By a notice of December 2020, the Court of Appeal of Brussels referred the following question for a preliminary ruling by the Constitutional Court : “ Does article 207, second paragraph, ITC (1992), as it applies, read together with article 79 ITC (1992), in the interpretation that it also applies to abnormal or gratuitous advantages obtained by a Belgian company from a foreign company, violate articles 10, 11 and 172 of the Constitution? “. The Belgian company “D.W.B.”, of which Y.S. and R.W. were the managers, was set up on 4 October 2006 by the Dutch company “W.”. On 25 October 2006, the latter also set up the Dutch company “D.W.” On 9 November 2006, bv “W.” sold its shareholdings in a number of subsidiaries of the D.W. group to its subsidiary nv ” D.W. “. It was agreed that 20 % of the selling price would be contributed by e.g. “W.” to the capital of the latter and that 80 % would be converted into a five-year interest-bearing loan between e.g. “W.” and “D.W.”. On 16 March 2007 the capital of “D.W.B.” was increased. This increase in capital was achieved by a contribution in kind by “W.”. of its claim against nv “D.W.” by virtue of the aforementioned loan. The contribution of the claim was partly booked in the account “Kapital” and partly on the account “Issuance premiums”, which were not available. On 17 March 2007, “W.” sold all its shares in ” D.W.B. ” to the “D.W.” On 31 August 2009, “D.W.B.” was put into liquidation and the liquidation was completed. Y.S. and R.W. were the liquidators. Pursuant to the loan agreement, the interest from “D.W.” to “D.W.B.” was not to be paid until 8 November 2011. In accordance with the accounting principle of accrual, according to which costs and revenues must be allocated to the period to which they relate, “D.W.B.” added the annual interest, due by the ” D.W. ” on 31 December 2007, 31 December 2008 and 31 August 2009, to its profit and loss account and to its amounts receivable after more than one year in its accounts on 31 December 2007, 31 December 2008 and 31 August 2009. It declared the amounts of interest in its returns for the assessment years 2008, 2009 and 2009 special, in which it then applied the deduction for risk capital (code 103). The tax administration rejected the aforementioned deductions for risk capital with application of Article 207(2) of the Income Tax Code 1992 (hereinafter: CIR 1992), as applicable for the assessment years 2008 and 2009. According to the administration, the capital on which “D.W.B.” wanted to make the deduction for risk capital comes from a transaction obtained under abnormal circumstances and which is not justified by economic objectives, but only by tax objectives. A tax increase of 10 pct. was applied. Y.S. and R.W. lodged an administrative appeal against that decision, but it was rejected by the regional director. Thereupon, Y.S. and R.W. filed a claim with the Dutch-speaking Court of First Instance in Brussels. By judgment of 18 November 2014, the Court dismissed the claim as unfounded. Y.S. and R.W. subsequently lodged an appeal with the Court of Appeal of Brussels. The court ruled that the interest on the intra-group loan was at arm’s length and that the contribution in kind to “D.W.B.” constituted a transaction with an actual quid pro quo, but that it was acquired in the context of transactions which cannot be explained by reference to economic objectives, but only by reference to the fiscal purpose of the deduction for risk capital. However, Y.S. and R.W. argue that the application of Article 207(2) (now Article 207(7)) of the CIR 1992 to the benefits obtained from a foreign company is contrary to the constitutional principle of equality. The Court of Appeal of Brussels therefore decided to raise of its own motion the above question. Judgement of the Constitutional Court The Constitutionals Court’s answer to the question is that “Article 207 of the Income Tax Code 1992, read in conjunction with Article 79 of that Code, as applicable for the assessment years 2008 and 2009, does not violate Articles 10, 11 and 172 of the Constitution.” Click Here for English Translation Click here for other translation ...

Anti Tax Avoidance measures are now beeing implemented across the EU with effect as of 1 January 2019. The EU Anti Tax Avoidance Package (ATAP) was issued by the European Commission in 2016 to counter tax avoidance behavior of MNEs in the EU and to align tax payments with value creation. The package includes the Anti-Tax Avoidance Directive, an amending Directive as regards hybrid mismatches with third countries, and four Other measures. The Anti-Tax Avoidance Directive (ATAD), COUNCIL DIRECTIVE (EU) 2016/1164 of 12 July 2016, introduces five anti-abuse measures, against tax avoidance practices that directly affect the functioning of the internal market. 1) Interest Limitation Rule  – Reduce profitshifting via exessive interest payments (Article 4) 2) Exit Taxation – Prevent tax motivated movement of valuable business assets (eg. intangibles) across borders (Article 5) 3) General Anti-Avoidance Rule (GAAR) – Discourage Artificial Arrangements (Article 6) 4) Controlled Foreign Company (CFC) – Reduce profits shifting to low tax jurisdictions (Article 7, 8) 5) Hybrid Mismatch Rule – Reduce Hybrid Mismatch Possibilities (Article 9 + ATAD II) The first measure, interest limitation rule aims to prevent profitshifting activities that take place via exessive interest payments . This rule restricts deductibility of interest expenses and similar payments from the tax base. The second measure, exit taxation, deals with cases where the tax base (eg. valuable intangible assets) is moved across borders. The third measure is the general antiavoidance rule (GAAR) which allows countries to tackle artificial tax arrangements not govened by rational economic reasons. The fourth measure is the controlled foreign company (CFC) rule, which is designed to deter profit-shifting to low-tax countries. The fifth measure, the rule on hybrid mismatches, aims to limit cases of double non-taxation and assymetric deductions resulting from discrepancies between different tax systems. ATAD II, COUNCIL DIRECTIVE (EU) 2017/952) of 29 May 2017, an amending Directive as regards hybrid mismatches with third countries, contains a set of additional rules to neutralize hybrid mismatches where at least one of the parties is a corporate taxpayer in an EU Member State, thus expanding the application to Non-EU countries. The second directive also addresses hybrid permanent establishment (PE) mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches. (Article 9, 9a and 9b) Other measures included in the Anti Tax Avoidance Package Package are mainly aimed at sharing information and improving knowledge among EU Member States. 1) Country-by-Country Reporting (CbCR) – Improve Transparency (EU Directives on Administrative cooporation in the field of taxation) 2) Recommendation on Tax Treaties – Address Treaty Abuses 3) External Strategy – More Coherent Dealing with Third Countries 4) Study on Aggressive Tax Planning – Improve Knowledge (2015 Report on Structures of Aggressive Tax Planning and Indicators and 2017 Report on Aggressive Tax Planning Indicators)   The Country-by-Country Reporting (CbCR) requirement introduces a reporting requirement on global income allocations of MNEs to increase transparency and provide Member States with information to detect and prevent tax avoidance schemes. The Recommendation on Tax Treaties provides Member States with information on how to design their tax treaties in order to minimise aggressive tax-planning in ways that are in line with EU laws. The External Strategy provides a coherent way for EU Member States to work with third countries, for instance by creating a common EU black list of Low Tax Jurisdictions . The Study on Aggressive Tax Planning investigates corporate tax rules in Member States that are or may be used in aggressive tax-planning strategies. Most of the measures introduced in ATAD I are now implemented and in effect as of 1 January 2019. ATAD II, addressing hybrid mismatches with Non-EU countries, is also being implemented and will be in effect as of 1 January 2020. A Non official version of the 2016 EU Anti Tax Avoidance Directive with the 2017 Amendments ...