A dose of misunderstanding between the tax administration and the legislator. A little pinch of communitarianism. A tad of Belgian-style surrealism that would almost make you smile if there weren’t, behind the story that follows, a huge funding issue for colleges and universities. Just for research. We are talking here of hundreds of millions of euros, especially for French-speaking universities.
A tax niche that swells, that swells…
What is it regarding ? Exemption from withholding tax for researchers and a small line in the mini-reform project of Finance Minister Vincent Van Peteghem (CD&V), who wants to save money in the field of research. Intend to reduce some exemptions from withholding tax for research and development (R&D). Admittedly, 25 million euros in savings per year is not much compared to the scale of this measure on a Belgian scale, and the expansion of this niche to which also and above all companies (biopharmaceuticals, industry, etc.). “Between two-thirds and three-quarters of the recoveries go to them”, slips us a source. From a letter sent in 2021 to Kenneth Vyncke, chief of staff to the Minister of Finance, that Free has been able to consult, we learn that the growth (of this niche, Editor’s note) is around 8 to 10% per year for companies, while it is around 3 to 5% for universities and the high schools. The overall increase in the measure is around 8-9% per year. On this basis, the estimated cost of this provision amounts to 1.675 billion euros by 2025! In 2021, we were already at 1.14 billion euros.
Research, this poor relation
”And that’s fine because it’s an investment, not an expense.believes Thomas Dermine, Secretary of State for Recovery and Strategic Investments who has science policy in his skills. Belgium is a very good student in terms of research and development (R&D), since with a research investment rate of 3.48% of GDP in 2021, our country is just ahead of Sweden. Which then trickles down to the rest of the economy”.
Question, then: what is hiding behind this reform of the exemption from withholding tax? A whole new mechanic, actually. Currently, an exemption of 80% from withholding tax is granted subject to compliance with certain conditions on the research project. In the future, the Minister of Finance wishes to establish levels according to the staff employed. If the person working on the project works less than 20% (1/5 time), no exemption! Between 20 and 50% of working time for research: 32% (before, it was 80%), and beyond 50% of working time, the exemption is 80%. So we see where the economy would be made. “And it starts with a good intentionslips us a source of Finance. Some, especially in companies, tend to play with working hours to maximize exemptions. The concern is the definition of the status of a researcher.” In fact, it is not uncommon for administrative secretaries to be listed…
Thomas Dermine, Secretary of State for Recovery (PS), responsible for science policy
High schools and universities denied
Either. Having heard of this project, the colleges and universities wrote to Minister Van Peteghem. In a letter that we were able to obtain, dated September 22, 2022, the rectors and representatives of the universities, via the VIIR (Vlaamse interuniversitaire raad) and the Cref (council of French-speaking rectors) are already asking the Minister to review his position. And even offer an alternative: between 0 and 20% of working time, exemption from withholding tax on a pro rata basis; between 20 and 50% of working time: 50% and beyond 50% of working time: 100% exemption. The argument is well known: research is important for innovation, especially in Belgium, and then brings a lot to the economy. The rectors are also worried regarding the fact that the baccalaureate holders, to whom the universities and especially the companies resort for experiments in the laboratory, would be ejected from the system. But not in companies… This letter, which was followed by a reminder more recently, has remained a dead letter. With the result that we know: the mini-tax reform will now be discussed between partners of the majority. So anything can happen…
Twenty-three appeals to the tax authorities
All of this would be quite classic if there was not another grain of sand in the mechanics. Seventeen universities or colleges have lodged one or more complaints relating to the exemption from payment of withholding tax. A total of 29 files are concerned. And a famous bundle of money. More than 237 million euros! By way of comparison, the refinancing of higher education planned by the FWB government by 2024 is 80 million euros. The stakes are colossal. These appeals are mainly brought by French-speaking institutions. For what ? “Because if the law is federal, it is interpreted differently depending on whether you are in a French-speaking district or in a Dutch-speaking district”, loose a source close to the file. These disputes have a priori nothing to do with the discussions on a new law, necessary to clarify the notion of researcher. Discussions which continued last week with representatives of universities and colleges. Without a way out being able to be cleared, “even if the minister was very understanding”, we are told.
Annemie Schaus (ULB): “Flemish universities are more tax-exempt”
”When we talk regarding research and development, the political world often highlights the fact that Belgium spends more than 3% of its GDP on it. It’s true, but what he forgets to sayexplains Annemie Schaus, rector of the ULB, it is that the European directive which is behind this objective stipulates that the public authorities must bear at least 1% of these expenses, which is not the case today (0.7%)”. This therefore means that the vast majority of support for R&D comes from companies in Belgium. But the problem, multi-faceted, “is complex”, recalls the rector of the ULB. In fact, the Income Tax Code (CIR), in its article 275, regulates exemptions from withholding tax, but it is not free from problems and various interpretations.
”A circular dating from 2015 provided that universities, colleges and approved institutions might request an exemption of 80% of the withholding tax for all remuneration, including for charges that do not relate to research. A university researcher-assistant, even if he devotes less than 50% of his time to a research project, will benefit from an exemption of 80% for his entire salary. On the basis of this circular, different case law has been applied in the processing of files by the administration, some taking the entire workload in the calculation of the exemption, others only that relating to research”, explains one of our sources. It is that if the law is federal, the Regions are in particular competent to determine the status of researchers.
”In Flanders, exemptions from withholding tax are therefore more generously granted, in particular because a full professor can benefit from this exemption. Universities in the north of the country therefore deduct more tax, which increases their funding. On the side of the FWB, a professor must contractually devote 50% of his time to research, but he does not have this exemption”, continues Annemie Schaus. Which therefore pushes for a modification of the legislation, and for there to be a regulatory implementation of the legislation which is more precise, clearer. “The finance cabinet is not closed to discussion, far from it. We have already presented our point of view to them.
From 3 to 10 million euros
“But it’s not easy, tells us another university source, familiar with the matter, because companies are better protected”. Be that as it may, numerous appeals have been lodged by French-speaking universities and colleges, in the wake of the favorable judgment obtained by UMons in 2015. The current general administrator Philippe Mettens knows, it is true, well the case: he is a former member of Belspo (the federal public science policy programming service). “Initially, he explains, the ratio of UMons ‘Return of withholding tax on payroll’ was very low. So we went to see the controller to explain to him on a case-by-case basis what our researchers were doing.”
With success, since it allowed UMons to go from a recovery of 3 million before 2015 to 10 million euros today, confirms the general administrator. This gave ideas to other universities… “But more importantly, we were able to draw from it a platform which achieves consensus at the national level between universities which establishes a methodology on the status of researchers, according to their publications, working time, seminars, etc. The Minister has given his agreement in principle. The major problem remains in the thresholds for access to exemptions, which are too strict. We want to return to the initial situation, because the university world cannot afford a further reduction in its funding. That would be shooting yourself in the foot.”concludes Philippe Mettens.
