Old rules – what was wrong with them?
Since 2007, VAT officials have had this means to fight (mainly) carousel fraud (a type of intra-community fraud in which international transactions take place via intermediaries who do not comply with their VAT obligations). When they discovered "suspicious goods" during their investigation, for which they have reason to suspect that the VAT regulations have not been observed, because it is impossible to identify the participating parties (buyer, supplier, service provider, etc.) or determine the origin, quantity, price or value of the goods, they could seize these goods and their means of transport by way of precaution (old Article 52bis of the VAT Code). This way, the payment of VAT could be guaranteed. However, as soon as the intervening parties were identified or the origin, quantity, price or value of the goods was determined, the provisional attachment had to be ended.
A parliamentary investigation commission studying major tax fraud cases recommended to refine the procedure for this administrative provisional attachment. The reason for this is that, as a result of countless imperfections, this procedure was not being used optimally to act effectively and in real time in cases of tax fraud. Those committing fraud were able to make use of loopholes in the law or constructions that had not yet been discovered, which were then intensely used during a short period of time to keep their "loot" outside the reach of the courts and the tax authorities. That is why the provisional attachment procedure has been updated. Below is an explanation of the current rules included in Art. 52bis of the VAT Code.
When can administrative provisional attachment be used?
VAT officials can seize goods by way of precaution when, during an investigation, they encounter circumstances which constitute a series of consistent indications of serious fraud, whether organised or not, and which have contributed to a breach of VAT legislation.
What goods can be seized?
Whereas under the old regulation administrative provisional attachment could only be used on the suspicious goods themselves (e.g. goods purchased on the black market or goods purchased with false invoices) and their means of transport, the scope of the measure has been widened considerably in this respect. Administrative provisional attachment can involve all movable property found on the premises of the person liable for VAT for which it was not demonstrated during the investigation that they exclusively belong to third parties. In other words: regardless of whether these goods are related to the serious fraud or not. This is a huge extension of the scope. The purpose of administrative provisional attachment is clearly to be able to recover the VAT that was not paid due to the serious fraud at a later point and to prevent those committing that fraud from claiming insolvency at the time the VAT is actually claimed.
However, the provision of Article 1408, §§1-2 of the Judicial Code, which provides a list of goods that are of vital necessity or very personal and cannot be seized, also applies to this administrative provisional attachment. For example, a bed, clothes, a cupboard, a washing machine, etc. remain excluded from seizure.
What procedure must be followed?
To ensure that the administrative provisional attachment is not declared invalid, a strict procedure must be followed and mandatory periods must be observed. This way, taxpayers are protected against random interference with their ownership rights, while it is ensured that investigations are not excessively delayed. The rules of general seizure law apply, except where the tax rules deviate from this.
Just like under the old regulations, VAT officials have to draw up a writ of attachment. This writ of attachment now has to include more mandatory information than before. For an overview of this mandatory information, see below:
- the day, month, year and place of attachment;
- the surname, first name, rank and capacity of the officials issuing the writ;
- the identification of the debtor by means of their company registration number, if known, as well as either the surname, first name and place of residence for a natural person, or the company name, legal form and registered office for a legal person;
- a description of the circumstances which indicate the existence of serious fraud and have contributed to the breach of the VAT regulations;
- the reasons for the urgency of the attachment;
- the mention and specification of a tax debt which has been established with certainty or of which a provisional estimate can be made;
- the inventory of the goods seized, which must comprise a sufficiently accurate and detailed description of the goods;
- the signature of at least two officials issuing the writ;
- the full text of Article 507 of the Criminal Code, which stipulates that the fraudulent destruction or removal of attached property is punishable;
- the legal remedies against the administrative provisional attachment, the competent judicial district and the competent legal institution;
- the VAT administration which must be summoned in case of appeal.
In principle, the VAT officials must immediately, at the moment they carry out the provisional attachment, serve a copy of this writ of attachment on the debtor, with acknowledgement of receipt. If it is impossible to leave this copy with the debtor immediately, then it must be notified to the debtor by registered letter within fourteen days. Otherwise, the attachment may be declared invalid.
After that, the officials who issued the writ must, within three working days (after serving or sending the writ of attachment), draw up an attachment notice and send it to the debtor.
Within two months after the notice of the writ of attachment, the attachment judge must confirm the validity of the attachment (under the old regulation this had to be done within one month). This is to protect the debtor who is faced with the immediate effect of the provisional attachment as soon as it is issued by the VAT administration. Just like before, the proceedings before the attachment judge are initiated at the request of a party, and the decision is enforceable notwithstanding any appeal. The attachment judge will verify, among other things, whether the value of the attached property is not disproportionate compared to the tax debt which has been established with certainty or of which a provisional estimate can be made, and will, if necessary, modify the attachment if this is the case, or if the circumstances have changed.
After the attachment has been declared valid by the attachment judge, and within three months after the notice of the writ of attachment, the tax debt must be included in a collection register, under penalty of nullity. The inclusion of the debt in the collection register must be notified by registered mail. Delivery to the post office shall be deemed a valid notification as from the third working day thereafter. The mere notification of inclusion in this register shall convert the provisional attachment into an executive attachment. The execution then takes place in accordance with Art. 1497 of the Judicial Code.
Legal remedies against attachment?
When the debtor whose property has been attached is of the opinion that the conditions for administrative provisional attachment have not been met, they can file an appeal with the attachment judge to obtain the annulment or modification of the attachment order. In order to be admissible, the appeal must be filed within three months after the serving of the writ of attachment or after the sending of the registered letter. The appeal will be dealt with following the procedure for summary proceedings. As long as the procedure is ongoing, the attachment will maintain its provisional nature.
It is perfectly possible that the appeal by the debtor is dealt with by the attachment judge together with the confirmation of the validity of the attachment.
However, the debtor can also request the annulment or modification of the attachment after this three-month appeal period if they are able to demonstrate that the circumstances in which the attachment was made, have changed.
What are the consequences?
The provisional attachment has immediate effect as soon as the writ of attachment is served on the debtor or notified to them by registered letter. The property attached cannot be sold or encumbered during a three-year period.
A consequence of the current regulation is that VAT officials are making greater use of this measure to guarantee the payment of unpaid VAT.
The requirement of the existence of a tax debt which has been established with certainty or of which a provisional estimate can be made will surely lead to discussion. The future will show how the attachment judge will interpret this condition in cases where the debtor disputes the existence of the VAT debt, or at least the estimate of this debt, from the start.
The administrative provisional attachment is a useful instrument in the fight against real cases of serious fraud. However, we will need to be vigilant and ensure that this drastic measure is not abused. Although protection mechanisms for the debtor have been included in the procedure, this protection always only comes afterwards. In the period between the moment the writ of attachment is issued and its verification and/or possible annulment/modification by the attachment judge, a lot of damage can be done. We can only hope that the administration will use the measure carefully.