Deduction limitations of recharged costs: an update

A number of costs, although professional, are only partly or even not at all tax deductible: e.g. costs of cars (percentage depending among others on CO2), restaurant (69%), reception and business gifts (50%), clothing (not deductible). If these costs are passed on, there is a risk of double taxation: on the one hand to the party who bears the costs in the first place and on the other hand to its customer.

We look first at the current arrangements and then at the legislative proposal.

Recharged car expenses

Article 66, §2, paragraph 4 WIB1992 confirms that for car expenses no deduction limitation applies for costs recharged to third parties, provided that these costs are explicitly and separately mentioned on the invoice. The tax deduction limitation of the (recharged) car expenses does not apply to the taxpayer who incurred the expense and recharges it, but to the third party to whom the expenses are recharged. 

However, there are conditions for the deduction restriction not to be applied to the person who recharges:

• It must be car costs that are recharged to third parties for the same amount and by means of an explicit and separate statement on the invoice;
• The CO2 emissions and fuel used must be included in the invoice, so that the third party to whom the car costs are re-invoiced is able to apply the correct tax deduction limitation with respect to the costs (recharged) to him.

Recharged restaurant and reception costs 

Here the Administration accepts that the deduction limitation must not be applied to costs recharged to "a third party who is also subject to the deduction limitation and in a manner that leaves no doubt as to the precise scope of the transaction." Unlike the legal regulation of recharged car expenses, restaurant and reception expenses do require that the third party be taxable in Belgium.

Legislative proposal on recharged costs 

It is proposed to apply the same rules to recharged restaurant, reception, business gifts, clothing, hunting and fishing expenses as those for recharged car expenses. The deduction limitation will then no longer apply if the costs are recharged to third parties, provided that these costs are explicitly and separately stated on the invoice.

Legislative proposal on the price of trade goods 

It is also proposed to expressly provide that the price of trade goods (within the meaning of the accounting legislation) is a professional expense that is not subject to the deduction restrictions. We are thinking here of expenses booked in a 60 account. If the costs are entered in the accounts as trade goods in accordance with the accounting legislation, the deduction limitation would therefore not apply and there is also no need to mention these goods separately on the invoice.

This rule is particularly relevant for event organizers, but its scope can be much broader.

Conclusion

This bill, which would apply as of tax year 2022, would allow the deduction limits to no longer be applied to the service provider in a number of cases. We will keep you posted on the further evolution.