On 26 October 2017, the EU’s Court of Justice (CJEU) ruled on the compatibility of the Belgian interest payment deduction rules with the Parent-Subsidiary Directive (PSD) in the case C-39/16 Argenta Spaarbank vs. Belgische Staat.
The case concerns the Belgian interest payment deduction rules laid down in Article 198(10) of the 1992 Income Tax Code as it existed before 2002. Under this rule, the deduction of interest payments was disallowed to the extent that in the same tax year the taxpayer had received exempt dividends from shares held for less than one year.
The CJEU decided that Article 4(2) of the PSD must be interpreted as precluding a provision of domestic law pursuant to which interest paid by a parent company under a loan is not deductible from the taxable profits of that parent company up to an amount equal to that of the dividends, which already benefit from tax deductibility, that are received from the holdings of that parent company in the capital of its subsidiary companies that have been held for a period of less than one year, even if such interest does not re-late to the financing of such holdings. Furthermore, the CJEU decided that Article 1(2) of the PSD must be interpreted as not authorizing Member States to apply a domestic provision to the extent that that provision goes beyond what is necessary for the prevention of fraud and abuse.
Although the judgment relates to a provision that is no longer in force under the current Belgian tax legislation it clearly has a broader relevance. Thereto it can be regarded as further limiting the leeway Member States have in exercising the options available to them under Article 4(2) of the PSD.
We refer to a PwC EUDTG newsletter in this respect, which you can read here.