CJEU decision in Argenta: Belgian rules limiting interest deduction to the extent of dividends received

23 November 2017
Author: JHA

Under Belgian interest limitation rules, a deduction of interest payments is disallowed where the taxpayer receives exempt dividends from shares held by the company for less than a year. The question for the CJEU was whether the Belgian rules are compatible with the Parent-Subsidiary Directive (PSD).

In this case, the CJEU departed from the Advocate General’s Opinion and held that the Belgian provision was not compatible with Art 4(2) PSD, which grants Member States the right to deny the deduction of costs relating to holdings in a subsidiary established in another Member States. The CJEU argued that Art 4(2) PSD must be interpreted strictly. Therefore, Art 4(2) PSD must be interpreted as allowing Member States to only prevent a parent company from benefitting from a double tax advantage. CJEU decided that Article 4(2) of the PSD must be interpreted as precluding a provision of domestic law pursuant to which interest paid by a parent company under a loan is not deductible from the taxable profits of that parent company up to an amount equal to that of the dividends, which already benefit from tax deductibility, that are received from the holdings of that parent company in the capital of its subsidiary companies that have been held for a period of less than one year, even if such interest does not relate to the financing of such holdings.

With regard to the second preliminary question referred, relating to former Art 1(2) PSD, which allows Member States to refuse to grant the benefits of the Directive for reasons of preventing tax evasion and abuse, the CJEU points out that the provision reflects the general principle of EU law that any abuse of right is prohibited and that EU law cannot be relied on for abusive or fraudulent ends. But unlike the AG, the CJEU decided that Member States cannot enact anti-abuse measures that go beyond the specific anti-avoidance rule provided for in Art 4(2).

This article appears in the JHA November 2017 Tax Newsletter, which also features:


  1. Commission State Aid Enquiry – UK CFC Provisions
  2. 2017 Budget – Cross Border Issues
  3. A Oy – immediate taxation of capital gains of non-resident PE
  4. Advocate General finds Dutch tax consolidation regime to infringe the freedom of establishment
  5. Jacobs v French Minister for Finance and Public Accounts (C-327/16)
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