A Belgian company, A.L.L. BV, had declared certain income excempt that resulted from a complex intra-group restructuring involving capital gains and dividend distributions.
The Belgian tax authorities found that these exemptions had been unduly claimed through abusive structures.
Judgment
The Court upheld the view that taxable income included items that were incorrectly reported as exempt by the taxpayer. It confirmed that national courts and authorities must apply the general EU principle prohibiting abuse of law, even if the relevant domestic anti-abuse provision has not yet entered into force. This principle allows the denial of tax benefits arising from EU law when the underlying transactions are artificial and aimed solely at obtaining an undue advantage, regardless of whether the formal legal criteria were met.
The Court found that the restructuring activities of the taxpayer and its group—such as the use of holding structures, dividend flows, mergers, and rapid capital movements—lacked genuine economic substance and served mainly to distribute profits and internal capital gains tax-free to shareholders. These actions, though formally compliant, were deemed abusive as they frustrated the purpose of the Parent-Subsidiary Directive, which was to avoid double taxation in cross-border corporate structures—not to facilitate tax avoidance.
Importantly, the Court clarified that abuse should be assessed based on all legal acts and entities involved across the group, not just the immediate parties to a transaction. The judgment also rejected arguments based on legal certainty and legitimate expectations, holding that EU anti-abuse principles apply retroactively to acts predating relevant case law, as long as good faith and serious disruption are not at issue.
However, the Court partially annulled the lower court’s decision by holding that the reclassification of a capital reduction as a taxable dividend was not legally justified under EU anti-abuse law, as the exemption for paid-up capital returns was a matter of domestic law, not EU law. This part of the decision was remanded to the Antwerp Court of Appeals.
Overall, the Court reaffirmed the supremacy and direct applicability of the EU anti-abuse principle, even in the absence of specific national implementation, while drawing a clear distinction between domestic and EU-based tax benefits.
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