Withholding tax control action: important information for your management company. The tax authorities carry out intensive checks on the correct application of withholding tax, with a particular focus on management companies. In this article you can read all about the current situation, the consequences and how you can anticipate it.

Strict controls on management company

The tax authorities have intensified their checks on the correct application of withholding tax, with a special focus on management companies. During these inspections, infringements of the mandatory withholding tax are often detected. In some cases, this can lead to double taxation. You can always contact a tax lawyer for advice and assistance.

The principle of withholding tax in tax law

Withholding tax is a system in which the debtor of certain income, usually the employer, withholds part of the remuneration to be paid to the employee and pays it to the tax authorities. This withholding tax is later deducted from the personal income tax payable by the employee. If too much has been withheld, the taxpayer employee will get a refund. If too little has been withheld, the taxpayer employee must pay extra. Withholding tax therefore acts as an advance on personal income tax.

The law determines what percentage of the gross salary must be withheld and paid as withholding tax. This percentage varies from 26.75% to 53.50% and depends on specific circumstances such as the number of dependants. Tax law regulates these percentages and circumstances. A tax attorney can help you comply with these rules.

Also for the manager of the management company

The law also requires the withholding and payment of withholding tax for company directors. A management company is therefore not allowed to pay the full gross amount of its remuneration to the manager.

However, the tax authorities have found that some management companies do not always comply with this obligation correctly. Sometimes they consider the binding rates of withholding tax only as guidelines and sometimes do not withhold withholding tax at all.

Consequences of non-withholding

If no or too little withholding tax is withheld, the company director receives his full gross salary. Since this full gross remuneration must be declared in the personal income tax and no withholding tax has been withheld that can be offset against it, the company director will have to pay a higher amount of personal income tax. That's what I'm talking about

Taxable benefit in kind?

The tax authorities believe that the unwithheld withholding tax constitutes a taxable benefit in kind. During an audit campaign, they sent company directors supplementary personal income tax assessments, adding the amount of unwithheld withholding tax in full to their taxable remuneration. At the same time, an assessment in withholding tax was sent to the company that had paid the remunerations for the same amount, even after the company manager had already paid his personal income tax without offsetting any withholding tax.

This position of the tax authorities is open to criticism. It goes against the basic principles of withholding tax and benefits of all kinds. Withholding tax is essentially an advance on personal income tax and its non-deduction only results in a temporary cash-flow advantage for the taxpayer. In the end, the taxpayer still pays the personal income tax due, so the Treasury does not suffer a loss, but at most experiences a delay in revenue receipt.

Only an interest benefit? Consult a tax lawyer!

A more correct approach would be to consider the non-withholding of withholding tax as an interest-free loan. The business manager can temporarily dispose of more funds, but must still pay them in full later, when the personal income tax assessment is determined. This falls under the rules of tax law. A tax lawyer can help you understand and apply these.

Possible pragmatic approach

You can consider having your company still pay the recovered withholding tax, plus negligence interest, to the Treasury. Via a notice of objection or request for ex officio exemption, the offset against the personal income tax can then be requested, which will in principle lead to a refund of the personal income tax. What is important here is that the company still reclaims from the manager the withholding tax thus paid, which has resulted in a personal income tax refund in favour of the manager. Otherwise, the tax authorities will rightly hold that the company manager has received a benefit in kind amounting to the full amount of withholding tax.

Given the many discussions that have arisen as a result of this attitude of the tax authorities, the disputes are currently on hold pending a position of the main board on the matter. To be continued.

For more information, contact Joke Brabants (This email address is being protected from spambots. You need JavaScript enabled to view it.), Stefan Geluyckens (This email address is being protected from spambots. You need JavaScript enabled to view it.) or Jan Van Hemelen (This email address is being protected from spambots. You need JavaScript enabled to view it.).