When is remuneration paid?
February 2021 – The Income Tax Code (CIR) provides that the remuneration of company directors is taxable at the time it is allocated or awarded. As for withholding tax, the law stipulates that it must be withheld at the time salaries are paid or allocated. The Court of Appeal of Liège recently gave some words of explanation regarding the notions "attribute", "allocate" and "pay".
A Luxembourg company in a bad position
A Belgian couple works for a Luxembourg company. The wife as an employee, the husband as a company director. In such an international situation, one must always refer to the double taxation treaty to find out which of the two states has the power to levy the tax. In this specific case, it appears that the power of taxation lies with Belgium.
At some point, the company finds itself in difficulty and is no longer able to pay the remuneration in full. The remunerations have been entered in the individual account up to their total amount, but have not been paid in full.
The tax authorities are aware of this and intend to tax the remunerations up to their total amount. The sums entered in the individual account are considered to have been allocated and are therefore taxable in the hands of the beneficiary.
The tax authorities are obviously aware that the sums have not been paid in full: they therefore confirm that the spouses have voluntarily waived part of the remuneration so as not to harm the company.
But the sums had indeed been entered in the account. This implies, according to the administration, that they were available. The reason why they were not paid was that the beneficiaries had freely chosen to keep the funds at the disposal of the company.
The manager could also have made other decisions. He could have decided not to grant the remuneration or to have the company take out a loan so that it could actually pay the remuneration.
Liquidity regime
However, the Court of Appeal of Liège sees things differently. The Court begins by pointing out that remuneration is subject to the liquidity regime. In the case of self-employed persons and companies, profits are taxable from the moment they are (must be) booked. The fact that the actual payment is only made at a later date is irrelevant for the latter.
In the case of remunerations, the rule is that there is taxation at the moment of payment or at least at the moment of the effective attribution which constitutes an enrichment of the taxpayer's assets.
Attribution only occurs if the remunerated person can dispose of his remuneration by virtue of its posting on an available account. If the remunerated person cannot dispose of it due to circumstances beyond the control of the beneficiary, there is no question of attribution.
In the case at hand, the Court takes a closer look at the financial situation of the company. The company's financial situation was relatively poor, the company even had negative equity. According to the Court, the fact that the remunerations were not actually paid is not necessarily the consequence of an agreement between the company and the taxpayers. In the case at hand, the company could not pay the remunerations due to economic circumstances.
The judgment is favorable to the taxpayer, but still somewhat surprising. The Court passes relatively quickly over the fact that the manager himself could decide on the amount he could allocate. He decided to allocate a certain amount and then not to pay it in full.
The Court naturally assumes that the decision not to actually pay the remuneration was simply dictated by the circumstances and was therefore unavoidable.
A reasoning that is unlikely to hold up before all courts or tribunals.
