Fairness Tax – illegality partially confirmed

In its decision of 17 May 2017, the Court of Justice of the European Union confirmed the illegality of the “Fairness Tax” under the Parent-Subsidiary Directive and referred the question of its compliance with the freedom of establishment to the Constitutional Court.

Following the prejudicial questions asked in 2015 by the Constitutional Court, the Court of Justice of the European Union (“CJEU”) announced on 17 May 2017 an important decision relating to the “Fairness Tax”. 


As a reminder, the “Fairness Tax” is a defined contribution (minimum tax) imposed on Belgian companies (that are not Small and Medium-Sized Companies) and on Belgian permanent establishments of non-resident companies if, during the same taxable period:

  • the company concerned distributes dividends (the Fairness Tax does not, however, apply to a liquidation surplus or share repurchase bonus); and
  • the company’s taxable result in Belgium is reduced by:
  • the deduction risk capital (or notional interests); and/or
  • tax losses (that could be reported indefinitely in future taxable periods).

In other words, this measure aims to levy tax on a company distributing profits that are not effectively taxed in Belgium under the two previous deductions relied on for a minimum tax.

The taxable amount is based on the amount of dividends distributed that exceed the company’s taxable income, this amount being multiplied by a proportionality factor allowing a determination of whether and how the company’s taxable income was reduced by both previous deductions. 

The “Fairness Tax” rate is set at 5.15%.

This clause/provision raises several questions that have been brought before the Constitutional Court, particularly in accordance with:

  • its conformity with the equal treatment and non-discrimination principle: difference in treatment according to whether a company did or did not accumulate tax losses and/or is or is not in a position to use notional interests;
  • its conformity with tax conventions and European Union law, and more precisely with the freedom of establishment and the Parent-Subsidiary Directive.

Scope of the CJEU’s judgment

Freedom of establishment

A non-resident company with a permanent establishment in Belgium is theoretically taxable in Belgium only on produced or collected incomes through this establishment (incomes of Belgian origin). 

Referring to the situation in which such a non-resident company would distribute, in the form of dividends, only profits of non-Belgian origin (and therefore, in theory, exempted by the convention), the CJEU wonders if the Fairness Tax could however be imposed on the non-resident company. 

According to the CJEU, it is the Constitutional Court’s job to interpret national law and to determine whether such a situation can arise. If so, the “Fairness Tax” application could be an undue fetter on the freedom of establishment. 

Parent-Subsidiary Directive

The CJEU reminds us that the Parent-Subsidiary Directive’s objective is to avoid profits distributed to a resident parent company by a non-resident subsidiary being taxed, firstly in the hands of the subsidiary in its country of residence and, secondly, in the hands of the parent company in its country of residence. 

As a result, the Parent-Subsidiary Directive guarantees, under certain conditions, the tax neutrality of the distributions of profit (already taxed), in the form of dividends, by a subsidiary to its parent company. 

This principle is transposed to Belgian law under “definitely taxed income” (“DTI”). This system allows, under certain conditions, the dividend received to be exempted in Belgium at the rate of 95%, with the dividend being taxed at only 1.7% (i.e. 5% * 33.99%). 

However, the DTI system only applies if the dividends originate from a company subject to a normal tax system and if:

  • the Belgian company holds a share of at least 10% or investment stock of at least EUR 2,500,000 in the distributing company’s capital; and
  • the concerned securities are or were held on full ownership and continuously by the Belgian company for at least one year.

According to the CJEU, this principle of fiscal neutrality should also apply to sharing chains in order to avoid double (or multiple) taxation when a chain of subsidiaries distributes dividends to the parent company. 

But when a resident company receives dividends from a subsidiary, these are taken into account in the calculation of the “Fairness Tax” in the case of redistribution of these dividends by the resident company to its own parent company. Indeed, the “Fairness Tax” does not take into account the origin of the profits made by the resident company and that are redistributed in the form of dividends to its own parent company. 

As a result, the CJEU confirms that the Parent-Subsidiary Directive contradicts the deduction of a tax (the “Fairness Tax” in this case), if this deduction results in the company being subject to a tax burden exceeding the 5% limit set by the Directive, when this company redistributes dividends that were previously received by itself to its parent company (in the scope of the Directive). 

The CJEU thus confirms the illegality of the “Fairness Tax” in relation to the Parent-Subsidiary Directive as described above. 


Given its quite limited scope, the CJEU’s judgment does not lead to the end of the “Fairness Tax”.

The Constitutional Court still needs to issue its decision, which will also have to deal with the other questions raised and focus on the conformity of the “Fairness Tax” with the equal treatment and non-discrimination principle guaranteed by the Constitution. 

In the meantime, taxpayers affected by the contribution in the circumstances targeted by the CJEU are encouraged to consider making a tax claim for repayment.

Olivier Querinjean, Partner, olivier.querinjean@cms-db.com

Yannick Woltèche, Junior Associate, yannick.wolteche@cms-db.com