Ghent Court of Appeal: a letter box is not a fixed base (permanent establishment)

On 6 December 2016, the Ghent Court of Appeal rendered a decision in the case of individual X v. the Belgian tax administration on the question whether or not the taxpayer had a fixed base at his disposal. Details of the decision are summarized below.

(a) Facts. The taxpayer, an independent car-expert, performed expert services mainly for Belgian courts and insurance companies.

On 10 June 2008, the expert became a resident of Switzerland. He remained working for his Belgian customers. For correspondence and communication purposes, he used a letter box in Antwerp. The postal address of the letter box was mentioned on his letterhead under the heading “Buro Antwerpen”.

The taxpayer moved back to Belgium on 23 November 2010.

On 5 March 2012,based on the salary slips filed by the customers, the Belgian tax administration sent a notice of taxation to the taxpayer for undeclared income (assessment year 2011 – income 2010). The Belgian tax administration assessed accordingly and maintained its position during the administrative procedure.

Before the court of first instance, the expert invoked (for the first time) that he moved back to Belgium only on 23 November 2010 and that pursuant to the Belgium – Switzerland Income Tax and Capital Tax Treaty he was a resident of Switzerland for most of 2010 and thus not subject to the personal income tax on the undeclared income (gained during the time he was a Swiss resident).

The court of first instance ruled that the taxpayer maintained a permanent/fixed establishment in Belgium and that, thus, the income was taxable in Belgium.

(b) Legal background. Article 14, §1 of the 1978 Belgium – Switzerland Income Tax and Capital Tax Treaty (the Treaty) reads as follows: “Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.”

(c) Issue. The Ghent Court of Appeal had to decide on the issue whether the taxpayer had a fixed base at his disposal.

(d) Decision. Based on the documents presented, the Court concluded that the tax administration did not proof the fact that the taxpayer had a fixed base in Belgium at his disposal. In determining what a “fixed base” is, the court referred to the definition of permanent establishment provided for in article 5, §2 of the Treaty.

The only proven link with Belgium is the letter box of the taxpayer. The fact that the taxpayer, while living and working in Switzerland, used a physical letter box in Belgium (material permanent establishment) is not sufficient to conclude that a fixed base exist. The fact that the taxpayer mentions the term “Buro Antwerp” on his correspondence does not have any effect if this is not supported by a certain degree of infrastructure.

The letter box does, as such, according to the Court, not suffice to conduct the business of the expert. Even in this digital era (laptops, tables, smartphone, etc.) there, at least, had to be place where the administration was done. Proof of such facts were not provided by the Belgian tax administration.

In other words, the Court decided implicitly that the taxpayer did not carry on its business through the letter box.

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