Loyens & Loeff –
On 1 March 2018, the Belgian Constitutional Court annulled the Belgian fairness tax. The Court however limited the retroactive effect of the annulment, unless in the specific situation of the redistribution of a dividend.
The fairness tax is a separate tax of 5,15% on distributed profits which have not been effectively taxed as a result of the notional interest deduction and/or tax losses carried forward. On 31 January 2014 a request for annulment was introduced before the Belgian Constitutional Court. The Constitutional Court referred to the European Court of Justice (ECJ) with a request for a preliminary ruling. On 17 May 2017 the ECJ decided that the fairness tax violated Article 4 of the Parent-Subsidiary Directive (PSD) to the extent a resident company redistributes dividends in a taxable period following the taxable period in which it received these dividends.
Decision of the Constitutional Court and consequences
The Court decides that the way in which the fairness tax is determined violates the Articles 10, 11 and 172 of the Belgian Constitution which guarantee equality and non-discrimination. Since the calculation of the fairness tax becomes unworkable in view of this violation, the Court annuls the fairness tax entirely. The annulment is binding from the moment the decision of the Court is published in the Belgian Official Journal.
In general the annulment has retroactive effect, which means that the annulled act is deemed to never have existed. For financial reasons, the Court however decided to moderate the retroactive effect in this particular case. For assessment years 2014-2018, the effects of the annulled act are maintained. This implies that the fairness tax cannot be recovered for those years. The retroactive effect is nonetheless maintained with respect to the situation that a Belgian company redistributes a dividend since this was considered incompatible with the PSD by the ECJ.
Compliments of Loyens & Loeff – a member of the EACC in New York