Prejudgement administrative attachment for VAT gets repackaged

One of the measures used in the battle against tax fraud involves the amendment of the extant regulations for prejudgement attachments that VAT officials can levy on moveable property when, during an inspection, they have established that there are matters that indicate major fraud (organised or not). An example would be when they encounter goods in a warehouse that have been part of a carousel scam. The draft bill dated 10 April concerning the amendment of the law is presently still before the House, but in the meantime we have provided an overview of the existing and new rules below.   

What were the shortcomings of the extant regulation? 
The taxman has been able to use this weapon to combat (primarily) carousel fraud (a form of intra-Community fraud) since 2007. When the authorities unearth ‘suspect goods’ during an inspection for which there is a reasonable suspicion that the VAT rules were not complied with because the intervening party (the buyer, supplier, service provider, etc) is impossible to identify, or they are unable to identify the origin, quantity, price or value of those goods, then they can attach this property and the means of transport as a prejudgement measure (present article 52bis of the VAT Code). While this might guarantee the payment of VAT, as soon as the intervening party is identified or the origin, quantity, price or value is ascertained that attachment must be lifted.  

A parliamentary committee of inquiry into major tax fraud cases has however recommended that the procedure for this prejudgement administrative attachment be refined. That is because its many shortcomings meant the procedure was not used as it could be for acting against tax cheats in real-time and with effect. Fraudsters can easily use the loopholes in the law or an as-yet-undiscovered construction that is used intensively over a short period to keep their ill-gotten gains out of the clutches of the courts and tax authorities. That is why prejudgement administrative attachment is being repackaged. Below we outline the new rules included in the draft bill.  

When can prejudgement administrative attachment be levied? 
Under the new regulations VAT officials will be able to levy prejudgement administrative attachment when, while auditing a taxpayer, they establish the existence of acts that suggest major fraud has been committed and that contributed to the contravention of VAT legislation. This means that the new regulations evidently narrow the scope of the prejudgement administrative attachment, given that indications of whether or not serious organised fraud has been committed shall be a prerequisite.  

Which goods can be the subject of a prejudgement administrative attachment? 
While under current legislation only the suspect goods themselves (such as goods bought on the black market or goods bought with fictitious invoices) and their means of transport can be the subject of a prejudgement administrative attachment, the scope of the measure will be widened considerably in this respect. In the future prejudgement administrative attachment can be levied on all moveable property that is found at the taxpayer’s and for which it is not demonstrated that it belongs exclusively to another party in the course of the investigation – irrespective of whether or not these goods are connected to the major fraud. This widening of the scope is understandable, given that the intention of the measure was to be able to collect tax at a later stage that was dodged by means of major fraud and to prevent the cheats from claiming they are insolvent the moment that the tax is demanded.  

But the provisions of article 1408, sections 1 and 2 of the Judicial Code, where it is summarised which essential and highly personal property cannot be attached, remain in effect when it comes to the prejudgement administrative attachment. So, for example, a bed, clothing, a cupboard, a washing machine, etc, cannot be attached.   

What procedure is followed? 
In order to prevent a prejudgement administrative attachment being declared void, a strict procedure has to be followed that is bound by mandatory time limits in order to protect the taxpayer against arbitrary interference in his or her ownership rights and to stop investigations from being put on the backburner. The rules of common attachment law are applicable, except for where the tax rules deviate therefrom. As with the extant regulations, the VAT officials must draft an attachment report, but henceforth it will have to contain a larger number of obligatory statements than was previously the case. For an overview of the required statements, click here.

In principle the VAT officials must, at the time of levying a prejudgement attachment, immediately hand a copy of this attachment report to the attachee against receipt. If it is not possible to serve this copy immediately on-site, then it must be sent to the attachee within 14 days by registered letter. Should this not be done the attachment can be reversed. Next, the issuing officials must draft an attachment notice and send it to the attachee within three workdays (of the attachment report being handed over or served on the attachee).  

Within two months of the attachment report the attaching court must uphold the validity of the attachment (under the current regulations this must be done within one month), in order to protect the attachee who is faced with the immediate impact of the attachment as soon as it is levied by the tax authorities. The proceedings before the attaching court are, just as they were before, instituted by a unilateral application and its ruling is provisionally enforceable. The attaching court shall, inter alia, examine whether the value of the attached property is not disproportional in respect of a tax debt that is established and fixed or subject to a provisional estimate, and where necessary shall amend the attachment if that is the case or if the circumstances have changed.  

Once the attachment has been declared valid by an attaching court, and within three months of the attachment report being served, a writ of execution must, subject to being declared void, be issued for the sum payable for which the attachment was levied. The notification/service of this writ of execution means that the prejudgement attachment is automatically converted into an attachment in execution.  

What legal remedies are available for fighting the attachment? 
When a debtor who is the subject of an attachment believes that the conditions for imposing a prejudgement administrative attachment were not met, he or she can appeal the attachment through the attaching court in order to have the attachment lifted or amended. For such an appeal to be allowable, it must be instituted within three months of receipt of the attachment report or of the registered letter being sent. The appeal is treated as interim injunction proceedings, and as long as it is ongoing the attachment remains prejudgement in nature. It is perfectly possible that the attaching court deals with the attachee’s appeal at the same time as the affirmation of the validity of the attachment. The attached debtor can however also demand of the attaching court the lifting or amendment of the attachment after this three-month appeal period if he or she can demonstrate that the conditions under which the attachment was levied have changed.  

What are the consequences?   
A prejudgement attachment is effective as soon as the attachment report is issued to the attachee or he or she is notified thereof by registered letter. The attached property may not be sold or encumbered for a period of three years.   

Conclusion 
The intention of the new regulations is to get VAT officials to make greater use of this measure in the future in order to guarantee payment of unpaid VAT, but of course it remains to be seen whether this will actually be the case. The procedural course to be negotiated by the VAT officials – subject to being declared void – when levying a prejudgement administrative attachment will however be a rich hunting ground for many a lawyer who will punish even the smallest error committed by the taxman with having the attachment invalidated. On the other hand, a properly issued and mandatory procedure is highly desirable, as it offers attachees the protection they need against what can be very drastic actions on the part of the tax authorities. 

The legal literature is already rightly commenting that the requirement that a tax debt that is established and fixed or subject to a provisional estimate must exist, and which is required to be stated in the attachment report, raises the suspicion that a prejudgement administrative attachment will not be possible for outstanding VAT that was disputed from the very start. After all, if it is disputed it can hardly be established and fixed. We will wait and see how the attaching court will interpret this condition when an attachee disputes the existence of the outstanding VAT, or in any event the estimate thereof, from the start.    

Prejudgement administrative attachment is a powerful weapon for combating actual cases of major fraud, but in future one will have to take care that this drastic measure is not triggered too quickly. And while there are built-in protections for the attachee, they are always retrospective. In the period between prejudgement attachment being levied and the review and/or lifting/amending of that attachment by the attaching court a great deal of harm can be done. That is why it seems only advisable that this measure be dealt with carefully.

Quickly detect system risks
Without a Legal Entity Identifier your company will not be trading on the stock market in 2018
  As from 3 January 2018, every legal entity that buys or sells financial instruments must have a Legal Entity Identifier or LEI. Legal Entity Identifier A LEI is a 20-digit alpha-numeric code enabling quick identification of legal entities that are active on the (international or local) financial markets. The LEI enables regulators to quickly detect system risks. Registrati
A summary of the main points
Immovable property leases to include VAT
  Although currently there is just a draft bill on this issue, which obviously can be subject to change in the meantime, we would like to summarize the main points of the upcoming revolution in the VAT landscape: immovable property leases may become subject to VAT. History Until recently, immovable property leases have – in principle – been exempt from VAT (section 44, paragr
UBO = Ultimate Beneficial Owner
The UBO register: new disclosure requirements planned for your company’s administrative body
As a result of the insertion of sections 14(1) and 14(2) into the Belgian Companies Code all companies must in the future obtain adequate, accurate and current information about their ‘ultimate beneficial owners’ (UBOs) and record the data in the new ‘UBO Register’, a central register containing data about companies and the natural persons behind them. In view of the unwavering atte
Introduction of the matrimonial property law
Is it the end of the final set-off clause or is it getting new life?
  Much has been said about the final set-off clause in recent years. After the Court of Cassation in 2017 ruled in favour of the tax payer that the claim was deductible in the scope of the payable succession duties, the Flemish regulator decided to come to the aid of the tax authorities by changing the law. What is a final set-off clause and how does it work? Many spouses married un
Also the unequal treatment gets reviewed
Benefit in kind for housing: how to anticipate the higher or lower scenario?
Discrimination as regards the benefit in kind for housing has been highlighted on several occasions. Specifically, it relates to the unequal treatment of the same benefits, whether in terms of provision by a sole trader or provision by a legal person. In the most common cases, the benefit arising from being a limited company is almost four times more expensive taxation-wise than the benefit arisin
To reduce the financial burden
Start-up reduction on social security contributions for self-employed persons
The start-up reduction was part of the 'Summer agreement' and took effect on 1 April 2018. With this initiative, the government intends to reduce the financial burden of self-employed persons in start-ups, who often have low incomes at the start of their activity, thereby stimulating entrepreneurship.  Which self-employed persons are eligible?  The reduction measure applies to all se
A full overview
Your mortgage in the personal income tax return assessment year 2018
The new tax return form for personal income for tax assessment year 2018 has recently been published, so it is high time to examine how you can correctly fill in your mortgage in your personal income tax return. The biggest change in 2017 occurred in the housing taxation system of the Brussels-Capital Region. The other regions have all maintained a status quo compared to last year. A full overview
The labyrinthine of the personal income tax return made more user-friendly
Personal income tax return: changes to the form for assessment year 2018
On 6 April 2018, the model for the personal income tax return form relating to assessment year 2018 was published.
we will analyse the guidelines related to this reform
After the new inheritance law comes the ‘drastic’ reduction in inheritance tax… or not yet?
Further to the inheritance tax reform and the changes planned in the matrimonial property law, the Flemish government has also announced a change to inheritance tax. The aim was not only to simplify, relax and reduce this grief-related tax, making it more in tune with the new inheritance law, but also to create more alignment with new family relationships. There was talk of a ‘drastic’ change
Revolutionary decree
Belgian Tax Administration rebuffed: exit “subject-to-tax clause”?
On 25 January 2018, the Court of Cassation reached a remarkable decision in the context of allocation of taxing rights for professional income earned within an international context. The dispute In concreto, the case pertained to professional income earned by a professional cyclist. During the period 2007-2009, said cyclist was engaged by a Belgian employer and participated in numerous races a

Subscribe to our newsletter