CJEU rules on subject-to-tax requirement of Parent-Subsidiary Directive


On 8 March 2017, the Court of Justice of the European Union (“CJEU”) rendered its Judgment in Wereldhave Belgium and Others concerning the interpretation of the subject-to-tax requirement of the Parent-Subsidiary Directive (“PSD”) (C-448/15).

The CJEU’s interpretation of the PSD’s subject-to-tax requirement is more severe than a mere formal subjective tax liability. However, the precise extent of this interpretation remains unclear in certain situations, for instance for entities benefitting from a partial or almost entire exemption of income. The interpretation of the CJEU is not only relevant for the application of the PSD withholding tax exemption but also for the participation exemption in the hands of companies receiving dividends from their subsidiaries.

For dividends distributed by Belgian companies to foreign investment companies (re-gardless of any participation threshold) between 12 June 2003 and the end of assessment year 2013, a refund of Belgian withholding tax is possible based on Commission v Belgium (C-387/11), provided the claim is not statute barred. For dividends distributed before 12 June 2003, the outcome depends on the appreciation of the national courts.

More information can be found here.