Positive judgments regarding the challenge of maintaining the effects of the annulled Fairness tax by the Constitutional Court: an opportunity to extend this case-law to other tax matters?
When a tax legislation is annulled by the Belgian Constitutional Court, the consequence is that this tax legislation in principle no longer exists. In other words, unless otherwise ruled, the annulment has a retroactive effect and the tax legislation is presumed never to have existed in the first place. This means that taxes paid in the past on the basis of that (unconstitutional) legislation can be reclaimed, if the taxpayer initiated proceedings in time. So far so good, but…
Unfortunately, it’s not quite so simple, as the Constitutional Court can also decide to maintain the effects of the annulled legislation. A possibility the Constitutional Court has made regular use of in recent years, notably regarding the Turtel tax, the Fairness tax, VAT on online gambling, the (first version) of the tax on securities accounts, the mobility allowance etc.
Let’s take the annulment of the Fairness tax for instance. The tax took effect from (assessment year) 2014. It was implemented by Di Rupo’s government as a measure to limit the use of the notional interest deduction and carried forward losses by companies that paid little taxes on their profits, but used those profits to pay dividends to their shareholders.
On 1 March 2018, the Constitutional Court decided to overturn the Fairness tax on the grounds of conflict with the constitutional principle of equality, the principle of tax legality and the Parent-Subsidiary Directive. However, the Constitutional Court decided to maintain (nearly all) the effects of the Fairness tax for assessment years 2014-2018 ‘in order to take into account the budgetary and administrative difficulties and legal disputes that might result from the annulment judgment’. In other words, based on the judgment of the Constitutional Court, the taxes paid for those years cannot be recovered, except in specific situations where companies have received dividends which have been redistributed.
Levying taxes using a law that has since been declared unconstitutional and then deciding to keep those taxes for the past anyway is highly questionable. It's like paying for a car, finding out that the car was completely broken from the start and despite that not being able to get your money back. It is a far-reaching measure that should not be treated lightly, especially taking into account the usual justification of the Constitutional Court. Indeed, as taxes are linked to the State’s budget, maintaining the effects of several annulled taxes for budgetary reasons does not seem a sufficient justification for many taxpayers. So the question arises as to whether taxpayers should just simply ‘obey’ the view of the Constitutional Court.
The Court of First instance of Walloon Brabant (Nivelles, 1/10/2021) and more recently, the Court of First instance of East Flanders (Ghent, 4/02/2022) do not seem to think so. They ruled that the Fairness tax does indeed violate European law (including the European freedom of establishment on which the Constitutional Court did not rule). Based on the primacy and the direct effect of European law the courts in question ruled that the effects of the annulled tax cannot be maintained, notwithstanding the fact that the Constitutional Court ruled otherwise.
Not only is this case-law positive and encouraging news for those who currently have a Fairness tax dispute pending. It might also be an additional argument for disputes regarding other taxes annulled by the Constitutional Court, where the effects of the annulled legislation were (partially) maintained.
If you have any questions regarding the above or are looking for more guidance, don't hesitate to reach out to us !
