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Monday, 06 April 2020

The taxable result of the current financial year is currently difficult to predict. How to proceed with tax prepayments?

Claudine Bodeux

Claudine Bodeux

Advisor
Brussels
Quentin Masure

Quentin Masure

Counsel
Brussels

During the course of the financial year, there are several due dates prior to which tax prepayments (“TPP”) can be made. For financial year 2020 (closing date on December 31), the due dates are April 14, July 10, October 12 and December 20. As the financial result of the current financial year is difficult to predict and several enterprises might suffer liquidity shortfalls, it could be considered to forego the first TPP, at least as regards the first due date. After all, the TPPs are not a legal obligation for an enterprise.  However, in the event of insufficient TPPs the taxpayer will be subjected to a tax increase. Private individuals will, however, be granted a tax reduction (bonification) in the event that the amounts prepaid surpass the amount of tax due.

The timing of the crisis is very unfortunate as the advantage of making TPPs increases in principle the earlier the payment is made during the financial year. For example, a TPP made prior to April 14 will in principle have double the advantage of a TPP made between October 13 and December 20.  A TPP made by July 10 will in principle only be as effective as 83.4% of a TPP made by April 14.

In the context of the corona crisis, the government thus announced a support measure for private individuals and corporations regarding TPPs. The advantage granted by the TPPs made prior to the third and fourth due dates has been increased. As a result, the choice to postpone the TPPs will be sanctioned less severely. For example, a TPP made by April 14 will have 1.7 times the advantage of a TPP made between October 13 and December 20 (whereas this advantage would normally be doubled). A TPP made by October 12 will only be as effective as 75% of a TPP made by April 14 (whereas this would normally be 66.7%). A TPP made by July 10 still is as effective as 83.4% of a TPP made by April 14.

As the government implemented the measure in order to alleviate liquidity shortages, companies can only benefit from this special measure to the extent that, between the dates of March 12, 2020 and December 31, 2020, the company (i) has not repurchased its own shares or executed a capital reduction and (ii) has not distributed any dividends. This adjustment for the TPPs only applies in the context of the tax increase in the event of insufficient TPPs, and not in the context of tax reductions (bonification) for private individuals.

Notwithstanding these special measures, TTPs made earlier in the year remain more advantageous overall. Provided that sufficient liquidity is available, an early TPP therefore remains the more favorable option. 

Furthermore, if an assessment notice is received with an announcement of a tax refund, a request can be submitted to the Tax Collection Centre (Inningscentrum) within two months after receipt of the assessment notice, in order to have the refund taken into account as a TPP for the current taxable period. This may be recommended in the event of liquidity shortfalls, and one nevertheless wishes to make a TPP at an earlier date in the financial year (this without having to wait for the effective tax refund).

If you have any questions on this subject, please contact the authors of this article.

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