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Belgian Court Rules in Favour of Tax Deductibility of European Commission Fines for Antitrust Infringements
On 23 June 2009 the Antwerp Court of Appeal ruled that European Commission fines for antitrust infringements are administrative rather than criminal fines and so can be deducted from profits for corporate income tax purposes under Article 53, 6 of the Belgian Income Tax Code (and consequently, any resulting losses can be carried forward indefinitely).
This novel development immediately raises two interesting tax planning opportunities, the tax savings of which could be substantial, bearing in mind that antitrust fines can run into tens, if not hundreds of millions of euros.
- First, a company who has been fined could assign all or part of the fine to other companies in the group (on the theory that these companies were also responsible for the antitrust infringement), thus enabling these companies to shelter large proportions of their profits from tax.
- Second, given the relatively long delay between a dawn raid and the imposition of a fine – typically several years – a group of companies expecting a fine could reorganise its operations so as to transfer profits into the company or companies likely to be addressees of the decision imposing the fine.
Such opportunities would become more widespread if other Member States’ tax administrations were to adopt the same position as the Antwerp Court of Appeal. For example, the issue is currently being debated before the Dutch courts in a case where a German company fined by the European Commission passed on part of its fine to its Dutch subsidiary, which subsequently claimed deductibility from taxable profits (Case C-429/07).
Not surprisingly, the European Commission intervened in the latter proceedings as amicus curiae but it is not clear whether it is opposing the principle of the tax deductibility for the company fined, or the fact that the company transferred part of the fine to a subsidiary for tax purposes. On any basis, one can expect the Commission to be against tax deductibility because this mitigates the deterrent effect of the fine.
This is clearly an area to be kept under review.