Mediation in Tax Matters
In Belgium, a taxpayer cannot just appeal the tax bill before the courts when he receives tax assessment.
He must necessarily file an appeal with the tax director first, within twelve months after he receives the tax assessment. It is only when the tax director denies the appeal that the taxpayer can take the case to court, or when the tax director has not taken a decision within nine months
It is to be noted that this administrative appeals procedure is often no more than a formality. The department of the tax director is held by the same instructions as the tax official who decided to charge the tax. The only recourse then is to go to court.
Litigating against the tax administration takes time and time is money. Although the court's tax chambers do an efficient job, court proceedings always take at least a year. That could make the case for mediation. What works for civil matters or commercial matters, may work in tax matters as well.
In 2007, the Belgian tax authorities have set up the Tax Mediation Department in the hopes of reducing the number of cases taken to court.
Taxpayers may submit files for mediation by mail, fax, or e-mail, or in person. Mediation is possible for most taxes: personal income tax, corporate income tax, non-residents’ tax, PAYE, withholding tax, VAT, registration taxes as well as certain inheritance taxes, the cadastral revenue, customs and excises, and some non-tax related claims, and even for problems regarding the recovery of the tax. Mediation is not possible for road taxes, for the eurovignette and for the real estate tax that is now levied by the regions.
For income tax, mediation is only possible while the administrative appeal is pending with the tax director. When the tax director takes a decision or when the taxpayer petitions the court, mediation is cancelled. Mediation suspends the administrative appeal so that the tax authorities cannot take a decision. In VAT matters, the request for mediation is inadmissible once the VAT payer has started court proceedings to counter a coercive measure or if an expert has been appointed to value goods or services.
A request for mediation, if declared admissible, suspends the administrative appeals procedure unless the rights of the Treasury are jeopardised.
Mediators can collect any information they consider useful, hear any individuals concerned, and make any other findings. They must examine the application objectively, impartially, independently within the confines of the law.
The Mediation Department does not act as a judge. The mediators endeavour to reconcile the positions of the taxpayer and of the tax authorities and they submit a (non-binding) mediation report to the taxpayer and the tax authorities. The Mediation Department cannot oblige either party to take the position they propose in their mediation report. The taxpayer and the tax authorities still decide whether they can accept the solution proposed.
The mediation reports and decisions are not binding or public and they are not open to any administrative or judicial appeal.
Since 2018, the Mediation Department is also competent for non-tax related claims (e.g. fines, undue unemployment benefits received), as well as for the reduction of fines and tax increases (the so-called 'prerogative of mercy’).
The Brussels Region has set up its own Mediation Department as it has taken over responsibility for the road tax and the real estate tax (précompte immobilier). In 2021, the Walloon region has taken over mediation about the real estate tax.
Mediation in the tax world
Despite the efforts of motivated officials, tax mediation faces certain basic obstacles.
Although the tax mediators are supposed to be independent and neutral, they are never a third party. The department is part of the Ministry of Finance so that the tax administration is both party and mediator.
Furthermore, the tax administration does not really have an incentive to reach a mediated solution. The taxpayer initiates the mediation request and the tax official he has been arguing against is called upon to participate in the mediation. When he has already taken position with an extensive justification, he is not committed to reach a solution by mediation.
In civil and commercial matters mediation works because parties have different interests, and they can give in on some in exchange for others (‘you keep the cat and I will keep the dog’). In tax matters, there are two positions : pay the tax or not pay the tax. The taxpayer and the tax administration have nothing else to offer to each other. There are not many creative ways to help them get out of this all or nothing situation.
A major problem is that the tax law is of public policy. It protects the broad interests of society and not merely the interests of the parties. A mediated solution must always fit in with the tax law ; the tax administration cannot waive the tax because of the taxpayer’s economic or personal circumstances. What is more, when the tax authorities take a position in principle, they will have to apply that in all similar cases. In other words, the tax administration cannot depart from a fixed position for one taxpayer. That is often an obstacle for a mediated solution.
Mediation is then only useful for the facts at the basis of the tax dispute, e.g. the disallowed use of a professional asset, the percentage that certain employees work on R&D, etc. The mediators cannot add much to such discussions.
Unfortunately, tax mediation is not the magic solution for all tax disputes.