2. Empirical Methods
In the absence of exact allocation evidence derived from accounts kept in accordance with the Commercial Code, or documents confirming with sufficient accuracy the income declared, foreign firms operating in Belgium are taxed on a certain minimum profit, fixed as explained below, the tax, however, being not less than 10,000 francs (Royal Decree of October 8th, 1930,1 issued in execution of Article 28 of the co-ordinated laws):
noteThe separate accounts can, of course, be checked by the revenue authorities, who are in no way bound by the information in them. As in the case of the balance-sheets of Belgian enterprises,2 this control may consist in demanding explanations and further evidence whenever the fiscal agents think fit. This applies especially to the prices at which goods have been invoiced by the parent enterprise to its branch or subsidiary. If the Controller has reason to believe that these prices are higher than those invoiced by similar enterprises or those officially quoted, he may disregard the figures in the accounts. In this case, the presumed additional profit is added to that shown in the accounts; or, if the figures are altogether unreliable, the authorities may wholly disregard them and assess tax ex-officio.3
note noteThe same care is needed when the separate accounts contain mention of interest on loans and advances paid to the parent enterprise, or of sums due for management or engineering service, use of patents, etc.
As regards interest on loans and advances, the only deduction allowed under the heading of professional charges (Article 26, paragraph 2, of the co-ordinated laws) is interest on capital borrowed from third parties and invested in the business; since the branch does not constitute a third party vis-à -vis the parent firm — the head office and Belgian branch being two parts of one organisation — the revenue authorities include this interest among the profits of the Belgian establishment.
Sums paid for management and engineering service imply the exercise by the parent enterprise of activities in Belgium, and the revenue authorities levy professional tax on the foreign enterprises in respect of the net profit from these activities.1
noteLastly, royalties paid to the parent enterprise for the lease, concession or use of patents come under Article 14, paragraph 4, of the co-ordinated laws, by which the total amount is assessable to personal property income tax.
The revenue authorities are not, however, bound exclusively to the empirical method; they may also fix the taxable income by a method of comparison, regard being had to the normal profits of taxpayers similarly situated and, as the case may be, to invested capital, turnover, number of workmen, motor-power used, rental value of exploited land and any other useful information (Article 28 of the co-ordinated laws), should this method seem more likely to reveal the true facts. In practice, however, the empirical method is the normal substitute for accounts; recourse to the comparative method is exceptional.
The criteria on which the latter method is based are the bona-fide declarations of taxpayers who keep regular accounts and operate under similar conditions. The law does not prescribe any particular element of comparison (invested capital, turnover figure, number of workmen, etc.). This is left to the discretion of the fiscal agents, provided only that the method employed shall succeed in fixing as closely as possible the presumed profits on which tax is to be assessed.