By a law of 28 March 2022 amending article 289quater of the Income Tax Code 1992, the Belgian legislature limits the possibility of combining two tax incentives for research and development ("R&D"): (i) the RDTC for R&D ("RDTC"), and (ii) the partial exemption from payment of withholding tax for R&D (the "exemption").
This amendment will be applicable as from accounting years ending on or after the 1st of April 2022. It puts an end to discussions between taxpayers and tax authorities regarding the calculation basis of the RDTC:
- On the one hand, as the RDTC is based on eligible R&D expenses incurred, some companies considered that withholding taxes (even tough not incurred, as a result of the exemption) could also be taken into account for the calculation of the RDTC.
- On the other hand, the tax authorities considered that the share of unpaid withholding taxes had to be deducted from the eligible R&D expenses. As a result, only the “net” expenses could be taken into account (for the benefit of the RDTC) in order to avoid a double tax advantage being granted on an amount which did not correspond to costs actually incurred.
The tax authorities' position was however not grounded on any legal basis. It was also contradicted by its own definition of R&D expenses for the innovation income deduction (the "IID") and the opinions of the Commission for Accounting Standards.
Following the amendments provided by the law of 28 March 2022, previous discussions have become irrelevant and unpaid withholding taxes resulting from the exemption can no longer be included in the basis for calculating the RDTC.
This being said, whereas the new law now limits the cumulation of the RDTC and the exemption, the latter can still be fully combined with the IID. In other words, unpaid withholding taxes can still be included in the eligible R&D expenses to calculate the IID. The tax authorities share this interpretation.
One may wonder about this difference. Obviously, the issue at stake is reversed regarding the IID. Indeed, applying the same reasoning (i.e. unpaid withholding taxes are not taken into account) would lead to a higher net innovation income, implying a larger IID for the taxpayer. However, as mentioned before, this is not how the tax authorities define R&D expenses for the IID, as these do include unpaid withholding tax (i.e. lower net innovation income, and so lower IID).
In a nutshell, as to these questions, Belgian tax law is now systematically applied in the least favourable way for taxpayers.
In case of questions, please do not hesitate to contact your regular contact within the Fieldfisher Belgian tax team.
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