Latest Tax Management and Accounting Services (TMAS) Newsalert

• Due date when filing via BizTax
• How can you account R&D grants?
• Belgian patent income deduction meets with increasing success
• The Belgian Tax Mediation Service is off to a good start
• 309% Secret Commissions Tax strictly applied by the tax authorities

Due date when filing via BizTax

If the resident corporate income tax return for assessment year 2011 is filed electronically via BizTax, the official due date has been set to 13 October 2011.

How can you account R&D grants?

In a recent notice (2011/13, 4 May 2011), the Accounting Standards Commission sheds light on companies’ accounting treatment of government grants, including when they should be booked, what non-monetary benefits constitute grants, investment grants, capital grants, interest grants and R&D grants. We take a closer look at R&D grants, a frequently encountered investment aid in Belgium.

What is an R&D expense?

Under accounting law, R&D costs can be capitalised as intangible fixed assets (at acquisition value). R&D costs are the costs of R&D and the development and design of prototypes and products, inventions and know-how useful for the Belgian enterprise’s future activities. The capitalised costs are depreciated according to the regular Belgian GAAP rules.

Accounting treatment

Where to book R&D grants
As a rule of thumb, government grants should always be booked in the same account as the expenses or goods for which they are given. Grants for R&D costs booked as business expenses therefore need to be entered as business profits in the Belgian GAAP financial statements for the same year (under “I.D. Other business profits”).
Capital or interest grants for acquiring certain assets are booked in line with the regular rules (i.e. parallel with the relevant depreciation charges). This ensures adherence to the accounting matching principle.
Subsidised R&D costs accounted in the P&L accounts should be capitalised at gross acquisition value. Of course, the capital grants (and the relevant deferred tax liability) should be recorded on the liabilities side of the balance sheet, taking account of the capitalised cost fraction (e.g. partial or full capitalisation of the R&D expense).
Capital grants should be allotted to the P&L account at the same time as the R&D depreciation charge.

Repaying R&D grants
Some grants have to be repaid (in part, in full or even in a double amount) once R&D produces certain levels of revenue or profit. However, because repayment is dependent on a suspending condition being met, you can assume that, until then, no liability or provision need be recorded (although, certain disclosures may be needed in your Belgian GAAP financial statements).
Once the suspending condition is met, an expense will need to be accounted to ensure adherence to the accounting matching principle.
If you know you have to repay a grant come what may, it should be recorded on the liabilities side of the balance sheet, until such time as you might be relieved from your repayment obligation. 

1 Grant conditions vary depending on specific legal structure, which needs to be given careful consideration along with the eligibility conditions when assessing whether you qualify for the grant.

Belgian patent income deduction meets with increasing success

More companies are taking advantage of the patent income deduction (PID), as confirmed by figures produced by the Finance Minster in response to a parliamentary question. PwC has developed a checklist to help you to do an initial assessment of whether your company is also getting the most out of the PID.

What is the patent income deduction?

The PID was introduced in 2007 to retain existing and attract new R&D investments. It constitutes a top-line deduction of 80% of a company’s gross patent income, resulting in an effective tax rate of no more than 6.8%.
Together with other R&D tax incentives such as the R&D investment deduction/tax credit and the 75% payroll withholding tax exemption, the PID creates an attractive tax environment for development and for further expansion of R&D activities.

The figures prove its success

Our experience shows that more companies are analysing how the PID might apply to them and are starting to apply it in practice. Figures produced by the Finance Minster in response to a recent parliamentary question confirm this. The number of companies claiming the PID rose from 68 in 2008 to 91 in 2010. The rise in total claimed PID is particularly striking: from EUR 27 million in 2008 to EUR 606 million in 2010.

PID Checklist

PwC has developed a checklist to help you make an initial assessment of whether PID could also benefit your company. If you can answer “yes” to the following questions, you could be eligible for the PID and reap significant tax savings.

Company	Is your company liable to corporate income tax or non-resident income tax in Belgium?
Patent	Does it hold a patent registered in Belgium or abroad or a licence over such a patent?
Novelty	Was the patent granted or used for the first time after 1 January 2007?
R&D	Has the company – itself or in conjunction with others – performed R&D activities leading to development or improvement of the patented product or process?
Income	Does the company generate income by (i) licensing or sublicensing patents or (ii) selling products/services based on patents?

PwC can help you:

• review your full situation and assess your eligibility for PID;
• project the financial impact of claiming the PID and optimise your R&D model to maximise your use of the PID and other R&D tax incentives;
• apply for a tax ruling to secure tax benefits and monitor compliance.

1 Parliamentary Question no. 4903 by Georges Gilkinet, CRABV 53 COM 241, p.11.
2 Assessment years in each case.

The Belgian Tax Mediation Service is off to a good start

Though initially faced with operational challenges (i.e. it had no officials), as of 1 June 2010, the Belgian Tax Mediation Service has been fully operational, handling about a thousand applications in its first seven months.

What is the Tax Mediation Service?

The Act of 25 April 2007 made it possible for taxpayers, their spouses or their legal representatives to go to the Tax Mediation Service in a bid to settle live disputes with the tax authorities on the assessment or collection of any federal tax. The aim was to slash the fiscal caseload in the courts.
The Tax Mediation Service is there to take an objective, impartial, independent view of the facts and the law. It tries to reconcile the viewpoints of taxpayers and tax authorities and come up with a proposal acceptable to both parties.
Although proposals are not binding on either party, they are authoritative and go into the tax office’s records.

Procedure

The Tax Mediation Service can only be called in once an administrative appeal has been filed with the regional director and before he has issued a decision (or court proceedings have been raised).
Applications are filed by contacting a member, either in writing by e-mail or letter, or orally when they’re on duty at the Service’s offices. The Tax Mediation Service decides whether the application is admissible within two weeks (certain conditions apply) and sets a reasonable period for dealing with it. If it’s turned down, there are no administrative or judicial means to challenge the decision or, indeed, the proposal that is ultimately issued.
In handling the application, the Tax Mediation Service hears both parties, calls for relevant information and makes any necessary investigations.
Finally, a reconciliation proposal is issued to the parties.
It should be noted that a reference to the Tax Mediation Service does not legally suspend administrative or court procedures. Thus, if the regional director issues a decision or the taxpayer files a lawsuit during the procedure, it will end automatically.

Annual report 2010

According to the 2010 report, covering the period from 1 June to 31 December 2010, more than a thousand applications were filed. Over 40% were inadmissible; 33% of the admissible cases resulted in a mutual agreement and 9% were unresolved. In 16% of cases, the tax mediation procedure ended because the taxpayer went to court.
The figures point to tax collection as being the main reason for going to mediation.
Close guidance by an experienced consultant may be crucial for mediating successfully and carefully monitoring the strategy of combining mediation with existing administrative and court procedures. If you need help in this respect, feel free to contact us.

309% Secret Commissions Tax strictly applied by the tax authorities

Recent tax audits have shown that the Belgian tax authorities consistently apply the 309% secret commissions tax on specific fringe benefits that have not been reported in either a fee form or a Belgian tax return.

This more rigid and strict approach results from an internal instruction the tax inspectors were given on 27 July 2011. The instruction also states that any failure to declare a benefit cannot be rectified by recognizing it in disallowed expenses or assigning it to a current account held with the beneficiary.

Furthermore, the instruction states that the application of tax increases and administrative penalties should be the rule, not the exception. The commentary on the relevant articles with regard to the increases will shortly be updated and published on FisconetPlus. In the past, the tax authorities often waived application of these increases. This should therefore be taken into account if tax audits are announced or if returns are filed late.