In its recently published judgement, the Court of Appeal of Antwerp refused the application of the general anti-abuse provision of article 344, §1 ITC92 in its current version as the case at hand concerned a set of legal acts of which part of the acts had already been performed before the formal entry into force of this ‘new’ provision. This judgement is in line with previous case law of the Court of Appeal of Ghent.
The ‘new’ general anti-abuse measure (“GAAR”) – article 344, §1 of the Belgian Income Tax Code (“ITC92”) – applies as from assessment year 2013. Under the new GAAR, legal acts or a set of legal acts are not enforceable against the tax administration in the case of tax abuse.
The new GAAR applies as from assessment year 2013 or – in the case of a split financial year – to legal acts carried out as from 6 April 2012. In the case of a set of legal acts, the question arose whether the GAAR can also be applied if the first legal act(s) of the series took place before the entry into force of the GAAR, but the last act(s) occur(s) after the entry into force of the GAAR.
Facts of the case
The dispute on which the Court had to rule concerned an assessment of withholding tax for assessment year 2013. In the case at hand, five family members contributed their shares of NV R into five holding companies, each owned by a member of the family. This share-for-share transaction took place in 2008. Subsequently, the NV R distributed a dividend to the respective holding companies, each of them benefiting from the Belgian participation exemption (the so-called ‘dividend received deduction’ or DRD). The cash proceeds resulting from the received dividend were used by the holding companies to reduce their capital in 2012 and 2013. As a result, the shareholders – being private individuals – received the dividend payments from NV R through their holding company by way of a capital reduction. A capital reduction at that time was not subject to withholding tax, contrary to dividend distributions.
Position of the tax administration and the court of first instance
According to the tax administration, the taxpayers placed themselves within the scope of a provision that provides a benefit (i.e. tax-exempt capital reduction instead of dividend distribution on which withholding tax is due). Hence, the legal acts in question (capital reductions) were essentially tax-driven and therefore the subjective element of the tax abuse was also present.
In application of the GAAR, the tax administration considers that only the date of the capital reduction (September 2013), as the final piece of the whole of the legal acts in this matter, is relevant. Hence, the tax administration argued that, in case a set of legal acts constitute tax abuse, only the last legal act must be performed within the temporal scope of application of article 344, § 1 ITC92 (new). Since the capital reductions in the case at hand took place after the entry into force of the ‘new’ anti-abuse provision, the ‘new’ article 344, §1 ITC92 could be applied according to the tax administration. The court of first instance of Antwerp confirmed this reasoning.
Reasoning of the Court of Appeal of Antwerp
The general ‘new’ anti-abuse provision is formally applicable as from assessment year 2013. According to the Court of Appeal of Antwerp, it must therefore be assumed that the ‘new’ version of article 344, §1 ITC92 can only apply insofar as the legal act or the entirety of legal acts is situated in the year associated with assessment year 2013 or during the taxable period ending at the earliest on 6 April 2012 and is linked to assessment year 2012. The Court further noted that the Explanatory Memorandum explicitly states that the intention was not to give article 344, §1 ITC92 a retroactive effect.
The Minister’s intervention in the report on behalf of the Finance and Budget Committee, according to which only the last legal act that is part of an entirety of legal acts constituting the same transaction must take place after the entry into force of the provision, is according to the Court of Appeal of Antwerp contrary to the text of the new GAAR and, moreover, contrary to the position of the Council of State, which was endorsed in the Explanatory Memorandum. This position is generally followed in authoritative legal doctrine. Previously, the Court of Appeal of Ghent took a similar position (Ghent, 3 December 2019).
After previous judgements of the Court of Appeal of Ghent, now also the Court of Appeal of Antwerp ruled in favour of the taxpayer that, for the application of article 344, §1 ITC92, it is required that all legal acts constituting the same transaction should fall within the temporal scope of article 344, §1 ITC92. According to this reasoning, some transactions are neither in scope of the ‘old’ article 344, §1 ITC92, nor of the ‘new’ article 344, §1 ITC92, as also confirmed by the Court of Appeal of Antwerp. Question remains whether the Belgian tax administration will change their position in the future on this subject.
In case of any further questions, please do not hesitate to contact Philippe Vyncke or reach out to your regular PwC contact persons in this respect.