On 1 March 2018, the Belgian Constitutional Court ruled that the fairness tax is unconstitutional. However, the specific consequences of the fairness tax are still effective for the assessment years 2014 to 2018.
It follows that the annulment of the fairness tax has no retroactive effect and will only take effect from assessment year 2019. However, there is one specific exception whereby companies are subject to the Parent-Subsidiary Directive and have received dividends which have been re-distributed.
The specific reason for the annulment of the fairness tax is the fact that the regulation as it exists is considered contrary to the constitutional principle of equality. Indeed, a different treatment exists for companies that use the notional interest deduction and deduction of previous losses and, on the other hand, companies that make use of other tax deductions.
Furthermore, the Parent-Subsidiary Directive is frustrated if dividends are further distributed under this Directive to a parent company and are included in the calculation of the fairness tax. The Directive explicitly states that the costs for management relating to the holding may not exceed 5% of the distributed profits of the subsidiary. If the dividend received deduction is initially limited to 95% and on top of that the fairness tax is due on re-distribution, the tax burden is higher than the maximum penalty foreseen in the Directive.
Companies that are covered by the Parent-Subsidiary Directive and that are subject to the fairness tax can claim the fairness tax back with regard to assessment years 2014 till 2018. More specifically, it concerns companies who have initially received dividends from subsidiaries abroad (for which the Parent-Subsidiary Directive was applicable) and have subsequently distributed these to their parent company (for which the fairness tax applied). The question that can be asked here is whether there should be no effect on dividends received from Belgian subsidiaries, since the internal Belgian DRD-legislation is based on the Parent-Subsidiary Directive. However, the Court has refrained from making any statements in this matter.
Do you have any questions about the fairness tax and what your options might be? Contact us via firstname.lastname@example.org.
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.