Belgium fairness tax system may violate EU law, court rules

by Davide Anghileri

Belgium’s fairness tax system is incompatible with EU freedom of establishment concepts and the parent-subsidiary directive, the Court of Justice of the European Union (ECJ) ruled in a 17 May decision (Case C-68/15).

Belgium’s fairness tax legislation provides a separate assessment from the corporation tax and the non-residents’ tax. The tax applies where, for the same tax period, dividends are distributed and the company’s taxable profits are wholly or partly reduced by applying the various deductions provided for by the national tax system.

The objective of this legislation is to tax income falling within the Belgian tax jurisdiction which, owing to such use, was distributed without having been subjected to corporation tax, with regard to resident companies, or to non-residents’ tax, as regards non-resident companies, in that Member State. The rate tax is fixed at 5.15 percent of the dividend.

The ECJ ruled that the Belgian fairness tax is inconsistent with article 4 of the parent-subsidiary directive insofar as taxation exceeds the 5% ceiling provided by the directive. The Belgian system gives rise to a double taxation that is prohibited by the directive, the Court concluded.

On the other hand, the fairness tax does not violate article 5 of the directive, the Court said, as the tax does not constitute a withholding tax within the meaning of that provision. In fact, the taxable person for the purposes the fairness tax is not the holder of the shares, as stated by article 5 of the directive, but the distributing company, the Court said.

Regarding the freedom of establishment, the ECJ ruled that a Member State is not precluded from introducing legislation that taxes dividends which, as a result of the use of certain tax advantages provided for by the national tax system, are not included in their final taxable profits, if both a non-resident company conducting an economic activity in that Member State through a permanent establishment and a resident company, including the resident subsidiary of a non-resident company, are subject to the same tax treatment, on the condition that the method of determining the taxable amount of this system does not lead to that non-resident company being treated in a less advantageous manner than a resident company.

Consequently, in interpreting the national law, the referring Court should decide whether the method of calculating the taxable amount results, in all situations, in a less advantageous treatment for a non-resident company conducting its activity in Belgium through a permanent establishment than the one reserved to resident companies, the Court said.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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