy in their tax return, even when this results from a conscious (business) decision (Ghent 1 February 2022, n° 2020/AR/1948).
Decision of the Court of Appeals of Ghent
In the case at hand, a taxpayer claimed the so-called notional interest deduction in his corporate income tax return for assessment year 2018. After filing said tax return, the taxpayer realised that he was entitled to the investment deduction as well and that he should have applied said deduction instead of the notional interest deduction (tax law provided that the taxpayer had to make a choice between either of the two deductions). The application of the investment deduction would have resulted in a deduction that was 18 times higher than the notional interest deduction. The taxpayer hence filed a tax protest against the tax assessment that was issued on the basis of his tax return, whereby he claimed the application of the investment deduction instead of the notional interest deduction.
The Tax Authorities deemed the tax protest inadmissible.
The reason was that the application of the investment deduction would have been the result of a conscious decision made by the taxpayer, so that there was no “error in fact or in law”.
The Court of Appeals of Ghent disagrees with the position of the Tax Authorities: any inaccuracy in the tax return can be rectified by (timely) filing a tax protest, even if said inaccuracy is the result of a conscious (business) decision. Moreover, the Court ruled that in the case at hand it is anyway implausible that not applying the investment deduction would have been the result of a conscious (business) decision as the ‘incorrect’ application of the notional interest deduction would have followed from a mere oversight or absent-mindedness. The Court concluded that the tax protest was admissible and well-founded.
Please also note that a draft bill was recently submitted to Parliament including a proposal to extend the period within which taxpayers can lodge a tax protest against their income tax assessments from 6 months to 1 year (see link).
This caselaw provides an additional argument to still claim a tax advantage even after your tax return has already been filed. Also, in the framework of pending tax litigations in respect of previous assessment periods, this caselaw may have its merits.
Feel free to reach out to us for more concrete advice on the framework of tax audits and dawn raids by the Tax Authorities.