With the automatic exchange of information that involves the systematic and periodic transmission of ‘bulk’ taxpayer information by the source country to the residence country, we see it often that our clients receive a question for information from the Belgian tax authorities for various categories of income (e.g. dividend, interest, salary, etc.).
The important question is evidently how to deal with these enquiries in a way that is satisfactory to the authorities, but without giving away too much personal information.
A significant amount of information is gathered through reporting by financial institutions to their local tax authorities on the basis of the Common Reporting Standard (CRS). The reporting obligation rests with the foreign bank or financial institution where the taxpayer holds a bank account or life insurance. The information is initially collected by the tax authorities abroad, which then exchange the information with the Belgian authorities.
As a rule, Belgian residents are taxable on their worldwide income. This implies that foreign income obtained by a Belgian resident needs to be reported in the Belgian tax return, irrespective whether such income is considered taxable in Belgium or not. If there is a double tax treaty in place, one first needs to look at the treaty to determine which country is authorized to tax an income component. Subsequently the domestic tax law of that country is applied to determine the tax due.
With such information request, the Belgian authorities aim to check whether the foreign income was correctly declared in the tax return by comparing it with the CRS information. Depending on the origin of the income, the size of the assets abroad and income received, as well as several other parameters, files are then selected for tax audit.
As there are currently additional reporting requirements in Belgium for foreign bank accounts and life insurance contracts, not complying could potentially result into being fined, even if the foreign earned income itself was properly declared.
If the taxpayer is requested to provide further information, it is important that any reply should be done in an accurate and timely fashion to avoid further sanctioning from the tax authorities. We need to stress that it is often also in the best interest of the taxpayer that such enquiries are properly and swiftly dealt with.
We have noticed that CRS data is often simply ‘copy-pasted’ by the tax authorities and – only for that reason – does not always correspond to what is declared in the income tax return. Sometimes the fiscal year abroad does not correspond to the fiscal year in Belgium, which already creates discrepancies. Capital is confused for income. Belgian dividends that were paid to a foreign account (and which have already been subject to a tax at source in Belgium), are once more included in the exchanged CRS information, which could result in a double taxation.
In case the taxpayer would be unable to justify the origin of the assets located abroad or would not be willing to regularize his potential Belgian tax liability, this could also result in a criminal investigation.
Finally, the best way to avoid a request for information is to comply with the different reporting obligations and keep the records of your foreign assets and earnings always up to date. In this context, it might be recommended to seek our professional guidance and together with you, we will decide on the best way forward.