On April 19, 2023 the European Commission released a press release in which it announced that it referred Belgium to the Court of Justice of the European Union (Hereafter: the CJEU) for failing to correctly transpose the controlled foreign company (CFC) regulations as laid down the Anti-Tax Avoidance Directive (ATD) (Directive (EU) 2016/1164).

The Anti-Tax Avoidance Directive allows a Member State where a parent company of a multinational is located to tax profits made by a so-called CFC in another Member State. This is allowed when the tax paid by the controlled foreign company is less than 50% of what would be paid in the Member State of the parent company (the CFC rule). Article 8, Paragraph 7 of the ATAD arranges that the parent-company should be granted a tax credit for all taxes that the CFC entity or CFC PE has paid abroad.

However according to the European Commission, contrary to the ATAD, Belgian law does not allow a taxpayer to deduct from its tax liability the tax already paid by a CFC entity in its state of tax residence.

On July 2, 2020, the European Commission sent a letter of formal notice to the Belgian authorities, which on December 1, 2021 was followed by a reasoned opinion requesting Belgium to amend their legislation within two months. As Belgium's reply to the Commission's reasoned opinion was not satisfactory, the European Commission has now decided to refer Belgium to the Court of Justice of the European Union.

Copyright – internationaltaxplaza.info

Follow International Tax Plaza on Twitter (@IntTaxPlaza)