Unfortunately, the penalty regime is an area which is not harmonized throughout EU.
Despite the lack of harmonization, EU courts have set limits for EU Member States and ruled on several occasions that the specific context of each case, including the behaviour of taxpayers and if there has been good or bad faith, should be considered before imposing a penalty.
Countries do not always respect these limits with the result that there is increasingly more jurisprudence in this area.
Important finding: the report shows that the perception on the sanction regime has an impact on supply chain decisions of businesses!
The report puts forward key appreciation factors that drive both positive and negative perceptions of the fairness of sanction regimes
- Key positive factors include voluntary disclosure measures; as well as penalties being linked to the payment liability (actual net amount of underpaid VAT underpaid).
- Negative effects result from (disproportionate) penalties being imposed on businesses who acted in good faith. The same goes for penalties calculated as a percentage of VAT - even in situations where there is no underpayment of VAT. The non-reporting of reverse charge VAT is the best-known examples (for example: 20% in Belgium, 5% in France and 10% in Spain).
The EU VAT forums concludes that the penalty regimes across EU are too fragmented. For example: late payment interests rates range from 1.2 % to 23.9 % per year.
Another key observation is that businesses do not have sufficient access to correct information about the penalty regimes.
The EU VAT forum concludes by making a call to increase transparency by having relevant EU sanction and interest information included in the existing EU taxes database and an increased dialogue between businesses and authorties.
The EU VAT forum commits itself to supporting and facilitating the implementation of these recommendations.
Belgian VAT legislation contains a detailed list of administrative penalties, both proportional and non-proportional (Royal Decree n° 41 and 44), which the VAT authorities automatically impose when violations against Belgian VAT legislation are spotted.
If a taxpayer spontaneously rectifies his situation before any intervention by the tax authorities, proportional (fixed at %) fines are however waived in full (Art. 3 VAT Royal Decree No. 41).
Although the Belgian penalty landscape is considered as strict, the situation has evolved in a more business friendly way. The Belgian VAT authorities introduced a few years ago a new, more relaxing penalty policy. According to the changed policy, penalties may be fully waived if the below 4 conditions are fulfilled:
- It is the first violation of the same nature in a period of 4 years (“reference period”).
- The infraction was done in good faith. Good faith will always be assumed. The Belgian administration has to prove the contrary.
- An individual and motivated request must be submitted, indicating all reasons why the taxable person is applying for a waiver.
- Upon filing of the request, the taxpayer has complied with the obligation for which a fine was imposed and has submitted all periodic VAT returns.
Next to penalties, the Belgian VAT regulation also foresees in late payment interests amouning to 0,8% per month or 9,6 % per year. Compared to other EU jurisdictions, the Belgian rate is considered as rather high. Also, the rate is not determined in function of the market interest rate.
We strongly hope that the policymakers will - rather sooner than later - address the issue of high Belgian late payment interest’s rates!
