Legal news
Legislators ignore the constitution at their own risk
1. The Fairness Tax
The Fairness Tax was a tax of 5.15% due by large companies that distributed profits that had not been subject to the standard rate of corporate income tax due to the notional interest deduction and/or losses carried forward by the company.
Despite numerous reservations expressed at the time by the legislation section of the Conseil d’Etat, the government persisted. The Constitutional Court referred the matter to the European Court of Justice, which ruled, inter alia, that under certain circumstances the Fairness Tax infringed the Parent-Subsidiary Directive (case C-68/15).
In a decision dated 1 March 2018, the Constitutional Court delivered the coup de grâce to this tax by annulling certain provisions of the regime (Decision nr 24/2018).
However, the Constitutional Court decided to maintain the effects of the Fairness Tax for the years 2013 to 2017. The tax was due for those years, unless the tax related to profits received from subsidiaries that fell within the scope of the Parent-Subsidiary Directive and which the company in turn redistributed.
2. The Constitutional Court
The Belgian Constitutional Court is a relatively recent institution. It is only in the last few decades that it has had the power to assess whether federal laws and decrees of the regions and the communities comply with the Constitution.
Taxpayers may appeal to the Constitutional Court for annulment within six months of publication of the rule in the Moniteur belge, but the appeal does not suspend the rule. The Court also hears preliminary questions submitted by the courts and tribunals.
The Court has twelve judges, appointed for life by the King on the basis of ‘double parity’. The judges are divided equally between the French and Dutch language groups. In each language group, half of the judges come from the parliamentary world and half from the legal world (law professors, magistrates at the Supreme Court or the Conseil d’Etat, etc.).
When these judges have to rule on the constitutionality of a tax measure, they look not only at the constitution, but also at the political and budgetary effects of a cancellation. It was “to take account of the budgetary and administrative difficulties and the legal disputes that could arise from an annulment” that the Court had maintained the effects of the Fairness Tax for the past.
This is frustrating for the taxpayer who lodged the appeal in 2013 only to be told, four years later, that he was right all along, that the tax is unconstitutional but that he still has to pay it for the past.
3. What about the government ?
During the appeal, the tax authorities are recovering the Fairness Tax and the government is defending its tax before the Constitutional Court. The texts introducing the taxes criticised by the Conseil d’Etat have often been drafted in haste, following the negotiation of an agreement on the tax between the parties in government, in disregard of the remarks of the Conseil d’Etat.
If the tax is upheld, so much the better ; if it is overturned, so much the worse.
The fact that the Constitutional Court has upheld the effects of the tax means that the budget is not out of balance, so the government is not too worried about the Conseil d’Etat’s reservations about the compatibility of the tax with the Constitution.
But the government has learned its lesson : it must not give any grounds for annulment by the Constitutional Court. When the Court ruled that the original tax on the securities accounts was discriminatory - and therefore unconstitutional - it was largely because the stated aim of the legislator was to pursue a fair tax policy by taxing the wealthiest. The Court also annulled this tax for the future only.
The annual tax on securities accounts 2.0 no longer had any reasons other than budgetary. The words “donkey” and “stone” spring to mind.
4. The non-contractual liability of the State
We are not done with the Fairness Tax yet. A company that had to pay the tax for the years 2013 to 2017 went to court, claiming that the Belgian State was liable in its role as legislator.
In a decision handed down on 22 September 2023, the Mons Court of Appeal upheld this claim : “It has been established that the company’s loss was caused by legislation wrongfully adopted by the legislator”. The Belgian State is therefore liable, and the court ordered the State to pay the company just over €100,000 in compensation.
The Belgian State has submitted this decision to the Supreme Court.
This case could inspire other taxpayers who have had to pay a tax that was subsequently cancelled, but without retroactive effect. However, they should keep in mind that this decision was not followed by other courts and that it goes against the majority doctrine.
Nevertheless, if the legislation section of the Council of State were to raise certain objections to a bill based on the Constitution, this would provide them a more solid basis for invoking the liability of the Belgian State. It all depends on the individual case and the seriousness of the incompatibility with constitutional or European principles.
We can only hope that this case law will encourage the government to take account more often of the Conseil d’État’s criticisms. The new exit tax for companies that leave Belgium has been the subject of many comments from the legislation section...
If the government becomes too presumptuous, more taxpayers may be tempted to try this route.