A recent judgment of the Constitutional Court adds a new chapter to this story, which does not seem to be coming to an end for the time being.
What exactly is it about?
A manager or employee to whom accommodation is made available byhis employer is logically taxed on a benefit-in-kind. This benefit is calculated on a flat-rate basis, and the formula is laid down by Royal Decree (Article 18, §3, point 2 KB/WIB):
Indexed Cadastral Income x 100/60 x 2
If a legal entity makes the benefit available to its director, a multiplier of 3.8 had previously to be applied instead of the current 2 (if the house had a cadastral income of more than €745). This did not have to be done if the benefit was granted by a natural person.
Substantive discrimination rightly challenged
Many taxpayers considered this different treatment tobe a case of discrimination. They went to court and were successful. Some courts of appeal confirmed the unconstitutionality of Article 18, §3, point 2 KB/WIB. Taxpayers were allowed to omit the multiplier of 3.8 in the calculation, and were granted a partial exemption from tax.
Important detail: as this was not a tax law, but a royal decree, the inequality could not be challenged before the Constitutional Court, but the ordinary courts had jurisdiction.
The tax authorities acknowledged their loss, but ...
The tax authorities accepted the rulings of the courts of appeal and even included an amended position in a circular, so that the decision received a certain general scope. Any taxpayer who lodged an objection or legal action in good time could benefit from the "reduced" benefit in kind for free accommodation.
The tax authorities added an important annotation, however. The decisions of the courts of appeal on the discriminatory nature of Article 18, §3, point 2 RD/ITC would not be considered as a 'new fact' for which an ex officio exemption can be obtained, a form of administrative appeal that only applies in certain circumstances.
That annotation had an important impact. After all, a request for ex officio exemption can be submitted within five years from 1 January of the year in which the assessment is made. As the tax authorities took the view that there was no 'new fact', taxpayers who had expressed no objection to the application of the flat-rate estimate could, according to the tax authorities, no longer apply for an exemption.
Despite this position of the tax authorities, a reasonable number of submitted objections were extended or supplemented by requests for ex officio exemption. Once again, however, they met with the resistance of the tax authorities.
New fact or no new fact, that is the question
And so the benefit-in-kind for free accommodation became once again the subject of a heated debate. Article 376, § 2 of the ITC (Income Tax Code: Dutch WIB), which lists the conditions for an administrative exemption, stipulates that a change in case law cannot be regarded as a new fact. If the Constitutional Court annuls a tax law article on the grounds of unconstitutionality, the exception rule does not apply, and the ruling is regarded as anew fact.
The relevant question is now whether the confirmed unconstitutionality of a tax regulatory provision (Article 18, §3, point 2 KB/WIB) can be regarded as a new fact for which an ex officio exemption can be granted. Certainly due to the fact that a tax regulatory provision cannot be submitted to the Constitutional Court for review.
Preliminary question for the Constitutional Court
The first signs were encouraging, but, in the end, not all courts followed the taxpayer's point of view. Various courts and tribunals therefore submitted preliminary questions to the Constitutional Court. The question was thereby whether Article 376 § 1 and § 2 of the Income Tax Code infringes Articles 10, 11 and 172 of the Constitution.
- Can a ruling of the Constitutional Court, following a preliminary question, that declares a tax standard to be unconstitutional in its entirety or in some of its interpretations be regarded as a new fact?
- And can a judgment of the ordinary Belgian courts and tribunals declaring a tax standard in its entirety or in some interpretations thereof unconstitutional on the basis of Article 159 of the Constitution, and to which the tax administration has expressly accepted or endorsed, not be regarded as a new fact?
In short, if the Constitutional Court states that if Article 376 of the ITC is to be interpreted as meaning that the decision of the courts and tribunals on the non-application of a tax norm found unconstitutional must beinterpreted as a 'new fact', then the aforementioned court decision would be given an authority that is not in accordance with Article 159 of the Constitution.
Thus, according to the Constitutional Court, there is no breach of the principle of equal treatment if the established unconstitutionality ofthe benefit-in-kind for free accommodation cannot be regarded as a 'new fact', forwhich an ex officio exemption may be obtained.
Discussion not yet finally settled
The ball has thereby been bounced back to the courts and tribunals that will have to comply with the judgment of the Constitutional Court. It is now up to them to decide whether there can still be a 'new fact' in the cases brought before them.
Some manoeuvring space was left with regard to the circular from the administration (Circular 2018/C/57 dated 15.05.2018). It is likely that, in a possible final attempt to win their case, taxpayers will try to convince the courts and tribunals to consider this circular - in which the tax authorities confirm the unconstitutionality of Article 18, §3, point 2 RD/ITC - as a 'new fact'.
For the time being, therefore, there is no end in sight to the discussion about the benefit-in-kind for free accommodation...