Wage Withholding Tax Exemption for R&D: systematic R&D must also be reported in detail

Companies that hire researchers can benefit from a full or partial exemption from wage withholding tax. There are strict conditions for this, however, such as reporting to Belspo in advance about the R&D program or project in question. This reporting remains a point of contention in tax inspections.

Wage withholding tax (WWT) exemption for R&D

Companies that hire researchers for a specific research or development program or project (R&D program/project), and if these researchers hold a certain diploma, can apply for partial exemption from paying wage withholding tax on these researchers’ wages (see Art. 275/3 Income Tax Code 1992). This exemption entails that the tax must be withheld completely, but 80% of it does not have to be paid to the Treasury. This exemption must meet certain conditions, however.

One of the conditions is that the R&D program/project must be reported in advance to the Belgian Science Policy Office (in Dutch: POD Wetenscapsbeleid) (or “Belspo”).

Case-law on this has confirmed multiple times that this prior reporting is an essential condition for the exemption to be valid.


Reporting to Belspo gives rise to disputes

In the last few years, reporting R&D projects to Belspo has been the underlying cause of many dispute during tax inspections.

The classic point of dispute related to the completion date of the R&D program/project. For example, either this date was not filled in or an unrealistic date was written (e.g., 31/12/2099). In these situations, the tax authority concluded that the reporting did not meet the requirements of the law, since the expected end date must also be indicated (Art. 275/3, §3, 4th para, 3° Income Tax Code 1992). Because an essential condition for exemption was not met, the tax authority sought payment of the exempt WWT amount (including late interest). This position was followed by case-law and was even confirmed recently by the Minister of Finance in his answer to a question about it at a parliamentary hearing.

An R&D program/project must therefore be clearly defined at the time of reporting, meaning it must have a start date and completion date. This applies also to companies that carry out systematic R&D.

The tax authority checks the R&D reporting in terms of the contents as well, and this also leads to disputes.


Reporting must be done in detail

Tax law requires that a description of the R&D program/project be given at the time of reporting and that the description show that the program/project concerns a fundamental or industrial research or experimental development.

This condition applies also to companies that carry out systematic R&D. According to recent case-law from the rulings of the Antwerp court of first instance (21 March 2022) and also the Hasselt court of first instance (17 March 2022 and 31 March 2022), these companies must give a detailed reporting particularly about the specific R&D program/project.

If the description of the project or program is merely a general description of the company’s business activities, then the reporting is not adequately made in detail. And if the company has multiple R&D programs, the same rule applies. In such scenario, every program (or project) must be reported separately (unless the project in question is part of a program). In this regard, the Hasselt court held that: “A reporting that boils down to mentioning that the activities carried out by a certain company (or by a department of a company) is considered to be research and development programs or projects, and this for an open-ended term (for as long as the company exists), is therefore invalid reporting. The reporting must be about a specific project or program that is defined sufficiently clear in terms of time as well as in substance (including the pre-determined end-date because, in this way, the reporting will exclude it as a permanent activity). And every time the taxpayer starts a new project or program, it must report it even if all the other previous projects or programs from the same taxpayer have been reported and also if Belspo has given its opinion on the earlier projects or program and effectively concluded that they concern research and development.”


What does this all mean now?

Although an appeal can be lodged against these judgments, the case-law is still relevant to companies that carry out systematic R&D.

Reporting to Belspo must be made adequately in detail in that the R&D program or project must be substantially defined. Giving a general description of the company’s business activities is not adequate.

Describing an R&D program/project too generally can present a risk to the WWT exemption and give rise to recovery claims afterwards brought by the tax authorities. We therefore advise you to check the reporting accurately to prevent disputes from arising.


Want to learn more? Please contact Luk Cassimon (luk.cassimon@monardlaw.be, 0472/467.847) or your usual contact person at Monard Law.


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