ECJ Case C-48/07: Vergers du Vieux Tauves

ECJ Advocate General states that Belgian participation exemption should also apply to dividends from shares held in usufruct
 
Belgian implementation of the parent - subsidiary directive

With respect to dividends collected from a qualifying participation, the Belgian participation exemption requires that the dividend receiving company has full ownership of the participation. Dividends from shares held in usufruct cannot be deducted and will be subject to corporate tax on the level of the subsidiary as well as on the level of the dividend receiving company holding the participation in usufruct. The condition of full ownership was contested in Belgian courts; however the Belgian legislator tried to quell any discussions by adopting the requirement into law in 2002.

In the case of Vergers du Vieux Tauves vs. Etat Belge (C-48/07), a Belgian company held the usufruct of a participation in a Belgian subsidiary, whereas legal ownership of the participation rested with another Belgian company. The Belgian tax authorities rejected the dividend received deduction at the level of the usufruct holding company. Important to note is that no cross-border elements were present in the case.

By referring question of the Court of Appeals of Liège in 2007, the problem was presented to the European Court of Justice as follows: does the EC Parent-Subsidiary Directive oblige Belgium to consider a company holding only the usufruct of a qualifying participation (under Directive) as a "parent company" entitled to relief?

Advocate General's opinion

In her opinion, the Advocate General states that the Belgian participation exemption conflicts with E.U. law, as it imposes a condition that goes counter to the text and the aims of the Directive.

Firstly, AG Sharpston opines that the ECJ is competent to hear the case, even if it concerns a purely internal situation. The Belgian legislator has made it clear that the same rules will apply in internal situations as in cross-border situations; therefore, to maintain uniformity in the interpretation of EC law, the ECJ should be able to rule, even if its ruling is strictly speaking only "advisory" as far as purely internal situations are concerned. In practice, this advice is impossible to ignore for the Belgian legislator, also in internal situations.

The Belgian participation exemption should be compatible, in all its aspects, with the Directive - regardless of whether a cross-border element is present in the situations it intends to regulate. The opinion of the AG implies that the ECJ can protect Belgian companies in any hypothesis of undue double taxation of dividends, regardless of whether the dividend distributing company is Belgian or established in another EU Member State.

Secondly, the AG argues that the company holding the usufruct should be entitled to tax relief. The aim of the Directive is to eliminate the economic double taxation of dividends in a group of companies which straddles borders, regardless of how ownership of shares is carved up. The argument that the aim of the Directive is more specific in scope, i.e. the promotion of forming of economic groups in the traditional company law sense, with a centralized control structure, is rejected, as the Directive applies even in case of minority participations (10% from 1 January 2009 onwards). Furthermore, the condition in the Directive that a parent should have a holding in the capital of the subsidiary and that the parent receives relief by virtue of its association with the subsidiary does not exclude that a usufructury holder of shares of a company is entitled to relief: the notions "holding in the capital" and "association" should not be understood in the traditional company law sense, but in function of the aim of the Directive mentioned above.

Conclusion

If the ECJ will follow the viewpoint of the Advocate General, Belgium will have to extend the application of the participation exemption to all situations (including, but not limited to, usufruct) in which the ownership of the shares is carved up. Furthermore, the requirement, under the Belgian participation exemption, that the participation qualifies as a "fixed financial asset" appears untenable in light of the AG’s opinion. The Belgian participation exemption regime must be made more flexible and wider in its scope to be EC-law compliant.
 
> ben.vanvlierden@tiberghien.com and thomas.spaas@tiberghien.com
 
> klik hier om het artikel te downloaden