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21 June 2008

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ECJ: Advocate General finds Belgian rules on inclusion of dividends in taxable base followed by 95% deduction insofar as parent company makes profits incompatible with Parent-Subsidiary Directive – details

On 8 May 2008, Advocate General (AG) Eleanor Sharpston of the European Court of Justice (ECJ) gave her opinion in the case of Belgische Staat v. Cobelfret NV (C-138/07). Details of the opinion are summarized below.

(a) Facts. In each year from 1992 to 1998, Cobelfret NV (Cobelfret), a company established in Belgium, received dividends from its holdings in both Belgium and the United Kingdom. It is understood that Cobelfret and its relevant subsidiaries qualify as a parent company and subsidiaries within the meaning of the Parent_Subsidiary Directive 90/435/EEC (Directive). In 1994, 1995 and 1997, Cobelfret suffered losses and could, therefore, not use the 95% dividend deduction. In 1996, the dividend deduction to which Cobelfret was entitled exceeded its taxable profits. Cobelfret was unable to carry the unused portion of that deduction forward to the following year, in which it made a loss. Cobelfret argued that under the Belgian system dividends are not genuinely exempt, since the losses which can be carried forward are reduced in such a way that, in the following year, the taxable profit is increased by the amount of dividends which should have been exempted.

(B) Legal background. Art. 4 of the EU Parent Subsidiary Directive provides that if a parent company owns a participation of at least 15% in a subsidiary established in another Member State and receives distributed profits, the Member State of the parent company must:


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