Third discussion tax valuation housing benefit: Belgian tax authorities give in

Contribution by Arno Meersman, trainee at ICHIBAN Consult

When free or cheap housing is offered by an employer to an executive or employee, a taxable benefit arises on behalf of the beneficiary of such benefit. The Belgian tax authorities will calculate tax on the benefit at the regular progressive tax rates (up to approximately 53,50% – communal tax included).

Many disputes have arisen on the valuation of the taxable benefit, especially after the significant increase of the valuation of the housing benefit from income year 2012 onwards, which affected a large group of tax payers. After this increase, the value of the tax benefit most often significantly exceeded the actual amount of rent, paid by the employer to provide the housing benefit. This induced tax payers to find ways to successfully challenge the tax rules.

When closely studying the law, it appeared that not all tax payers were treated in the same way. Apart from a significant calculation difference based on the cadastral value of the premises, there was also a distinction between the situation where a housing benefit was granted by a private person as compared to housing provided by a company or organization.

This distinction between private persons and companies/organizations, granting the housing benefit, is not very logical and was not perceived as fair. Tax payers have contested the difference on the basis of the Constitutional principle of equality. This principle states that there can only be a distinction if it is reasonable and objectively justified.

The tax authorities tried to justify the difference in court by arguing that executives and managers are often in a position that allows them to make or influence the decision of a company/organization to offer them a luxurious home, while other employees would most often only get offered a ‘modest home’. In our opinion, this justification is only valid in a limited number of cases (for example for so-called management companies or businesses fully owned by an individual).

The courts of law have correctly decided that this justification is not valid at all. In addition, they pointed out that the law (Article 18, §3 RD / ITC 92) does not mention a separate category of tax payers (“business managers and executives”) as compared to “regular employees”. The law only mentions a difference at the level of the person or entity, granting the benefit, but does not make any distinction at the level of the beneficiaries of the benefit.

In this way, the Court of Appeal in Ghent in the past declared the distinction, made by the tax authorities not to be reasonable and objective. The Court of Appeal of Antwerp also followed this approach. For a detailed discussion of these court decisions, we refer to our contribution of June 21^st, 2016 (case of the Ghent Court of Appeal on May 24^th 2016) and our contribution of February 28^th (case of the Antwerp Court of Appeal of January 24^th 2017). The Ghent Court of Appeal recently again  confirmed their point of view (decision of February 20^th, 2018).

How to move forward with this matter may not yet be clear for all tax payers. In the current situation, it appears that following all case law, the benefit should be valued at the cadastral revenue of the premises, increased with an indexation coefficient and multiplied by 100/60 (for furnished premises, the benefit is further increased by a factor of 5/3). The discriminatory multiplier 1.25 or 3.8 should not be applied, which results in a limited taxable basis.

This not only is the case for income year 2017 (tax year 2018), but also for prior years. Upon receiving a tax assessment notice for a prior year, one can still raise a tax claim to reduce the taxes, to the extent in which they were based on the old valuation rules.

The Court of Appeal in Ghent indeed confirmed that the discriminatory multiplicators of 1,25 and 3,8 can not be applied and that the general formula for the valuation of a housing benefit must be applied (Article 18, §3, 2, first paragraph, RD / ITC 92).

Following the most recent court decision of Ghent, the Belgian finance Minister confirmed that the former distinction for the valuation of the tax benefit should be discontinued. According to the Minister, the tax authorities should in all cases apply the same general valuation formula.

As long as no new rules are issued, this results in a significant tax reduction for tax payers, who have a housing benefit from a company or other legal entity. At this moment, the Belgian government is further studying the situation. It is not yet clear whether the old rules (no multiplicators) will be continued further or whether the valuation rules will once again be amended (for the future) by again increasing the benefit. Such increase should then equally apply to all tax payers up to a level, which more closely corresponds with the amount of the actual cost for the rent of the premises.