Recently, the Dutch-speaking chamber of the Belgian Court of Cassation stated in a landmark judgment dated 16 June 2023 that a taxpayer can always withdraw the consent given for a tax dawn raid (at private dwellings), in which case the tax authorities have to stop the dawn raid (for more information, we refer to our earlier contribution on this matter). Our conclusion was that the same applies to a tax dawn raid at business premises. In a clear judgment dated 6 October 2023, the French-speaking chamber of the Court of Cassation has now also confirmed that although the tax authorities have an active search right during a tax dawn raid, allowing them to examine accounting records and documents without prior permission from the taxpayer, this is only true as long as the taxpayer does not resist. In a short period of time, the Court of Cassation has now issued two significant judgments regarding the boundaries that should be respected during a tax dawn raid, which is an important step in rebalancing the rights and obligations of taxpayers.
The Court of Appeal of Liège sees no problem with the conducted tax dawn raid
In March 2015, as part of a VAT investigation, ten inspectors from the Special Tax Inspectorate (STI) conducted a tax dawn raid at the business premises of a company engaged in the sale of food. They were received by a director of the company, who granted them access to the premises. In addition, two other directors were also present, who also did not resist the dawn raid. Even the accountant, who arrived on site, did not express any objections.
During the dawn raid, the tax authorities collected order forms and invoices found in a waste bin as well as a large box of order forms and delivery notes found in a paper and cardboard container. Moreover, with the director’s permission, the STI inspectors copied digital data from the company’s computer.
In the context of the subsequent dispute over the VAT reassessment (with proportional fines amounting to EUR 498,204.32), the company suddenly claimed that the tax authorities had exceeded their investigative powers during the dawn raid. The company alleged that, in violation of Article 8 of the European Convention on Human Rights (ECHR), an actual criminal search of premises had been executed, making the evidence obtained during the dawn raid inadmissible. The Court of First Instance of Namur ruled in favour of the company, stating that the tax authorities were not allowed to open (office) cupboards or to search through waste bins and desks without the permission of the taxpayer.
Referring to the judgment of the Belgian Constitutional Court of 12 October 2017, the Court of Appeal of Liège, however, stated that the search right of the tax authorities depends on whether the taxpayer objects to the investigative actions. Since the tax authorities do not have the right to conduct a criminal search of premises, they cannot conduct a tax dawn raid at business premises if the taxpayer or its representative(s) deny access or resist. According to the Court of Appeal of Liège, Article 63, first paragraph of the Belgian VAT Code grants the tax authorities access to the business premises in order, amongst other things, to examine accounting records and documents. The fact that these records and documents are stored in a cupboard, drawer or waste bin does not hinder the investigative powers of the tax authorities, as long as the taxpayer does not resist and cooperates. (For instance, cooperation is required when the cupboards are locked and a key or code is needed to open them.) The Court of Appeal found no evidence that the company (through the directors who were present) opposed the tax authorities’ investigative actions. On the contrary, the tax inspectors’ reports of the tax dawn raid indicate that the company actively cooperated with them. Therefore, the Court of Appeal ruled that the tax dawn raid was conducted in a valid way.
Apparently, the company also claimed that the tax authorities examined the employees’ changing rooms, refrigerators and lunch boxes, turning the tax dawn raid into an actual criminal search of premises. However, the Court of Appeal of Liège dismissed this claim because the company was unable to substantiate these allegations. The Court of Appeal also found no credibility in the statements made by the directors of the company more than a year after the tax dawn raid.
The company disagreed and appealed to the Court of Cassation, arguing that the tax authorities do not have an active search right. The consent to conduct a tax dawn raid would not imply the (tacit) consent to access waste bins, locked cupboards, etc., as a tax dawn raid is not to the same thing as a criminal search of premises.
The Court of Cassation: active search right as long as the taxpayer does not resist
The Court of Cassation first quotes the aforementioned decision of the Constitutional Court of 12 October 2017, which found the legal provisions on tax dawn raids constitutionally compliant and treaty-compliant under the following conditions: during a tax dawn raid, the tax authorities have extensive investigative powers and the right to examine accounting records and documents at the premises without prior request for their submission (“active search right”). A meaningful interpretation of the taxpayer’s duty to cooperate requires the taxpayer to assist, for example, in opening closed cabinets or safes. However, if the taxpayer resists, the tax authorities cannot forcibly obtain access to the accounting records and documents, because a tax dawn raid serves a different purpose than a criminal search of premises.
The Court of Cassation now fully endorses this view: it confirms the active search right of the tax authorities during a tax dawn raid, allowing them to examine accounting records and documents located in closed furniture, waste bins or refrigerators at the taxpayer’s business premises, without the taxpayer’s prior consent.
However, the Court of Cassation explicitly states that the above only applies as long as the taxpayer does not resist. If the taxpayer does resist, the examination of the accounting records and documents may not take place (or continue). In the case at hand, no resistance was observed, and the tax dawn raid was thus validly conducted.
While in this case the taxpayer did not prevail, the judgment is fundamental. The Court of Cassation reaffirms the taxpayer’s right to verbally (passively) resist the examination of specific accounting records and documents during a tax dawn raid. Previously, the Court had ruled similarly regarding tax dawn raids at private dwellings, where similar fundamental rights are at stake. The case law of the Dutch-speaking and French-speaking chambers of the Court helps to restore the necessary balance between the rights of the tax authorities and the taxpayer during tax dawn raids. The ability to reasonably verbally resist investigative actions during a tax dawn raid is the only defence mechanism available to the taxpayer at that moment. Such resistance should not be used gratuitously to obstruct the tax authorities, but it does provide the only protection available for the taxpayer if the tax authorities overstep their bounds during a tax dawn raid. Indeed, active physical resistance can, under certain circumstances, be considered a criminal offence.
On the one hand, tax inspectors are allowed to actively search for what they deem relevant within the premises, without being able to force locked cupboards or safes or operate the taxpayer’s computer equipment without explicit consent. On the other hand, they cannot gain coercive access to business or private dwellings without the taxpayer’s permission and should generally cease their examination of certain books, documents or records if the taxpayer resists. If the tax inspectors proceed with the examination despite the resistance of the taxpayer, it is advisable to explicitly record the resistance in the tax dawn raid report or record it in another way (e.g. through a (proportional) video or audio recording, in an e-mail to the tax authorities, or by contacting a bailiff to request that the resistance be noted together with the exact time). In no case may the tax officials enforce the examination. However, it should be clear that the passive resistance must not be without justification, as otherwise there is a risk of administrative fines (which are currently relatively low). In the case of proven fraudulent intent, a criminal prosecution for fraudulent violation of the investigative rights provided in the tax codes may also be pursued. Additionally, the tax authorities could attempt to enforce the required duty to cooperate through court proceedings and the imposition of a penalty payment.
If you have any questions about this or require assistance during a tax dawn raid, do not hesitate to contact us (whether or not via our dawn raid emergency number).