Tax Inspectors

It is far too long since I last wrote, but I really do want to get back to blogging so that this web-site stays alive. My initial plan was to start by writing about the setting up of Capsec and then move on to more interesting topics. Well Capsec is up and running; I’ve written about some of the problems in getting going and now I want to start writing about other subjects. Except the topic I choose for this article is about the problems another company is having.

A friend was telling me the other evening about their business. They have a company that is in the export business and in 2009 they suffered a tax inspection.  This is quite normal and happens every two or three years in Belgium. It is also why I decided that I would rather pay for good tax advice and hopefully avoid any inspection problems that do seem to be reported rather frequently.

The tax inspector behaved very strangely from the beginning – more like a private investigator. Calling at unarranged times to surprise my friend, snooping around their tax advisors offices without permission, asking for meetings and reports during holiday periods and refusing to take account of any explanations given as to why the views he had formed were incorrect. He stated from the very beginning that he was going to get something out of the company. Appeals to his hierarchy and letters to the offices went unanswered whilst more questions, pages of them, kept coming from him – even to questions already answered.

My friend and their tax advisor behaved very correctly despite apparently suffering extreme provocation, and then the final bill arrived. It was a complete fabrication. The tax being asked for was 10 times the annual profit of the business! One line of business is to ship parcels for clients and the tax was assessed as if the whole value of the packages belonged to my friends company. This had been explained to him many times but he was completely deaf to the explanations. They appealed to the tax office but the result was the same. So now they have to appeal to the courts on the judgement.

The date he has been given for the earliest possible hearing is 2017!

This would not be so much of a problem except the government has ways and means. Since the end of 2009, even before the first appeal had been rejected, the VAT department has been withholding their usual returns. The company also exports and so is able to reclaim a not insubstantial amount of VAT each quarter for the goods sold. The total VAT recovered is vital cash flow that would actually amount to around the annual profit. The VAT is withheld against the tax due except the VAT department does not report to the tax department on how much money it has received.  So the government is withholding the cash needed for the company to function. This money is disappearing into a coffer somewhere whilst interest is added to the “tax debt”, and there is no possibility that this situation can end before 2017.

My friend is suffering from stress at having to lay-off staff to try to keep the business solvent and is powerless in the face of state bureaucracy. And at least one of the reasons that the hearing cannot take place before 2017 is because there is a lack of French-speaking judges in Brussels. The reason for this (apparently) is that by law Brussels must have an equal number of French and Flemish speaking judges. They do not need any more Flemish speaking – remember that only 5% of Brussels citizens are Flemish speaking – and so the Flemish speaking community do not wish to recruit more judges. Hence the French speaking community is unable to recruit either.

My friend is very pessimistic about his business surviving to 2012 let alone to 2017.

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