Tax Deductibility of Commission Fines for Antitrust Infringements: Dutch Courts Enter the Debate
On 23 June 2009 the Antwerp Court of Appeal ruled that Article 53,6 of the Belgian Income Tax Code allowed fines for antitrust law infringements to be deducted from a company’s taxable income. (See Brussels Brief, 26 October 2009, which also discusses a similar case that was being debated before the Dutch courts at the time and gave rise to a decision by the European Court of Justice on 11 June 2009 (Case C-429/07) that allowed the European Commission to intervene in the Dutch proceedings as amicus curiae.
Meanwhile the Amsterdam Court of Appeal has come to a decision in this case. As expected, the Commission did indeed intervene to oppose the tax deductibility of antitrust fines on the grounds that this mitigates the deterrent effect of the fine and therefore undermines the enforcement of competition policy (Amsterdam Court of Appeal, Decision of 11 March 2010, Case 06/00252).
The facts of this case can be summarised as follows: The parent company of the Dutch company involved in the proceedings was fined by the European Commission for taking part in an illicit cartel. The parent company subsequently passed on part of its fine to the Dutch subsidiary, which deducted the amount from its income tax base. The Dutch company argued that a cartel fine does not simply have a punitive element, but is also meant to take away illicitly obtained profits from the perpetrator. As the Dutch Tax Code only forbids the deduction of fines imposed by an EU institution (in this case the Commission), the Dutch subsidiary was of the opinion that the non-punitive part of the levy was deductible. This argument was opposed by the Dutch tax authorities.
The Amsterdam Court of Appeal held that there was no proven distinction between the punitive and non-punitive elements of the Commission’s fine and that this distinction had no basis in Dutch tax law. It also affirmed that Dutch tax law excludes explicitly the deduction of EU fines. Furthermore, in the Court’s opinion, the fines have a fundamentally punitive and deterrent character and therefore cannot be tax deductible.
It should be noted that the same court, on the same date, came to an almost identical decision with regard to the deductibility of fines imposed by the Dutch Competition Authority (Amsterdam Court of Appeal, decision of 11 March 2010, Case 08/01180).
Since the Dutch judgments are based on the express wording of Dutch tax law and the Belgian Decision of 23 June 2009 relies on specific Belgian case law, it is possible that the conclusions drawn by our earlier article on the position in Belgium still stand.