Ex officio taxation: No “surprise” income without prior notice of adjustment

The facts

For the 1998 tax year, the tax authorities issued a notice of adjustment to the taxpayer concerning their income from immovable property. The taxpayer failed to respond within the prescribed one-month period. As a result, the tax authorities proceeded with an ex officio assessment on the grounds of that failure to respond.

Surprisingly, the notice of ex officio assessment did not concern income from immovable property. Instead, it sought to tax income of undetermined origin on the basis of an assessment by reference to signs and indications of wealth — matters entirely unrelated to those set out in the original notice of adjustment.

The additional assessment was entered on the tax roll. After their challenge was dismissed at first instance and subsequently by the Brussels Court of Appeal, the taxpayer lodged an appeal in cassation.

Two procedures, one common objective: safeguarding the rights of the defence

The central issue concerns the interaction between two provisions of the Belgian Income Tax Code 1992 (ITC 92).

Article 346 governs the adjustment procedure: the tax authorities must notify the taxpayer of the income they intend to substitute for the declared income, provide the reasons for the proposed adjustment and allow the taxpayer one month to respond.

Article 351 governs ex officio assessments, including where a taxpayer has failed to respond to a notice of adjustment.

Both procedures pursue the same objective: safeguarding the taxpayer’s rights of defence by ensuring that they have an opportunity to present their observations before an assessment is entered on the tax roll.

However, Article 351, paragraph 3, provides for a significant exception: where an ex officio assessment results specifically from the taxpayer’s failure to respond to a notice of adjustment, no additional one-month response period is granted.

Why does this exception exist? Because the taxpayer has already had an opportunity to submit observations during the adjustment procedure. This interpretation is supported by both the legislative preparatory works and legal doctrine.

However, that reasoning is valid only on one condition: the assessment set out in the notice of ex officio assessment must correspond to the adjustment previously notified to the taxpayer.

The Court’s ruling

Following the Opinion of Advocate General Adeline Römer, the Court established the following principle: where the tax authorities proceed with an ex officio assessment because a taxpayer has failed to respond to a notice of adjustment, they may base that assessment on income other than that declared by the taxpayer (or acknowledged in writing) only if that other income was brought to the taxpayer’s attention in the notice of adjustment itself.

In the present case, the notice of adjustment concerned income from immovable property, whereas the ex officio assessment concerned income of undetermined origin established by reference to signs and indications of wealth. These were two entirely distinct matters.

By upholding the assessment, the Court of Appeal had infringed Article 351 of the ITC 92. The Court of Cassation therefore quashed the judgment and referred the case to the Mons Court of Appeal.

Any other conclusion would have allowed the taxpayer to be assessed on income they had never been given an opportunity to challenge, since the law provides no further response period in these circumstances.

It is precisely this infringement of the rights of the defence that the Court condemned.

It should also be recalled that an ex officio assessment not authorised under Article 351 constitutes a substantial procedural irregularity rendering the assessment null and void.

Key takeaways

An ex officio assessment based on a taxpayer’s failure to respond to a notice of adjustment must concern the same matters as those identified in that notice. If it relates to additional income, such as income determined by reference to signs and indications of wealth, the assessment may be challenged.

The tax authorities may dispense with granting a further response period, but only because the taxpayer has already had an opportunity to comment on the matters concerned.

To assess other income, the tax authorities must initiate a new procedure that affords the taxpayer an opportunity to exercise their rights of defence.

A key point when challenging an assessment: whenever faced with an ex officio assessment, systematically compare the matters covered by the original notice of adjustment with those addressed in the ex officio assessment decision.