The Belgian Constitutional Court is set to rule on the tax deductibility of fines imposed by the European Commission as a professional expense, in a case involving the Belgian chemical company Tessenderlo Chemie.
In July 2010, the European Commission fined several animal feed phosphates producers more than 175 million euro for a market-sharing and price-fixing cartel. Tessenderlo Chemie paid the highest share of the total fine, amounting to more than 83 million euro.
Tessenderlo Chemie is of the view that it should be allowed to deduct the cartel fine as a professional expense. According to Article 53, 6º of the Belgian Income Tax Code, monetary fines are not tax deductible as a professional expense. Tessenderlo Chemie argues that this provision is limited to criminal fines and does not affect the deductibility of administrative fines, such as a fine imposed by the European Commission. This view is supported by a judgment of the Antwerp Court of Appeal of June 2009. In this judgment, the Court held that Article 53, 6º is an exception to the general rule that professional expenses are deductible and should therefore be interpreted narrowly. According to the preparatory works to Article 53, 6º, the legislator only aimed at excluding the deductibility of criminal fines. The Court held that the criminal nature of a fine under Article 6 of the European Convention of Human Rights does not affect its administrative character under Belgian law and therefore its deductibility as a professional expense. The Court concluded that since a cartel fine imposed by the Belgian competition authority has an administrative character under Belgian law, it is deductible as a professional expense.
However, in a circular letter of 2008, the Belgian tax administration explicitly rejected the tax deductibility of a European cartel fine. In the context of the ongoing proceedings involving Tessenderlo Chemie, the federal minister of Finance recently confirmed the view of his administration, stressing that cartel fines cannot be accepted as deductible professional expenses. To the extent that the legislation is unclear in this respect, the minister expresses the opinion that it should be amended.
The dispute between Tessenderlo Chemie and the tax administration is now pending before the Brussels Court of First Instance. By means of an interim judgment of 20 December 2011, the Court has asked the Constitutional Court for a preliminary ruling on the matter. The Constitutional Court is to examine whether an interpretation of Article 53, 6º of the Income Tax Code rejecting the deductibility of criminal fines, but allowing the deductibility of administrative fines – such as a cartel fine imposed by the European Commission – is contrary to the constitutional principles of equal treatment and non-discrimination. No date has yet been set for the Constitutional Court to rule on the matter. The European Commission has recently announced that it is intervening as “amicus curiae” in the proceedings before the Constitutional Court.
A few years ago, the European Commission already intervened in a similar matter in proceedings before the courts in the Netherlands. In a preliminary ruling in those proceedings, the European Court of Justice held in 2009 that the Commission is entitled to intervene of its own motion before a national court deciding on the tax deductibility of a European cartel fine, as the outcome of the dispute may affect the deterrent effect of the fines imposed by the Commission and therefore also potentially undermine the enforcement of Articles 101 and 102 TFEU. The Amsterdam Court of Appeal eventually held, in two different cases, that cartel fines imposed by the European Commission or the Dutch Competition Authority, cannot be deducted as a professional expense.