Unreasonable costs and deduction of input VAT. Judgments of the Court of Cassation – May 13, 2025

Burden of Proof on Tax Authorities: Article 52, 13° of the 1992 Income Tax Code allows tax authorities to reject professional expenses deemed “unreasonable,” placing the burden of proof on them to demonstrate which specific costs are unreasonable, rather than rejecting the entire expense.
VAT Deduction Controversy: The tax authorities argued that VAT could only be deducted up to the amount considered “reasonable” for income tax purposes, a position supported by the Court of Appeal of Ghent, but deemed incorrect by the Court of Cassation.
Clarification on VAT Deduction Rights: The Court of Cassation affirmed that VAT deduction rights are not subject to the “reasonableness” of incurred expenses, emphasizing that such a condition is not found in VAT law. This ruling highlights a concerning trend of restricting VAT deductions based on non-legal criteria.