The European Commission is apparently of the opinion that the Belgian Fairness Tax is incompatible with EU law, and more specifically with the EU Parent Subsidiary Directive, the freedom of establishment and the freedom of capital.


Belgium introduced the so-called Fairness Tax, a corporate income tax on certain dividend distributions, in the summer of 2013.

The Fairness Tax was introduced as a sort of minimum tax for companies which distribute dividends originating from profit deemed not to have been effectively taxed because of the use of notional interest deduction for the year and/or tax losses carried forward. For more information on the Fairness Tax, see our tax alert of April 2014.

Request for annulment

The Fairness Tax was introduced hastily by the previous Belgian government to help Belgium meet budget targets set by the European Union. This resulted in legal provisions the application of which is not always clear and is subject to different interpretations.

Consequently, as from the outset there have been many uncertainties as to the technical application of the Fairness Tax and its legal validity and compliance with EU law have also been questioned.

In that context, a request to annul the Fairness Tax was filed with the Belgian Constitutional Court. During these proceedings it appeared that the European Commission finds the Fairness Tax to be incompatible with the EU Parent Subsidiary Directive, the freedom of establishment and the freedom of capital.

Under the EU Parent Subsidiary Directive, Member States must exempt profits that a subsidiary distributes to its parent company from withholding tax. This exemption results from the Directive's objective to eliminate economic double taxation that may otherwise arise. It can in this respect be argued that the Fairness Tax, levied on dividends paid by a Belgian subsidiary to a qualifying EU parent company, constitutes a prohibited withholding tax under the EU Parent Subsidiary Directive. Also a qualifying parent company receiving dividends may be subject to Fairness Tax upon redistribution of these dividends. This could be considered as being contrary to the participation exemption to which the parent company is entitled under the EU Parent Subsidiary Directive.

Next steps

The Belgian Constitutional Court is likely to request a preliminary ruling from the Court of Justice of the European Union (CJEU) on the compatibility of the Fairness Tax with EU law. It is also possible that the European Commission will itself initiate a formal infringement procedure before the CJEU.

Consequently, the Fairness Tax, its application in practice and its possible incompatibility with EU law will further remain subject to uncertainty, at least until a decision in this respect is obtained from the CJEU.