BRUSSELS: A Belgian tax on dividend distributions affecting large companies will likely be abolished if the European Court of Justice follows a recent opinion by its highest adviser that it fails to comply with European law.
In a Nov. 17 opinion, Advocate General Juliane Kokott held that Belgium’s “fairness tax” on dividend distributions is incompatible with EU law because it double-taxes dividends distributed by a non-resident subsidiary to its resident parent company when those profits are subsequently redistributed to shareholders.
If the ECJ concurs with the opinion of the Advocate General, which it does in two of three cases, the Belgian government is likely to completely scrap the fairness tax rather than amend it to make it compatible with EU law, practitioners told Bloomberg BNA.
Mark Joris, tax adviser and partner at Antwerp-based Moore Stephens, said “the fairness tax cannot continue to exist in its current form” should the court concur with the Advocate General’s opinion. Companies would moreover be able to recoup fairness tax sums they’ve paid, he told Bloomberg BNA in a Nov. 18 phone-interview.
The fairness tax was introduced in 2013 by the previous Belgian federal coalition of Socialists, Christian Democrats and Liberals, with the aim of combating situations in which companies paid hardly any taxes but still distributed profits by indefinitely carrying forward losses and claiming deductions for risk capital through application of the notional interest deduction. However, its compatibility with the Belgian constitution, EU law and double taxation agreements has been questioned by business associations, lawmakers and Belgium’s Council of State from the outset.
It imposes a 5.15 percent tax on dividend distributions by Belgian companies and Belgian permanent establishments of foreign companies—levied on any dividend distributions or profits not effectively taxed due to a taxpayer’s use of Belgium’s notional interest deduction or carrying forward of tax losses.
A resident parent company can therefore also be taxed on profits realized by a subsidiary abroad, which isn’t allowed under EU law. Under the previous Parent-Subsidiary directive, EU 2003/123/EC, the authority to tax profits realized by a subsidiary lies exclusively with the member country in which the subsidiary is located.
