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March 29, 2021

Belgian Court of Appeal issues decisions on tax abuse application of the CJEU Danish cases

In two recent decisions, the Belgian Court of Appeal of Ghent ruled on the tax treatment of a dividend distribution by a Belgian company to its Luxembourg holding vehicle. In both cases, the tax exemptions applied at source were denied on the basis of general anti-abuse principles.

The cases are landmark cases as they provide a first insight on how the general anti-abuse provision (GAAR) may be applied to a series of transactions considering the findings of the Court of Justice of the European Union (CJEU) Danish Cases (see EY Global Tax Alert, CJEU rules on application of Danish withholding tax on dividends and interest payments, dated 26 February 2019) – as faced with the old (and generally deemed ineffective) GAAR, the Court applies the principles that European Union (EU) law cannot be relied on for abusive or fraudulent ends. 

In both cases, in line with the CJEU cases and making explicit references to these cases, the Court reviewed the facts to assess whether there is tax abuse based on “objective” and “subjective” criteria. The objective criteria reviews whether, even if all conditions have been formally observed, the purpose of the rules was not achieved. The subjective criteria reviews whether the intention of the taxpayer was to obtain a tax advantage by artificially creating the conditions set forth for achieving this objective. 

These Court of Appeal decisions expectedly constitute the forefront of the discussions that arise in a series of tax audits initiated by the Belgian tax authorities in the aftermath of the CJEU Danish Cases.

Note that in addition to assessing the withholding (WHT) exemption, the tax-exempt mergers were also scrutinized by the Court based on the specific anti-abuse provision of the Merger Directive. 

Cash repatriations at the occasion of a recapitalization

In both cases, the taxpayers had executed a series of steps between 2006 and 2012. These steps were are all taken into account by the Court when it assessed the tax treatment of the final steps which occurred in 2012 - i.e., the repatriation of the cash proceeds in a tax-exempt manner to a Luxembourg holding company (and to a Belgian resident individual co-investing manager). 

The cash proceeds that were distributed were the result of a series of steps executed whereby, among others, a new double-tier holding structure was set-up, companies were capitalized through contributions of shares and thereafter merged – further to which shares were funded with external debt and transferred within the group on non-at arm’s-length terms, debt was reallocated and cash could be distributed to the shareholders in a tax-exempt manner. 

Series of transaction steps considered abusive

The Court considered that all steps taken since 2006 constitute “tax abuse” as their ultimate purpose was to ensure repatriation of proceeds in a tax-exempt manner. 

The objective circumstances that demonstrate that the purposes of the applied tax rules are defeated include all restructuring events that occurred and which preceded the ultimate realization of the tax-exempt proceeds. For the Court it was clear that these were all executed with the ultimate purpose to allow the realization of tax-exempt proceeds (dividend distributions, capital reductions and capital gains). 

Business motives 

Multiple business motives were presented by the taxpayers to justify the transaction steps and the tax treatment applied. However, the Court ruled that those were not convincing and could not outweigh the apparent and predominant tax motives. 

The Court’s decision confirms that setting up a joint venture holding company at the occasion of the investment by a new third-party investor can constitute an economic justification for its incorporation and can be a valid legal structure. However, the Court considers that absent any substance and activity of the company (other than the repatriation of proceeds in a tax-exempt manner), such justification cannot be upheld to counter the application of the GAAR. The Luxembourg holding company could also not be considered as the beneficial owner of the dividend and capital reduction and could therefore not benefit from the Belgian WHT exemption. Also, the absence of any specific justification for the incorporation of the holding company in Luxembourg (i.e., a location without any nexus to any of the investors or the underlying business operations) is also considered by the Court as problematic. 

Further justifications presented by the taxpayers, such as achieving a sound debt-to-equity ratio through a recapitalization without providing any supporting analysis to support these statements, were in the case at hand considered to be far too general and insufficient to avoid the application of the GAAR, as these are common outcomes of such restructuring in a similar context, as are the realization of a group simplification and related-cost savings. 

This demonstrates that the genuine business motives for a series of transactions should be carefully considered and well documented from the outset and should be specific to the business. Generic justifications that can apply to all restructuring are considered to be insufficient. In addition, the substance of any holding company and economic justification for both its existence, involvement and location as well as the at arm’s-length nature of all events are essential.


These court cases highlight the critical importance of the presence of sound business rationale to achieve an effective WHT exemption on dividend repatriations.

In light of the increased scrutiny in recent tax audits, as well as these court decisions, taxpayers should consider reviewing their structures and documentation to substantiate the economic rationale, as tax authorities are expected to continue to investigate substance of holding structures, leveraging on the recent jurisprudence to challenge a WHT exemption on dividends paid to shareholders where they deem substance to be lacking.


For additional information with respect to this Alert, please contact the following:

EY Brussels

EY Hasselt

EY Antwerp

Ernst & Young LLP (United States), Belgian Tax Desk, New York


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