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Fairness tax: it is now possible to apply for a refund in certain cases on grounds that it breaches European Law (ruling of the CJEU, 17.05.2017)

 
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Fairness tax: it is now possible to apply for a refund in certain cases on grounds that it breaches European Law (ruling of the CJEU, 17.05.2017)

Frédéric Lettany

Since the 2014 tax year, a separate Fairness tax has been applied to large and medium companies which, during a tax year, distribute a dividend that is higher than the final taxable base filed with the tax authorities.    

The legality of this new tax was questioned under European law in terms of the freedom of establishment and compliance with the parent-subsidiary directive.

Having been seized by the Constitutional Court, the Court of Justice of the European Union handed down its ruling on 17 May 2017.

Proven breach in the case of the redistribution of profits that have already benefited from the provisions of the parent-subsidiary directive

This ruling declares the Fairness Tax to be in breach of European law when it is applied to dividends arising from the redistribution of profits that have benefited from the provisions of the parent-subsidiary directive. The Court stipulates that this tax violates European law “in a situation where profits received by a parent company from its subsidiary are distributed by the parent company after the year in which they were received, has the consequence of subjecting those profits to taxation exceeding the 5% ceiling provided for” by the directive.

Even though the ruling is limited to the question put to it by the Constitutional Court, which related to the case of dividends distributed by the parent company after the year in which the dividends of the subsidiary were received, the same should apply if this distribution and receipt of the profits take place in the same year. Similarly, this European case law should also apply in cases where the parent company and subsidiary are both Belgian, as the Belgian system is based directly on the European system.

Possible breach of the principle of the freedom of establishment                                         

The ruling stipulates that it is the responsibility of the Constitutional Court to ensure that “the method of determining the taxable amount of the ‘fairness tax’ led in fact to that non-resident company being treated in a less advantageous manner than a resident company”.

Without going into the details here, there are various situations that are less advantageous to a foreign company with an establishment in Belgium, so the Constitutional Court will very probably take account of the conclusions of the ruling of 17 May 2017 and will declare that application of the tax to these foreign companies is illegal.

Immediate consequences of the ruling: possible refund of the tax in certain cases                          

Following this ruling, the companies that paid the tax on dividends distributed, which themselves came from dividends received pursuant to the parent-subsidiary directive, may apply for a tax refund. This refund application can be made either in the form of a tax refund claim (if the deadline has not expired) or in the form of an application for ex officio tax relief.

In the other situations, we will have to wait for the forthcoming ruling of the Constitutional Court. The Court may either decide to annul the tax in full, or declare it unconstitutional under certain circumstances (for example, annulment limited to the tax paid by foreign companies with a Belgian establishment). To be continued.

 

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