Belgian Constitutional Court Organises Hearing on Tax Deductibility of Competition Fines

On 30 October 2012 the Constitutional Court (Grondwettelijk Hof / Cour constitutionnelle) organised a hearing on the question whether Article 53, 6° of the Income Tax Code 92 would be discriminatory (and therefore contrary to Articles 10 and 11 of the Constitution) if it distinguished for purposes of tax deduction between criminal financial sanctions and administrative financial sanctions such as fines levied by the European Commission on the basis of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). The Constitutional Court will also consider the implications of an opposite interpretation of Article 53, 6° of the Income Tax Code 92 that places both types of sanctions on the same footing to determine whether such an approach would violate Articles 10 and 11 of the Constitution. The questions arose in litigation between Tessenderlo Chemie and the Belgian State (case 5285 of the Constitutional Court).

The European Commission (the “Commission”) sought leave to intervene as an amicus curiae and just published its observations. The Commission argues that any interpretation of the Belgian Income Tax Code that would allow competition fines to be deducted in whole or in part from taxable income would run counter to EU law. According to the Commission, the tax deductibility of the fine would undermine its deterrent character.

The Commission’s intervention and submission follow an earlier similar move in Dutch tax proceedings in which it had also argued forcefully that competition fines should not be tax deductible under Dutch law. That case gave rise to a judgment of the European Court of Justice (“ECJ”) which recognised that the tax deductibility of a competition fine may impair the effectiveness of such a fine and, accordingly, allowed the Commission to intervene before a Dutch court to take a stance against such deductibility (case C-429/07, judgment of 11 June 2009, Inspecteur van de Belastingdienst t. X BV).

The Constitutional Court is expected to hand down a judgment in early 2013.