Let’s not blame it all on banks

IN BELGIUM AND ABROAD, banks find themselves increasingly in trouble because they accept money that may not have been taxed fully in the past. It recently happened to KBC in the Netherlands, and to Degroof-Petercam before that. Sooner or later, however, all banks will probably face the same music.

The financial system has undergone a shift worthy of the Copernican Revolution over the past fifteen years. The current assumption is that funds are legitimate only once there is documented evidence that all taxes have been paid – whether it is professional income tax, withholding tax, VAT or inheritance tax. If taxes have not been paid in full, chances are that the assets have been obtained illegally, or at least in part. A situation that may end up being corrected with a tax regularisation.

IT SHOULD NOT COME AS A SURPRISE that it is extremely difficult to evaluate correctly the historical build-up of financial assets. But more importantly, in recent years the government adopted a very ambiguous attitude towards statute-barred taxes. These are taxes that citizens have failed to paid, but which the tax authorities can no longer levy due to the fiscal statutes of limitation. Until 2000, statute-barred taxes were not seen as a major issue. Belgian taxpayers who were caught hiding capital in their Luxembourg accounts were offered to settle their score with the tax authorities with a 3 percent levy on these assets. Once they had paid, they were absolved of any wrongdoing and their assets were therefore regularised. The first statutory fiscal regularisation then happened in 2004: the Unique Liberatory Declaration (DLU/EBA). Under the facility, taxpayers were given a choice to settle their tax bill at a rate of 6 or 9 per cent. All tax wrongdoings were forgiven indefinitely. The DLU/EBA legislation was temporary, though, and after it ended, there was no legal framework to regularise taxes. Taxpayers were left with no other recourse than turn to the tax authorities. In most cases, the option to regularise statute-barred taxes was never suggested to them.

A new legal framework was created in 2006, which was abolished at the end of 2013. In the last six months of 2013, taxpayers could liberate the burden of unpaid taxes by paying an all-inclusive rate of 35 percent. Taxpayers who had repented later could turn to the local inspectorate and General Administration of the Special Tax Inspectorate (BBI). In those administrations, too, an unofficial regularisation practice emerged which sometimes took barred taxes into account, and other times did not.

SINCE SUCH PRACTICE had no legal basis and was not perceived as ideal, the legislation was revised in 2016. Under the new law, taxpayers were forced to settle their unpaid tax burden if they could not prove that the assets had gone through the normal tax procedure. The possibility of regularising with the BBI and the other tax authorities was cancelled. The declarant must demonstrate in writing that the assets have been subjected to the normal tax treatment. Failing that, the taxpayer will face a 39 percent penalty. The current notion of historically documented taxes is therefore recent. It has only taken effect in the regularisation legislation since the last legislative amendment of 2016. Taxpayers can rarely produce a detailed bookkeeper’s ledger of their assets. The forensic reconstruction of these assets over many years is often a daunting task, while the office of the public prosecutor can exclude any legal origin if it pursues a conviction for money laundering from tax fraud.

TAX REGULATION LEGISLATION is a patchwork of not always coherent approaches. You would need to be a banker and assess whether the taxpayer’s assets are of legitimate origin. The way in which the legislator has dealt with tax regularisations in the past is in stark contrast to today’s insight. The assessment of these tax regularisation regimes is therefore a breeding ground for uncertainty and doubt. So, next time you read an article about a money laundering problem at a bank, bear in mind that the bank is not necessarily the origin of that problem, but rather our lawmakers.