Increase minimum taxable profit: when is there recidivism?
When a company files its tax return late or not at all, the law foresees in a minimal taxable profit on which taxes have to be paid. In case of recidivism these amounts are increased. A recent circular letter explains when we speak about recidivism.
No or late tax return
Up to tax year 2018, the tax authorities had the possibility, in case of non or late filing of the tax return, to tax companies and liberal professionals on a lump sum minimum amount of at least 19.000 euro.
With the corporate tax reform this minimum amount was increased step-by-step for companies subject to corporate tax or non-resident tax for companies.
The amount is increased up to:
34.000 euro as from 1 January 2018 and applicable as from tax year 2019, linked with a taxable period which starts at the earliest on 1 January 2018;
40.000 euro as from 1 January 2020 and applicable as from tax year 2021, linked with a taxable period which starts at the earliest on 1 January 2020;
40.000 euro annually indexed according to article 178, §2 RD/ITC92 as from tax year 2022.
Additionally a supplementary increase applies when the obligation to file a tax return is several times not complied with. This increase is minimum 25% and maximum 200%.
This minimum profit is a means of evidence for the tax authorities. It is a presumption that your profit is at least 34.000 euro, 40.000 euro or even more. You have the right to prove the contrary, but the burden of proof of income and expenses is a lot more difficult than a simple tax return.
The amount of the minimal taxable profit is increased in case several infractions are committed. These increases amount to:
in case of a second infraction: 25% (of the minimum taxable profit applicable for the relevant tax year - indexed where appropriate);
in case of a third infraction: 50%;
in case of a fourth infraction: 100%;
as from the fifth infraction: 200% ...
Since these measures are introduced as from tax year 2019, they can be applied as from tax year 2020 at the earliest, depending on the taxable period to which the tax return relates.
What is recidivism?
There is recidivism when the tax payer several times does not file its tax return or files it too late. Other infractions (underestimation of assets or insufficient proof for expenses) are not taken into consideration for this calculation.
There is only recidivism in case the previous infraction has lead to a taxation based on article 342, §4 ITC92, i.e. a lump sum taxation.
Previous late tax returns or non-filed tax returns will not be taken into consideration in case they were only sanctioned with a tax increase (art. 444 ITC92) and/or an administrative fine (art. 445 ITC92). There is also no previous infraction in case the tax authorities informed the tax payer that it will apply an ex officio taxation based on the minimal taxable profit, but the tax payer timely provides proof of the correct amount of its taxable income.
Recidivism within 4 tax years
There is recidivism in case a previous infraction occurred in one of the last 4 tax years previous to which the new infraction of late or non-filing relates.
In other words: the starting point of the 4 year period is the tax year for which a tax return was not filed or filed late, without taking into account the time the tax return was actually filed (in case of late filed) or should have been filed (in case of no filing).
Imagine that a company in 2024 files its tax return too late and the tax authorities apply the taxation according to article 342 §4 ITC92.
In order to judge whether or not there is recidivism, we should look at tax years 2020, 2021, 2022 and 2023.
Was there a late tax return which was enrolled based on article 342 §4 ITC92 for tax year 2019, then the late filing in 2024 is a first infraction.
Was there a late tax return for tax year 2020, then the late filing in 2024 is a second infraction.
Was there a late tax return for tax years 2019 and 2020, then the late filing in 2024 is a third infraction (because the 2020 infraction was the second, you have to count further from this infraction).
As mentioned earlier article 342, §4 ITC92 is a means of evidence for the tax authorities. It is a rebuttable legal presumption and no sanction. Also the increase of the minimal taxable profit is not more than a means of evidence. Therefore, it is possible for the tax authorities to impose administrative sanction on top of the lump sum taxation, increased when appropriate for recidivism within 4 years.