Court of Cassation puts an end to strict interpretation: an incorrect application of the law also gives rise to ex officio relief

Facts of the dispute

The dispute concerned the taxable basis applicable to the division tax. Initially, in accordance with administrative position no. 18075, tax was levied in certain circumstances on the full value of the immovable property. However, this position was later declared unlawful by a court judgment and subsequently amended by the administration. As a result, the notary, acting on behalf of the taxpayer, requested relief for the tax that had been overpaid.

Position of the Flemish Tax Administration

The Flemish Tax Administration rejected this request, arguing that no ex officio relief could be granted.

According to the administration, article 3.6.0.0.1 of the Flemish Fiscal Code (VCF) requires a strict interpretation and ex officio relief may only be granted in the exhaustively listed cases, namely: material errors, double taxation, and new documents or facts whose late submission or invocation by the taxpayer is justified by legitimate reasons.

According to the administration, a change in administrative case law or interpretation cannot be regarded as a “new fact”. In addition, the Flemish Tax Administration argued that the concept of a “material error” must be interpreted restrictively. It can only refer to factual mistakes, such as errors relating to material elements, clerical mistakes or calculation errors, without any legal assessment being involved. The provision does not refer to legal errors, incorrect applications of the law or unlawfully levied taxes. According to the tax authorities, an incorrect application of the law could therefore not give rise to ex officio relief on the basis of article 3.6.0.0.1 VCF.

Although, under the former legal framework, notably article 208 of the Registration Duties Code and article 134 of the Inheritance Duties Code, an incorrect application of the law could give rise to reimbursement, the administration argued that this possibility had not been incorporated into the Flemish Fiscal Code. The tax authorities further maintained that article 3.6.0.0.1 VCF had to be interpreted strictly.

Decision of the Court of Appeal

The Ghent Court of Appeal did not follow this restrictive interpretation adopted by the Flemish Tax Administration. The Court held that an incorrect application of the law could indeed give rise to ex officio relief and based its reasoning on the legislative history of the VCF.

The parliamentary preparatory works of the decree of 19 December 2014 (VCF) show that the Flemish legislator did not intend to abolish the existing possibilities for reimbursement. Article 208 of the Registration Duties Code and article 134 of the Inheritance Duties Code expressly provided for reimbursement in the event of an incorrect application of the law. According to the Court, this possibility was implicitly incorporated into article 3.6.0.0.1 VCF. The legislator considered this provision to be drafted broadly enough to cover both material errors and legal errors.

The Court therefore ruled that the concept of a “material error” should not be interpreted purely in a factual sense. An incorrect legal assessment made by the administration may also fall within the scope of the provision. Consequently, there had been an incorrect application of the law and, therefore, unlawfully levied tax. The Court concluded that this situation falls within the scope of article 3.6.0.0.1 VCF and that ex officio relief had to be granted.

Confirmation by the Court of Cassation

The Court of Cassation confirmed the reasoning of the Court of Appeal. The Court held that the legislative history of article 3.6.0.0.1 VCF must be taken into account. It indeed follows from this history that the Flemish legislator did not intend to abolish the existing reimbursement possibilities. According to the Court, article 3.6.0.0.1 VCF is drafted broadly enough to also cover situations involving an incorrect application of the law. An incorrect application of the law can therefore indeed give rise to ex officio relief. The appeal in cassation brought by the Flemish Tax Administration, which advocated a restrictive interpretation, was considered by the Court to be based on an incorrect legal interpretation and was dismissed.

Conclusion

With this judgment, the Court of Cassation confirms the broader scope of ex officio relief within the Flemish Fiscal Code. The decision strengthens the legal position of taxpayers confronted with unlawfully levied taxes resulting from an incorrect legal assessment by the tax authorities.

Belgium’s highest court reached this conclusion by taking into account the legislative history. Earlier this year, in a cassation ruling of 22 January, the intention of the Flemish legislator had already proven decisive. In a dispute concerning the order of allocation to liabilities in inheritance tax matters, the Court referred to the legislative history of the VCF to clarify the intention of the Flemish legislator. It thereby confirmed that parliamentary preparatory works constitute an authoritative source in the interpretation of tax legislation. The understanding that the Flemish legislator explicitly did not intend to alter the substance of this legislation when integrating inheritance tax and certain branches of registration duties into the Flemish Fiscal Code was of decisive importance to the Court.

Anyone wishing to obtain further information on this matter or believing they may qualify for relief in relation to inheritance or gift tax is welcome to contact one of our lawyers.