Accommodation as a form of remuneration
July 2022 – If the company incurs an expense that benefits the corporate officer, this expense may be considered as remuneration for work performed in accordance with the remuneration theory. Under certain conditions. The Antwerp Court of Appeal recently decided that an increase in turnover is a good argument in this discussion.
Private accommodation in the company
A neurosurgeon operates his medical practice within the framework of a limited liability company. The surgeon's private accommodation is within the company. The registered office of the limited liability company is located at the surgeon's private address, so that 20% of the building is also actually used for the company's business purposes.
However, the limited liability company deducts 100% of the maintenance and depreciation costs.
The tax authorities initially accepted these expenses on the basis of the remuneration theory: the company's income increased in the years following the purchase of the house.
The surgeon then increased his salary by 75 000 euros. The tax authorities consider that there is no particular reason for this increase and therefore consider that the provision of the house can no longer be considered as remuneration for services, now that the salary has become the actual remuneration.
The theory of remuneration in case law
What does the remuneration theory actually say? The rule, including for corporations, is that an expense is only deductible if it was made for the purpose of acquiring or retaining income. So if a corporation makes a donation, that donation is not a deductible expense. This also applies to private expenses of the director that are borne by the corporation. A typical example of such an expense is the housing in which the director may live.
The argument that this private expense (read: housing) borne by the company is in fact also a form of remuneration for the director has gradually gained ground. More precisely: a remuneration in kind.
Under the impetus of the case law of the Cour de cassation, the courts now accept the theory of remuneration if the taxpayer can prove that the accommodation is specifically made available as remuneration for the actual services of the company director.
The courts seem to opt for a rather formalistic interpretation: the general meeting must approve the remuneration policy.
But in the neurosurgeon case, the court of first instance and then the court of appeal did not rely solely or to a lesser extent only on the formal decision of the general meeting. The second element taken into account was the company's turnover.
Actual benefits
The court therefore rejected the tax authorities' request.
First of all, the tax authorities argue that the minutes of the general meeting do not in fact clearly state that the accommodation is made available in exchange for services. However, the Court considers that this formalistic argument should not be applied too strictly. A general reference to the remuneration policy therefore seems sufficient for the Court.
More important for the Court is the fact that the turnover of the company is realized exclusively by the director/surgeon. There are no other employees; there is no other director. The Court deduced that the turnover was the direct and exclusive result of the services of the director. This turnover had increased, which could only be explained by an increase in the doctor's services.
The tax authorities reacted to this reasoning by pointing out that the profit had decreased. But the Court did not see any relevance in this, because a decrease in profit can have all sorts of causes.
Remuneration
The Antwerp Court of Appeal considers that the tax authorities do not have to judge the way in which the company remunerates the director. Whether it is in cash or in kind in the form of accommodation - the choice is up to the company and it does not have to justify itself.
The amount of the remuneration is also irrelevant. Although the remuneration cannot be so high that it becomes a liberality. There must also be real services in return. But for the rest, the amount of the remuneration is an autonomous decision of the company.
Formalism combined with reality
The decision seems to herald a new trend in which formalism will become less important and more attention will be paid to the fact that there are actual benefits in return for the remuneration in kind. If there is only one director and no other collaborators, it is obvious, according to this case law, that the benefit granted constitutes remuneration for services. The only point on which the tax authorities can react is the amount of the remuneration. Although the amount of this remuneration is also a decision that belongs to the company, there must be real benefits in return.
