Belgium’s fairness tax is incompatible with the EU Parent-Subsidiary Directive, Juliane Kokott, Advocate General of the Court of Justice of the European Union (CJEU), concluded in an opinion issued today.
Under a 2013 Belgian law, domestic companies and foreign companies that have permanent establishments in Belgium must pay a separate “fairness” tax when the company distributes profits but pays little corporation tax during the same taxable period. The tax is roughly equal to the amount by which a company’s distributed profits exceed its taxable profits.
A taxpayer brought suit in Belgian Constitution Court seeking to have the tax annulled, arguing it was incompatible with EU concepts of freedom of establishment and with the EU Parent-Subsidiary Directive.
The Belgian court referred the question (Case C‑68/15) to the Court of Justice. The French Republic and the European Commission participated in the proceedings.
The CJEU is still considering the case; however, Advocate General Juliane Kokott has weighed in with her opinion, taking the view takes the view that while Belgium’s fairness tax is not contrary to freedom of establishment, it does conflict with the Parent-Subsidiary Directive.
Kokott noted that no distinctions are made in the law regarding whether gross dividends used to calculate the fairness tax include dividends received by the distributing company.
As such, Belgium could subject a company to a tax burden in excess of that allowed in article 4(3) of the Parent-Subsidiary Directive when the company distributes profits with respect to dividends that it has, within the scope of the directive, received and then redistributed, the Advocate General said.
In reaching this conclusion, Kokott also determined that fairness tax is not a withholding tax within the meaning of the Parent Subsidiary Directive since the taxable person owing the tax is not the recipient of the distribution but the company distributing the profits.
She also concluded that the fact that, under the law, a non-resident company is ultimately treated differently depending on whether it operates in the host Member State through a permanent establishment or through a subsidiary does not and of itself constitute a restriction on the freedom of establishment.
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