The dispute concerns a tax assessments issued by the plaintiff (the Belgian tax administration) for FY 2002 and 2003. In particular, the claimant (Alcopa N.V – the first company to sign a European distribution contract with Hyundai) contests the classification of reimbursements received from the Korean company HYUNDAI MOTOR COMPANY for publicity services, for an amount of EUR 1,965,630.46 in assessment year 2002 and for an amount of EUR 1,057,007.00 in assessment year 2003, as abnormal or gratuitous benefits and the consequent rejection of the DBI [Definitief Belaste Inkomsten] deduction from the profits arising from those abnormal or gratuitous benefits in application of Section 207 ITC92.
The Antwerp Court of First Instance, Antwerp Division, ruled by judgment dated 13 January 2016 that it was indisputably established that abnormal or gratuitous benefits were granted to the plaintiff, so that the tax administration correctly applied Section 207(2) ITC92 and did not allow a DBI deduction on these benefits. According to the first court, there was no conflict with the Parent-Subsidiary Directive. The Antwerp Court of Appeal confirmed this judgment by judgment of 19 December 2017.
The plaintiff’s appealed this judgment to the Belgian Supreme Court.
Based on the Conclusion of the Advocate General J. Van der Fraenen (ENG), the Supreme Court dismissed Alcopa’s appeal.
“Article 207(2) CIR92, as applicable to the dispute, stipulates that no deduction may be made on the part of the profit arising from abnormal or gratuitous advantages mentioned in Article 79, nor on the basis of the special separate assessment of unreported expenses pursuant to Article 219.
Pursuant to that provision, therefore, no deduction of dividends within the meaning of Article 202, § 1, 1°, ITC92 may be made from the portion of the profit that results from abnormal or gratuitous advantages.“
“The aforementioned Article 207, paragraph 2, CIR92 is intended to safeguard the taxation of profits that, between companies belonging to the same group, are artificially shifted to the company that has a large amount of deductions, but has not made sufficient profits to realise the deductions in full. The purpose of that transfer is thus to reduce the taxable profits of the transferring company, while offsetting the profits transferred to the acquiring company with the deductions. However, in order to prevent that result, no deduction may be made from the profits carried forward under that provision.“
“Article 1(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (‘the Parent-Subsidiary Directive’) provides that that Directive does not preclude the application of national or agreement-based rules designed to combat fraud and abuse.“
“It is thus clear from the relationship between Article 1(2) and Article 4(1) of the Parent-Subsidiary Directive and the case-law of the Court of Justice that Article 4(1) of that directive does not preclude the application of Article 207(2) of the CIR92 , which seeks to safeguard the tax on profits deriving from an abnormal or gratuitous advantage resulting from a wholly artificial shift with the aim of offsetting, as far as possible, that shifted profit by deduction, inter alia, of dividends under the Parent-Subsidiary Directive.“
“It clearly follows that Article 4(1) of that directive does not have the effect that, where, after deduction of the other exempted profits, the balance of the profits of the parent company is insufficient to fully deduct from the taxable base dividends received from a subsidiary established in another Member State, those dividends must be immediately deducted from the profits arising from an abnormal or gratuitous advantage within the meaning of Article 207(2) CIR92. In that case, the result of Article 4(1) of the Parent-Subsidiary Directive is achieved by carrying forward the unused part of the deduction of dividends to a subsequent taxable period, in accordance with what the Court of Justice ruled in its judgment of 12 February 2009 in Case C-138/07 Belgische Staat v Cobelfret nv.“
“The ground that Article 4(1) of the Parent-Subsidiary Directive does require that the dividends received by the parent company are in any event immediately deducted from the taxable base, even if this means that the deduction must be made, in the event of an insufficient surplus, from the part of the profits from an abnormal or gratuitous advantage, fails in law.”
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