Internal audit
About 500,000 Small and Medium Companies in Belgium file a corporate tax return every year. The 14 different SME Centers check about 10% of those, spread throughout the country.
Due to staff reductions the last few years, the Belgian tax authorities (FPS Finance) are apparently not able to sufficiently guarantee an equal treatment of all SMEs in Belgium. The tax authorities also appear unable to carry out all scheduled tax inspections. This was the recent conclusion by the Belgian Court of Audit after an internal audit.
What is the issue?
Two companies with the same risk level do not share an equal chance of being audited. It largely depends on where they are located. Equal treatment of SMEs is also insufficiently guaranteed in respect to the tax authorities’ policy on penalties and tax increases.
The number of tax inspectors at the SME Centers has been reduced by 21% between 2016 and 2021. Especially, the Centers of Aalst, Brussels II or Charleroi even saw 30% of their tax inspectors leave during this period.
What is worth mentioning, is that the Court of Audit discovered that the number of tax inspectors per SME Center is not based on the number of companies for which each center is responsible, nor on the tax risks or the number of audits that need to be carried out. In some SME Centers, even 50% of the scheduled inspections could eventually not be carried out.
Furthermore, the Court of Audit points out the lack of uniformity in the applied sanctioning policy. Because the tax inspectors themselves are authorized to conclude agreements with taxpayers, they have a wide discretionary power. The FPS Finance does admit it wants to better guarantee the balance between central selection for inspection and local selection. But this does not appear to be feasible in practice, according to the Court of Audit.
Recommendations
To remedy these issues, the Court of Audit recommends spreading out the tax inspectors better across the different SME Centers in the country. This should better ensure that the probability of a tax inspection is equally high for two companies with the same tax risk. It also recommends working towards more objective criteria of efficiency to determine which audits are carried out.
Furthermore, the Court of Audit recommends considering a separation of functions between the tax inspector and the tax official responsible for concluding the agreement with the taxpayer. And greater care should be taken to ensure that tax inspection guidelines are uniformly applied in all SME Centers across the country.