Following a very long and winding road in several courts, it has finally been confirmed that Belgium cannot impose corporate tax on any undervaluation of or underpayment for shares acquired by a Belgian corporate taxpayer. Thus, when a Belgian corporation buys shares at a price below fair market and subsequently sells those same shares at the higher market value, the capital gain so booked qualifies, in principle, for the participation exemption. For more than 10 years, the Belgian tax authorities have contended that the difference between the low purchase price and the fair market sales price constitutes a so-called undervaluation of assets, which is an element of any Belgian corporate taxpayer's taxable base (Article 24, 4º, Income Tax Code 1992). Following a ruling from the European Court of Justice ("ECJ") (see below), the Belgian Court of Cassation (Supreme Court-equivalent) has now confirmed that there is no legal basis to impose tax on any undervaluation of assets. Hence the normal rules of the participation exemption will apply.

More specifically, on October 3, 2013, the ECJ ruled that there is no EU rule that forces enterprises to mark up the accounting value of shares in order to bring them in line with the higher fair market value (no mark-to-market principle). Case C-322/12, Gimle S.A. By contrast, the Belgian tax authorities had contended that any failure to mark up the substantially-below-fair-market acquisition value of a participation constitutes an infringement of the "true and fair view principle" contained in the Fourth Council Directive 78/660/EEC of July 25, 1978. As a result, such a failure should give the authorities the right to impose corporate tax on the difference between the low acquisition price and the substantially higher fair market value, in accordance with Article 24, 4º of the Belgian Income Tax Code 1992.

Since it was the Belgian Court of Cassation that submitted the issue to the ECJ in the form of a preliminary question, the court still had to render its final verdict based on the ECJ's ruling. At last, on May 16, 2014, the Court of Cassation confirmed that it would follow the view of the ECJ that no accounting rule had been breached by the taxpayer when it refrained from marking up the acquisition value of its participation in its statutory books to reflect the (higher) market value. As a result, the capital gain that was crystallized in the books of the taxpayer when it sold the participation at market value constituted a capital gain on shares, which is eligible for the participation exemption (Article 192 Income Tax Code 1992), if all other relevant conditions are satisfied.

Quite a few cases along the same lines were pending in various Belgian tribunals and courts, and most were put on hold pending the outcome of the Gimlecase. It can be expected that those cases will now be settled in accordance with the outcome described above.