Four years after the release of its initial report in 2019, the Belgian Court of Audit has recently issued a follow-up Report addressing various existing wage tax incentives (French version of the Report ꘡ Dutch version of the Report). In essence, these wage tax incentives provide for an exemption for the employer to transmit up to 80 per cent of the regular wage tax on the wages of qualifying workers to the Revenue Service. Needless to say that this exemption substantially reduces the gross cost of labor for the employer. At the same time, the qualifying workers are entitled to credit 100 per cent of the regular wage tax against their mainstream Belgian income tax liability.
Here is an outline of the key points of the new Report.
- Growing Spending Trends
In 2021, the total spending on wage tax incentives for the Federal budget reached 3,9 billion euros, marking a 31,03 per cent increase from 2017 (and a significant increase of 1870 per cent compared to the 198 million euros in budgetary cost at the inception of these measures in 2005).
It indicates that the spending in wage tax incentives continues to grow year after year, despite annual targeted tax audits and some legislative amendments implementing a number of recommendations from the 2019 Court of Audit report.
- Dominance of the tax incentives for Night & Shift Work and R&D
Out of the 3,9 billion euros in wage tax incentives, 50 per cent was allocated to the wage tax exemption for Night & Shift Workers (20.124 cases, just under 10 per cent of the total number of nearly 210.000 exemption cases), and 34 per cent was allocated to the wage tax exemption for Research & Development Workers (7.437 cases, accounting for 3,5 per cent of all exemption cases). The remaining amount, approximately 630 million euros, was distributed among the other ten measures (comprising 182.362 exemption cases).
The Report clearly shows that measures supporting Night/Shift and R&D work dominate both in terms of the absolute amount granted and the average value per case.
- Targeted Tax Audits
Since the 2019 report from the Court of Audit, the Belgian Revenue Service has carried out four targeted audit actions on wage tax exemptions (2019, 2020, 2021, and 2022). Not all of the exemption measures were systematically audited each time. For instance, the primary cost driver for the Federal budget, the exemption for Night and Shift Workers, was not audited during the 2019 action.
The Court of Audit highlights that, overall, the quality of audits conducted by the Revenue Service has improved, with increased uniformity and the utilization of experience and knowledge from previous tax audits to enhance the selection of risk indicators and relevant files.
In 2021, 3.205 cases were audited, resulting tax adjustments in 65 per cent of the cases. The correction rate has remained relatively stable, fluctuating between 61 and 67 per cent between 2019 and 2021. According to the sample of cases analysed by the Court of Audit, the tax incentive for N&S Workers stands out with a 65 per cent occurrence of adjustments, representing almost 77 per cent of the total adjustment amount.
- Challenges in BELSPO-Revenue Service Relationship
The Report is particularly tough on the Belgian Science Policy Office (a.k.a. BELSPO), noting that many issues identified in the 2019 report remained unresolved and that the relationship between BELSPO and the Revenue Service has further deteriorated, despite the growing budgetary significance of the wage tax incentive for R&D workers.
During its investigation, the Court of Audit identified operational difficulties for the Revenue Service, including inconsistent issuance and lack of re-evaluation of BELSPO's opinions, insufficiently motivated opinions, absence of information on the nature of scientific activities, challenges in proportionately when applying exemptions for researchers working on multiple projects, etc.
Given the financial impact of the R&D tax incentive, the Court of Audit makes several recommendations, including the clarification of the respective responsibilities of the Revenue Service and BELSPO for tax audits and improvement of the internal control of the procedure for issuing BELSPO's advice.
These observations of the Court of Audit resonate with our own experience during tax audits, where the imperfections in the statutory text leave ample room for interpretation and judgment, making the application of these tax incentives challenging for employers bearing the burden of proof. Even the Advance Tax Ruling Service is increasingly reluctant to issue Advance Tax Rulings on these measures (despite having done so multiple times in the past) due to the imperfections of the statutory text and the high number of disputes involving employers who had received a favorable Advance Tax Ruling.
Feel free to contact us for further information regarding wage tax incentives or for advice on your eligibility for these incentives. We are also available to assist you in the event of a Wage Tax audit or when litigation is has become the only option. Finally, we would be happy to help you prepare for a tax audit (audit readiness) as targeted audit actions are planned.
Four years after the release of its initial report in 2019, the Belgian Court of Audit has recently issued a follow-up Report addressing various existing wage tax incentives (French version of the Report ꘡ Dutch version of the Report). In essence, these wage tax incentives provide for an exemption for the employer to transmit up to 80 per cent of the regular wage tax on the wages of qualifying workers to the Revenue Service. Needless to say that this exemption substantially reduces the gross cost of labor for the employer. At the same time, the qualifying workers are entitled to credit 100 per cent of the regular wage tax against their mainstream Belgian income tax liability.
Here is an outline of the key points of the new Report.
- Growing Spending Trends
In 2021, the total spending on wage tax incentives for the Federal budget reached 3,9 billion euros, marking a 31,03 per cent increase from 2017 (and a significant increase of 1870 per cent compared to the 198 million euros in budgetary cost at the inception of these measures in 2005).
It indicates that the spending in wage tax incentives continues to grow year after year, despite annual targeted tax audits and some legislative amendments implementing a number of recommendations from the 2019 Court of Audit report.
- Dominance of the tax incentives for Night & Shift Work and R&D
Out of the 3,9 billion euros in wage tax incentives, 50 per cent was allocated to the wage tax exemption for Night & Shift Workers (20.124 cases, just under 10 per cent of the total number of nearly 210.000 exemption cases), and 34 per cent was allocated to the wage tax exemption for Research & Development Workers (7.437 cases, accounting for 3,5 per cent of all exemption cases). The remaining amount, approximately 630 million euros, was distributed among the other ten measures (comprising 182.362 exemption cases).
The Report clearly shows that measures supporting Night/Shift and R&D work dominate both in terms of the absolute amount granted and the average value per case.
- Targeted Tax Audits
Since the 2019 report from the Court of Audit, the Belgian Revenue Service has carried out four targeted audit actions on wage tax exemptions (2019, 2020, 2021, and 2022). Not all of the exemption measures were systematically audited each time. For instance, the primary cost driver for the Federal budget, the exemption for Night and Shift Workers, was not audited during the 2019 action.
The Court of Audit highlights that, overall, the quality of audits conducted by the Revenue Service has improved, with increased uniformity and the utilization of experience and knowledge from previous tax audits to enhance the selection of risk indicators and relevant files.
In 2021, 3.205 cases were audited, resulting tax adjustments in 65 per cent of the cases. The correction rate has remained relatively stable, fluctuating between 61 and 67 per cent between 2019 and 2021. According to the sample of cases analysed by the Court of Audit, the tax incentive for N&S Workers stands out with a 65 per cent occurrence of adjustments, representing almost 77 per cent of the total adjustment amount.
- Challenges in BELSPO-Revenue Service Relationship
The Report is particularly tough on the Belgian Science Policy Office (a.k.a. BELSPO), noting that many issues identified in the 2019 report remained unresolved and that the relationship between BELSPO and the Revenue Service has further deteriorated, despite the growing budgetary significance of the wage tax incentive for R&D workers.
During its investigation, the Court of Audit identified operational difficulties for the Revenue Service, including inconsistent issuance and lack of re-evaluation of BELSPO's opinions, insufficiently motivated opinions, absence of information on the nature of scientific activities, challenges in proportionately when applying exemptions for researchers working on multiple projects, etc.
Given the financial impact of the R&D tax incentive, the Court of Audit makes several recommendations, including the clarification of the respective responsibilities of the Revenue Service and BELSPO for tax audits and improvement of the internal control of the procedure for issuing BELSPO's advice.
These observations of the Court of Audit resonate with our own experience during tax audits, where the imperfections in the statutory text leave ample room for interpretation and judgment, making the application of these tax incentives challenging for employers bearing the burden of proof. Even the Advance Tax Ruling Service is increasingly reluctant to issue Advance Tax Rulings on these measures (despite having done so multiple times in the past) due to the imperfections of the statutory text and the high number of disputes involving employers who had received a favorable Advance Tax Ruling.
Feel free to contact us for further information regarding wage tax incentives or for advice on your eligibility for these incentives. We are also available to assist you in the event of a Wage Tax audit or when litigation is has become the only option. Finally, we would be happy to help you prepare for a tax audit (audit readiness) as targeted audit actions are planned.