Belgium: CJEU issued an opinion on "fairness tax" | KPMG | GLOBAL
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Belgium: CJEU Advocate General finds “fairness tax” violates EU directive

Belgium: CJEU issued an opinion on "fairness tax"

The Advocate General of the Court of Justice of the European Union (CJEU) today issued an opinion in a pending case concerning whether the Belgian “fairness tax” is, in part, contrary to European law. According to today’s opinion of the CJEU Advocate General, the Belgian fairness tax violates article 4 of the Parent-Subsidiary Directive.


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The Advocate General found the Belgian requirement that dividends received by a Belgian company from a subsidiary located in another EU Member State must be included in the taxable base for purposes of determining the fairness tax, upon redistribution by the Belgian company, violates article 4 of the Parent-Subsidiary Directive.

The opinion was issued in Case C-68/15.


The fairness tax was introduced in July 2013 as a separate tax imposed at a rate 5.15% on the distribution of profits, if the distributing company benefitted, in the year in relation to which the distribution occurs, from the use of the notional interest deduction and/or tax losses carried forward. The fairness tax is applicable both to domestic companies and to Belgian permanent establishments of foreign companies. 

European and constitutional law issues

Since the introduction of the fairness tax, there have been questions concerning the compatibility of the tax with European law. In January 2014, a company initiated an annulment action before the Belgian Constitutional Court, arguing that the fairness tax was not compatible with Belgian constitutional law, the EU Treaty, and the EU Parent-Subsidiary Directive. The Belgian Constitutional Court referred several preliminary questions to the CJEU, for a determination as to whether the fairness tax violates European law.

Referral to CJEU

The questions referred to the CJEU (and the findings of the Advocate General) are:


Does the application of the fairness tax to Belgian branches of companies residing in other EU Member States violate the freedom of establishment? 

A comparison is made between Belgian companies and Belgian branches of EU-resident companies. A foreign company with a Belgian permanent establishment could be subject to the fairness tax when distributing a dividend, whereas a foreign company with a Belgian subsidiary will not be subject to the fairness tax when that foreign company distributes a dividend. In addition, a foreign company with a Belgian permanent establishment could be subject to the fairness tax even though profits originating in the Belgian permanent establishment are fully reserved, while a Belgian subsidiary that entirely reserves its profits, is not subject to the fairness tax.

According to the Advocate General, the imposition of the fairness tax with respect to Belgian branches of EU-resident companies does not violate the freedom of establishment.


Does the fairness tax constitute a prohibited withholding tax according to article 5 of the Parent-Subsidiary Directive? 

A Belgian subsidiary could be subject to the fairness tax when distributing its profits to its parent company, whereas these profits would not be subject to the fairness tax if they would be retained within the Belgian subsidiary. Given that the fairness tax relates to a distribution and the tax base depends on the volume of distribution, it could qualify as a source taxation that is prohibited by the Parent-Subsidiary Directive. The key issue is that fairness tax is imposed on the distributing company, and not (as usual for withholding taxes) the dividend recipient. A similar issues exists for the French 3% tax on distributions (a separate case pending before the CJEU under number C-365/16). 

The Advocate General interpreted the fairness tax as an additional corporate income tax, which is imposed only upon distribution of profits, and not as a withholding tax in the sense of article 5 of the Parent-Subsidiary Directive.


Does the Parent-Subsidiary Directive preclude that dividends that a Belgian company has received from a subsidiary and redistributes it to its parent in a subsequent year form part of the Belgian company’s fairness tax base? 

According to the Advocate General’s opinion, the fairness tax does not conform with the rule under the Parent-Subsidiary Directive that dividends received by a Belgian company are taxed upon receipt pursuant to the 95% dividends-received deduction and upon redistribution, additional tax is imposed by way of the fairness tax. 


In conclusion, the Advocate General found the fairness tax is partially contrary to European law because the fairness tax breaches article 4 of the Parent-Subsidiary Directive. 

What’s next?

The Advocate General’s opinion is not binding on the CJEU. The next step is for the CJEU judges to issue a judgment. After the CJEU judgment, it will be for the Belgian Constitutional Court to render a final judgment (reflecting the CJEU decision but addressing also the Belgian constitutional law issues raised). Therefore, the ultimate effects of this litigation for those taxpayers that have been subject to the fairness tax will become fully clear only once both CJEU and Belgian Constitutional Court render their decisions. 

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