Belgian group contribution regime incompatible with European Parent-Subsidiary Directive

The Court of Justice of the European Union (CJEU) ruled on 13 March 2025 in case C-135/24 (John Cockerill) that the Belgian 'group contribution' regime is incompatible with the European Parent-Subsidiary Directive (PSD). The case specifically concerns situations where a company subject to Belgian corporate income tax receives both a group contribution and dividends that qualify for the Dividend-Received Deduction (DRD).

This is not the first time that the CJEU has found the Belgian DRD system to be at odds with the PSD.

Facts before the Liège court

The case leading to this judgment concerned a Belgian company that filed an objection against its corporate income tax assessment for tax year 2020, based on its own tax return. In that year, the company received dividends from various subsidiaries - qualifying for the DRD - as well as a group contribution. Due to the interplay between the group contribution and the DRD, the company was unable to apply the DRD to the received group contribution, resulting in actual taxation (Article 207 § 8, ITC). The taxpayer contested this outcome.

The taxpayer argued that it suffered a tax disadvantage, as its taxable base would have been negative had it not received (exempt) dividends, meaning no tax would have been due on the received group contribution. According to the taxpayer, the current DRD system effectively amounts to an indirect tax on dividends.

The case was brought before the Court of First Instance in Liège, which submitted preliminary questions to the CJEU regarding the compatibility of the Belgian legislation with Article 4 of the PSD.

Belgian group contribution is a limited tax consolidation regime

The Belgian 'group contribution' regime is a form of tax consolidation that allows companies within the same group to offset losses and profits between different entities. A profitable company may, under strict conditions, transfer part of its taxable profit to a group company that incurs a tax loss in the same financial year via a so-called “group contribution” (Article 205/5 ITC). As a result, the profitable company reduces its taxable profit, while the loss-making company includes the corresponding amount in its taxable base (Article 185, § 4 ITC). To compensate for the reduction of its tax loss, the profitable company must pay a compensation to the loss-making company. This compensation corresponds to the 'saved' tax, i.e., the tax that would have been due without the group contribution.

This regime is subject to strict conditions and offers a tax advantage at group level: the profitable company can deduct the group contribution from its taxable profit, while the receiving company adds the contribution to its taxable base. However, when the received group contribution exceeds the current-year losses of the receiving company, the surplus becomes a minimum taxable base that cannot be neutralised. This surplus is always taxed at the recipient’s level (Article 207 § 8, ITC), without the possibility of applying tax deductions such as the DRD.

DRD and PSD

The issue arises when determining the minimum taxable base. The PSD requires EU Member States to exempt from taxation dividends distributed by an EU subsidiary to its EU parent company. Belgium implemented this obligation through the DRD: received dividends are first included in the taxable base and then deducted, subject to certain conditions. Unused DRD deductions can be carried forward to future years. Over the years, the CJEU has repeatedly ruled that the Belgian DRD system still leads, in practice, to (indirect) taxation of received dividends.

In the Cobelfret case (12 February 2009, C-138/07), the CJEU ruled that the prohibition on carrying forward unused DRD was contrary to the PSD, as it resulted in dividends not being effectively exempt from tax. This was shortly thereafter confirmed in the KBC case (4 June 2009, C-439/07 and C-499/07), after which Belgium amended its legislation to allow the carryforward of DRD surpluses. However, issues with the DRD regime persisted. In the Brussels Securities SA case (19 December 2019, C-389/18), the CJEU ruled that a national rule leading to the loss of another tax benefit due to the receipt of a dividend effectively amounts to an indirect tax on received dividends and is therefore in breach of Article 4 of the PSD.

The CJEU applies a clear criterion: under the PSD, a taxpayer may not be subject to higher taxation merely because it receives exempt dividends (the so-called ‘litmus test’).

CJEU ruling on group contribution and DRD

In its ruling of 13 March 2025, the CJEU explicitly confirmed that the current Belgian regime for group contributions, in combination with the DRD, is incompatible with the PSD.

Specifically, the Court found that a company receiving both a group contribution and DRD-qualifying dividends is treated less favourably than a company that does not receive dividends. This is because the received dividends are first added to the taxable base and only later deducted under certain conditions. The receipt of (exempted) dividends may turn a negative taxable base into a positive taxable base. A subsequent group contribution then qualifies as a ‘minimum taxable base’ that cannot be offset by the DRD. 

The Court concluded that this effectively amounts to an indirect tax on dividends. The Belgian regime is thus in breach of the fiscal neutrality principle of the PSD.

Ruling impact and expected reforms

The Arizona coalition agreement includes a plan to convert the DRD into a true dividend exemption. This would ensure that received dividends no longer negatively impact the application of other tax deductions, such as the group contribution regime.

Pending these announced changes, taxpayers may rely directly on the CJEU ruling to challenge DRD rejection. This applies, of course, to ongoing administrative or judicial proceedings. Taxpayers who previously opted for a smaller (or no) group contribution due to the legal restrictions may also assert their claims by filing an ex officio relief request or an objection. This allows them to challenge the effects of the regime going back 5 years, for assessments levied during calendar year 2021 or later. In practice, this means that, during 2025, for most companies, all years during which the group contribution regime was in place can still be challenged.