Belgian Fairness Tax: Status Quaestionis

Written by Philippe Vanclooster 18 November 2016


Introduction. By request sent to the Constitutional Court, a Belgian taxpayer company has filed in January 2014 an action for annulment of the so-called Belgian ‘Fairness Tax’. This action comprises four different causes of action each of them including different headings or arguments:

  • European law: freedom of establishment and Parent-Subsidiary Directive ;
  • Constitutional law: lawfulness principle ;
  • Constitutional law: equal treatment principle;
  • Treaties for the avoidance of double taxation.

Considering the first cause for action put forward is about European law, and before even ruling on any aspect of the action, the Constitutional Court has decided on 28 January 2015 (Decision no. 11/2015) to raise a series of preliminary questions to the Court of Justice of the European Union (‘CJEU’). The Advocate General Kokott issued on 17 November 2016 her opinion in this regard.

The Fairness Tax in a nutshell. For those not familiar with the Fairness Tax, it is only applicable if the following conditions are cumulatively met during a taxable period: (i) the company has distributed dividends during the taxable period and (ii) the company’s taxable profit has been partly or fully offset against notional interest or carried forward tax losses. A complex calculation applies to determine the taxable basis. The tax rate is 5.15%. The Fairness Tax applies to Belgian companies and to Belgian branches of foreign companies.

Key takeaway. Under the Belgian implementation of the Parent-Subsidiary Directive (the deduction of ‘Definitely-Taxed Income’) 95% of qualifying dividends received are exempted from (non-resident) corporate income tax. The remaining 5% is in principle subject to tax (implementation of article 4(3) of the directive).

In the typical case of an intermediary holding company however, the complexity of the taxable basis leads to situations where the Fairness Tax applies on more than 5% of qualifying dividends received and redistributed by the intermediary holding.

In such case, the Advocate General Kokott considers that the Fairness Tax infringes article 4(3) of the Parent-Subsidiary Directive.

Next steps. The next step in the procedure is the decision of the CJEU. When the latter court will have rendered its decision on the EU law cause for action, the Constitutional Court will then still need to rule on all the above arguments. The case can thus still take some time before being settled.

Of the advisability to protect one’s rights. Based on the above, we consider companies active in Belgium (either Belgian companies or Belgian establishments of foreign companies) having suffered the Fairness Tax should consider (to continue) safeguarding their rights.