In a move that reflects recommendations in AmCham Belgium’s Tax Horizon 2020 position paper, this week the Court of Justice of the European Union (CJEU) ruled Belgium’s Fairness Tax is not compliant with EU law. The Chamber believes the Government should seize this opportunity to re-assess the merits of the Fairness Tax within the framework of the promised and much awaited for broader corporate tax reform.
The Fairness Tax came into effect in January 2014 and is applicable to companies that are not SMEs, that pay more in dividends than their reported corporate tax base and that use the Notional Interest Deduction or tax losses carried forward to reduce their corporate tax base. Companies paying dividends that meet these criteria must pay an additional tax equal to 5.15% of a very technically defined special taxable base.
The CJEU has ruled the Fairness Tax violates Article 4 of the EU Parent-Subsidiary Directive to the extent that 5% of the received dividends qualifying under the Directive are already taxed in the year of receipt and that such dividends are additionally subjected to the Fairness Tax in the year of redistribution. The CJEU also remits to the Belgian court(s) to determine whether or not a Belgian permanent establishment is treated less favorably than a Belgian corporation with regard to the determination of the taxable base subject to Fairness Tax. To the extent such discrimination is found to exist, the Fairness Tax would also violate the EU principle of free establishment.
The tax has proven a headache for international businesses operating in Belgium. Companies here are subject to exceptionally high corporate tax rates and a barrage of additional taxes that render the climate unattractive to international investors. Moreover, the tax does not contribute meaningful sums to the state budget. At its core, the Fairness Tax has raised concerns about the stability and predictability of the country’s legal and regulatory environment.
In the interests of efficiency and transparency, the Government should re-assess the Fairness Tax in the context of its global package of corporate tax reform. Although the tax could theoretically remain in place if amendments are made to bring it in line with EU law, this would not be a favorable result for businesses. The tax is complex, counter-productive and a deterrent to investors. It is much more efficient to care for the concern of fairness of corporate taxation in Belgium within the framework of the global corporate tax reform.
The Chamber is committed to supporting actions that help to attract investment to Belgium. In doing so, it hopes the CJEU’s decision will encourage Belgian authorities to put an end to the Fairness Tax and to take up our recommendations for meaningful corporate tax reform.
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