CJEU rules that Belgian participation exemption infringes Parent-Subsidiary Directive


On 19 December 2019, the Court of Justice of the European Union (CJEU) rendered its judgment in the “Brussels Securities” case. The CJEU ruled that the combination of the dividends-received deduction and the order of deductions as arranged in the Belgian corporate income tax system infringes the Parent-Subsidiary Directive.


What is the issue?

In spite of multiple amendments, following amongst others the Cobelfret and KBC cases, the participation exemption regime as applicable in Belgium is still not in conformity with the Parent-Subsidiary Directive (PSD).

Article 4(1) of the PSD has been implemented into Belgian law via the dividends-received deduction (DRD) regime. According to the DRD regime, a received dividend will first be included in the tax base of the company. Next, the company can deduct 95% (currently 100%) of the dividend via the DRD. Belgian tax law also provides that the DRD must be applied before other deductions, which are limited in time.

In the case at hand, a taxpayer realised – in a certain year – an operational loss whilst also receiving dividends that same year (resulting in a carry-forward DRD, available for future years). The company realised profits in the next years, but, due to the order of the deductions, the company was required to first deduct carry-forward DRD and only after that, if profits remained, carry-forward notional interest deduction (NID). The carry-forward NID was lost after the end of the maximum period of carry-forward had been reached. The company claimed that the imposed order of deduction results in an indirect taxation of the dividend, because it was not able to apply the carry-forward NID.


Ruling of the CJEU

In its ruling of 19 December 2019, the CJEU found that the Belgian DRD system indeed infringes the PSD.

In particular, the CJEU ruled that “the deduction as a priority of DTI [definitively taxed income = dividends received deduction] may reduce or even extinguish, the tax base, which may have the effect of depriving the taxpayer, totally or partially, of another tax advantage”. Therefore, the combination of the fact that (i) the company received a dividend and could apply DRD and (ii) the time limit to make use of other tax deductions (like NID) could result in losing the latter tax deductions. In such a case, the company will be taxed more heavily than if it had not received the dividend or if the dividend had been excluded from the taxpayer’s tax base.

The CJEU thus concluded that the Belgian regime infringes the PSD.


Key takeaways

Taxpayers should assess whether the application of DRD in any year resulted in the loss of another tax deduction (because of the time limit).

If so, taxpayers should consider filing a request for ex officio relief or a protest letter to safeguard their rights. However, urgent action might be required to avoid prescription of certain tax years (in 2019, one can still request ex officio relief for tax assessments established in 2015 or subsequent years. As of 2020, one can only consider tax assessments established in 2016 or subsequent years).

This decision could potentially also have a broader relevance for taxpayers receiving dividends in combination with certain tax deductions (not only NID).

If you require any further information, please do not hesitate to contact Pieter Deré (pieter.dere@pwc.com -+32 498 48 95 11) or your regular contact from PwC.