Originally published in Brussels To The Point e-Newsletter – June 2011

Liability is a hot issue in the field of taxation. Indeed, over the past few years, several new types of liability for company directors, shareholders and others have been created: (i) director's liability for the remittance of income tax on salary and VAT;1 the purchaser's liability for the seller's tax and social security debts in the event of an asset deal;2 and the principal's liability for a contractor's tax debts.3 In this article, we highlight shareholder liability for the tax debts of a shell company,4 introduced in 2006, and the potential liability of the company's lawyers and tax advisors in this regard. After describing the current statutory framework, we briefly turn to recent case law.

Shareholders of a shell company liable for its tax debts upon sale

Any person who directly or indirectly holds more than 33 percent (if need be, together with his or her spouse, business partners, parents, children or relatives to the second degree) of a Belgian shell company and sells at least 75 percent of his or her stake over a one-year period will be jointly and severally liable with the company for its tax debts.5

A shell company (also known as a cash company) is a company with least 75 percent liquid assets (i.e. receivables, fixed financial assets, investments and cash). Such companies are frequently established for tax purposes and are, in principle, a legitimate means of avoiding tax. However, if the buyer's or seller's sole intention is to strip the company of its assets and leave behind an empty shell, the construction will be deemed fraudulent.

The Belgian tax authorities have several effective weapons at their disposal to fight fraudulent tax shelters, including Section 442ter of the Belgian Income Tax Code (BITC). Section 442ter BITC provides for joint and several shareholder liability, meaning the total losses suffered by the state can be recovered from each qualifying shareholder. It should be noted that listed companies and other companies overseen by the Financial Services and Markets Authority (FSMA) cannot be considered shell companies. Further, only substantial shareholdings are targeted, namely 33 percent or more. The one-year period was included in the law to prevent the staggered sale of shares.

Section 442ter BITC applies more often than one might think (e.g. when the shares of a holding company are transferred). To prevent such claims by the tax authorities, a bona fide shareholder can, for example, (i) provide for a right of recourse against the buyer in the share purchase agreement, (ii) make sufficient advance tax payments before the transfer of shares, or (iii) deposit an amount equal to the deferred tax liability in an escrow account.

Big four accounting firms and respected law firms taken to court6

In 2009-2011, several cases in which tax advisors or lawyers were accused of having conceived or implemented structures involving shell companies for the purpose of (alleged) tax evasion received substantial press coverage. It goes without saying that all parties involved have been reluctant to comment and that very little information has been disclosed in the press. Indeed, in their daily practice, tax advisors and tax lawyers are becoming increasingly reluctant to assist with sensitive structures. Some noteworthy cases are mentioned below.

  • In February 2011, the Antwerp Criminal Court found the former owner of the Hugo Van Praag chain guilty of a stock scam. The company's audit firm (one of the Big Four) was also found guilty, but received a suspended sentence as it did not share in the profits of the scam.
  • In December 2010, a Big Four audit firm was taken to court for the same reason, after both the client and the foreign purchaser of the shell company claimed that the accountancy firm had come up with the entire structure. Since 2010, no further details on this case have been released.
  • In July 2010, the French bank Société Générale was charged in Belgium of evading EUR 89,000,000 in Belgian tax by selling Belgian shell companies to Swedish nationals. No precise details were released, but it appears that the tax authorities are actively negotiating a settlement.
  • The case that received the most press coverage, in April 2010, was without a doubt the Woestijnvis case. This company is a successful producer of television programmes in Belgium. The Brussels Criminal Court dismissed the charges against the owner of the company and found the tax advisor not guilty.
  • On 10 February 2010, the Antwerp Court of Appeal issued two decisions on shell companies. In the first case, a blue-collar business owner was found guilty of engaging in a scam to sell his company, while a psychologist specialising in HR matters was cleared of suspicion. It is not clear whether the charges against the tax advisors were upheld.
  • Finally, the Antwerp Court of Appeal overturned a judgment convicting an Antwerp-based businessman and his advisors of tax fraud, money laundering and forgery. Although the lower court's judgment stated that the advisors should have known they were assisting a client with tax fraud, the appellate court ruled that it had not been sufficiently proven that the businessman (or his advisors) actually knew they were involved in tax evasion.

May 2009 report of the Anti-fraud Committee

In order to more effectively fight organised tax fraud, the Belgian Parliament established a special Anti-fraud Committee, which issued a lengthy report (more than 400 pages) indicating more than 50 ways to improve the fight against tax fraud. In the section entitled "Liability of lawyers, accountants and tax consultants", the report states that "shell companies are used by professionals to try to give their fraudulent transactions an aura of legality". The report does not make further accusations but mentions that lawyers, tax consultants and notaries are usually involved from the outset in such schemes. A recommendation is made to oblige lawyers and tax consultants to inform the anti-money laundering authorities if a client wishes to set up a structure in a tax haven, or if the client is involved in tax fraud. In this regard, there is an annual obligation to declare on the taxpayer's corporate tax return payments to a tax haven that exceed on average EUR 100,000. Another recommendation is to increase the criminal liability of tax consultants that recommend fraudulent schemes to their clients.

Belgian Constitutional Court rules that tax advisors can be held liable

In another recent case, tax advisors tried unsuccessfully to claim that since they were only involved in a small part of the chain and that, at the end of the day, made very little profit from the transaction, they should not be treated as severely as the client that actually committed the fraud. They challenged the application of Article 458 BITC, which provides that accomplices in tax fraud are jointly and severally liable for the evaded tax. In the case at hand, the advisors argued that even though they received only a small commission for putting the structure in place, the law did not allow the criminal court to take this mitigating factor into account when making its ruling. On 18 June 2009, the Belgian Constitutional Court ruled that the criminal court's decision did not violate either the European Convention on Human Rights or the non-discrimination principle laid down in the Belgian Constitution. Please note that this decision is only relevant when advisors are sentenced as accomplices.


1 Art. 442quater BITC and Art. 93undecies C VAT Code.

2. Art. 442bis BITC and Art. 93undecies A VAT Code.

3. Art. 402 BITC.

4. Ibid., Art. 442ter.

5. In Dutch kasgeldvennootschap or société de liquidités in French.

6. We do not express an opinion here on the merits of these cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.