- In two key decisions of 25 November 2021, the Belgian Supreme Court clarified the scope of application of the Belgian and the EU general anti-abuse provisions as well as the general principle of EU law prohibiting (tax) abuse. In a first decision, the Supreme Court confirmed that the "new" Belgian general anti-abuse provision can only be applied in the context of a series of legal acts constituting a whole provided that all legal acts -and thus not only some or one of them - are carried out after the date of entry into force of said rule. This limits the scope of application in time of the new (and more effective) general anti-abuse provision when it comes to historic situations/transactions.
- In a second decision, the Supreme Court emphasized that the general EU principle prohibiting tax abuse is not considered by the European Court of Justice as being applicable both in an EU law context and in a purely domestic law context. The Supreme Court moreover denied the retroactive application of the EU general anti-abuse provision as laid down in the Anti-Tax Avoidance Directive (ATAD).
- Even though these decisions are in line with what was expected and what we have defended previously in certain litigation matters, they nevertheless provide a welcome confirmation on the scope of application of the anti-abuse measures and increase the taxpayer's legal certainty in the difficult and much litigated topic of tax avoidance.
On 25 November 2021, the Supreme Court rendered two key decisions regarding the scope of application of the Belgian and the EU anti-abuse rules. In these decisions, the Supreme Court puts an end to the attempts of the Belgian tax authorities to challenge transactions on the basis of a retroactive application of the Belgian or the EU general anti-abuse provision and to apply the EU principle prohibiting tax abuse in purely domestic law situations.
1. Application in time of the Belgian GAAR
In a first case, the Supreme Court ruled on the application in time of the "new" (and more effective) Belgian general anti-abuse rule (GAAR) laid down in article 344 § 1 of the Belgian Income Tax Code. The "old" Belgian GAAR was replaced by a new and more effective GAAR in 2012, after being rendered virtually ineffective by Supreme Court case law that stated that the (old) GAAR could only be applied if the tax authorities were able to substitute the characterization of a targeted legal act by another legal characterization with similar legal consequences. In terms of entry into force of the new GAAR, the law states that the new GAAR is applicable as of assessment year 2013 and — for companies with a financial year that does not correspond to the calendar year - with respect to (a series of) legal acts that are carried out during a taxable period that ends on 6 April 2012 at the earliest and that is linked to assessment year 2012.
In this context, the Belgian tax authorities have tried to argue that the new GAAR would also be applicable to a series of legal acts constituting a whole if only one or some of the relevant legal acts take place after the entry into force of the new GAAR. In practice, the Belgian tax authorities have even argued that historic tax optimization structures that were put in place before the entry into force of the new GAAR but that continued to yield benefits or income after the entry into force of the new GAAR, would be targeted by the new GAAR.
The Supreme Court has however rightfully rejected the Belgian tax authorities' position and confirmed the case law of the Court of Appeal of Ghent on the matter by clearly stating that the new GAAR is only applicable to a series of legal acts, provided that all legal acts are carried out after the entry into force of the GAAR. Even though this outcome was expected, it is nevertheless a welcome clarification of the application in time of the new Belgian GAAR.
2. Application in time of the EU GAAR and scope of application of the EU principle of prohibition of abuse
A second case concerned the application in time of the EU GAAR laid down in Article 6 of the EU Anti-Tax Avoidance Directive (ATAD), on the one hand, and the scope of application ratione materiae of the general principle of EU law prohibiting (tax) abuse, on the other hand.
In light of the case law of the Courts of Appeal (that is now confirmed by the Supreme Court) that limited the scope of application in time of the new Belgian GAAR and inspired by the case law of the European Court of Justice in the Danish cases, the Belgian tax authorities sought to apply the EU GAAR or the general principle of EU law on the prohibition of (tax) abuse, also in purely domestic situations.
The Belgian tax authorities tried to argue that the domestic GAAR should be interpreted in line with the EU GAAR since the Belgian legislator did not deem it necessary to introduce a new GAAR or to amend the current GAAR in order to implement Article 6 ATAD, so that in the view of the Belgian tax authorities the scope of application of the domestic GAAR could be broadened on the basis of Article 6 ATAD or on the basis of the general principle of EU law on the prohibition of (tax) abuse.
In this context, the Belgian tax authorities filed an appeal with the Supreme Court in which they argued that both the general EU law principle prohibiting tax abuse as the EU GAAR could be applied to a given arrangement even though the dispute concerned a purely domestic situation (i.e., the dispute did not relate to the application of a domestic provision that implements EU law). The Supreme Court rightfully rejected, in very clear terms, the reasoning of the Belgian tax authorities.
Regarding the principle of EU law on the prohibition of (tax) abuse, the Supreme Court clearly states that it results from the case law of the European Court of Justice that this principle only applies (i) when a taxpayer abusively applies the formal conditions of a provision of EU law in order to obtain an advantage under EU law, and/or (ii) when the European Court of Justice has to deal with the question as to whether a national anti-abuse rule complies with the EU freedoms. The Supreme Court thereby confirms that the European Court of Justice on the contrary did not recognize the existence of a general EU principle prohibiting tax abuse that would also be applicable in a mere domestic law context.
As to the application of the EU GAAR laid down in Article 6 of the ATAD, the Supreme Court considered that the EU Member States, under the ATAD, were required to transpose the GAAR into domestic law by 31 December 2018 and apply it as of 1 January 2019 and went on to state that the EU GAAR is hence not applicable to a tax dispute that relates to assessment year 2015 and that concerns a transaction set up in 2010. This is in line with what the Constitutional Court had already indirectly ruled in its decision of 14 October 2021, i.e., that Article 6 of the ATAD is not relevant to interpret domestic law that is applied to transactions carried out prior to the entry into force of the ATAD.
Also this second decision is a welcomed confirmation of the limits to the application of anti-abuse rules. The Supreme Court clearly confirmed that the EU principle of prohibition of (tax) abuse cannot be applied with respect to purely domestic law situations and that the EU GAAR cannot be applied retroactively with respect to transactions or arrangements that were set up and produced tax effects before its entry into force. Not all questions have been answered however. For example, it is still to be decided whether the EU GAAR is applicable with respect to an arrangement consisting of multiple steps, which were partially carried out before the entry into force of the EU GAAR (1 January 2019) and partially after such date. The same goes for transactions or arrangements that were set up before 1 January 2019, yet only produced tax effects after such date.