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CJEU rules Belgian group contribution regime incompatible with EU parent-subsidiary directive

International Tax Alert | Business Tax Alert

The Court of Justice of the European Union (CJEU) ruled on 13 March 2025 in case C-135/24 that the Belgian “group contribution” regime is incompatible with the EU parent-subsidiary directive (PSD). The case specifically concerns situations where a company subject to Belgian corporate income tax receives both a group contribution and dividends that qualify for the dividends received deduction (DRD).

The CJEU had previously found other aspects of the Belgian DRD system to be incompatible with the PSD.

Background

The case leading to this judgment concerned a Belgian company that filed an objection against its corporate income tax assessment for tax year 2020, based on its corporate income tax return as submitted. In that year, the company received dividends from various subsidiaries—qualifying for the DRD—as well as a group contribution. As a result of the interaction between the group contribution and the DRD, the company was unable to apply the DRD to the group contribution received, resulting in actual taxation (article 207 § 8 of the Income Tax Code (ITC)). The taxpayer contested this outcome.

The taxpayer argued that it had suffered a tax disadvantage, as its taxable base would have been negative had it not received (exempt) dividends, meaning no tax would have been due on the group contribution received. According to the taxpayer, the current DRD system effectively amounts to an indirect tax on dividends.

The case was brought before the Court of First Instance in Liège, which submitted preliminary questions to the CJEU regarding the compatibility of the Belgian legislation with article 4 of the PSD.

Belgian group contribution regime

The Belgian group contribution regime is a form of tax consolidation that allows companies within the same group to offset profits and losses between different entities. A profitable company may, under strict conditions, transfer part of its taxable profit to a group company that incurs a tax loss in the same tax year via a so-called “group contribution” (article 205/5 of the ITC). As a result, the profitable company reduces its taxable profit, while the loss-making company includes the corresponding amount in its taxable base (article 185 § 4 of the ITC). The profitable company must pay compensation to the loss-making company to recompense the latter for the reduction of its tax loss. This compensation corresponds to the “saved” tax, i.e., the tax that would have been payable without the group contribution.

The regime is subject to stringent conditions and offers a tax advantage at group level: the profitable company may deduct the group contribution from its taxable profit, while the receiving company adds the contribution to its taxable base. However, when the group contribution received exceeds the current year losses of the receiving company, the surplus becomes a minimum taxable base that cannot be neutralised. This surplus is always taxed on the recipient (article 207 § 8 of the ITC), without the possibility of applying tax deductions such as the DRD.

DRD and the PSD

The issue arises when determining the minimum taxable base. The PSD requires EU member states to exempt from taxation dividends distributed by an EU subsidiary to its EU parent company. Belgium implemented this obligation through the DRD: dividends received are first included in the taxable base and then deducted, subject to certain conditions. Unused DRD deductions may be carried forward to future years. Over the years, the CJEU has repeatedly ruled that the Belgian DRD system still leads, in practice, to (indirect) taxation of dividends received.

In the Cobelfret case (C-138/07, 12 February 2009), the CJEU ruled that the prohibition on carrying forward unused DRD was contrary to the PSD, as it resulted in dividends not being effectively exempt from tax. This was confirmed shortly after in KBC (joined cases C-439/07 and C-499/07, 4 June 2009), after which Belgium amended its legislation to allow the carryforward of DRD surpluses. However, issues with the DRD regime persisted. In the Brussels Securities SA case (C-389/18, 19 December 2019), the CJEU ruled that a national rule leading to the loss of another tax benefit due to the receipt of a dividend effectively amounts to an indirect tax on dividends received and is therefore in breach of article 4 of the PSD.

The CJEU applies a clear criterion: under the PSD, a taxpayer may not be subject to higher taxation merely because it receives exempt dividends (the so-called “litmus test”).

Ruling of the CJEU

In its ruling of 13 March 2025, the CJEU explicitly confirmed that the current Belgian regime for group contributions, in combination with the DRD, is incompatible with the PSD.

Specifically, the court found that a company receiving both a group contribution and dividends qualifying for the DRD is treated less favourably than a company that does not receive dividends. This is because the dividend income is first added to the taxable base and only later deducted under certain conditions. The receipt of (exempt) dividends may turn a negative taxable base into a positive taxable base. A subsequent group contribution then qualifies as a minimum taxable base that cannot be offset by the DRD. 

The CJEU concluded that this effectively amounts to an indirect tax on dividends. The Belgian regime is thus in breach of the fiscal neutrality principle of the PSD.

Impact of the ruling and expected reforms

The federal government coalition agreement of 31 January 2025 includes a plan to convert the DRD into a true dividend exemption. This would ensure that dividends received no longer negatively affect the application of other tax deductions, such as the group contribution regime.

Pending these proposed changes, taxpayers may rely directly on the CJEU ruling to challenge DRD rejection in ongoing administrative or judicial proceedings. Taxpayers who previously opted for a smaller (or no) group contribution because of the legal restrictions may also assert their claims by filing an ex officio relief request or an objection. This allows them to challenge the effects of the regime going back five years, for assessments issued in calendar year 2021 and subsequent years. In practice, this means that during 2025, for most companies, all years during which the group contribution regime was in place may still be challenged.