Tax abuse, the Belgian State Rebuffed in their Attempt to Apply the Tax Abuse Rule with Retroactive Effect
In three decisions dated 25 November 2021, the Supreme Court (la Cour de Cassation) has clarified the Belgian and European rules on tax abuse.
In 2012, the Belgian legislator has replaced the ineffective general antiavoidance rule by a new general tax abuse rule. However, rather than introducing the concept of abuse of the law in the tax codes, the law introduced the concept of ‘tax abuse’ (abus fiscal/fiscal misbruik). In fact, tax abuse comes down to abusing the right to avoid the tax, so that the Brepols case law – and the right to choose the route of the lower tax – is maintained.
The new rule allows the tax authorities to dismiss a "transaction" or a "set of transactions" when they demonstrate that the taxpayer's action enables him either to place himself "outside the scope of a provision" or to claim "a tax advantage provided for" by the Tax Code, thereby infringing the objectives of a provision of the tax law.
The legislator provided that in the field of direct taxes, the new antiabuse rule is applicable "to a transaction or a set of transactions performed during or after the tax year 2013, i.e., in the course of 2012. The question is then whether all transactions in a set of transactions must be performed after the new GAAR entered into force.
The Belgian Anti Abuse Rule
In their practice note, the tax authorities, however, took the position that it was sufficient that the new rule applies if the last transaction in the set of transactions performing the same operation was performed during 2012.
We have always taken the position that the only interpretation that was in accordance with the text of the law is that the new rule only applies if all the transactions of the set are performed during or after 2012. It is also meets with the requirement that the administration must be able to dismiss all transactions.
This is the question that was submitted to the Supreme Court.
The cases F.20058.N and F.20.0073.N related to decisions of the Ghent Court of Appeal, which had taken the position that all the transactions of the set of transactions had to be performed after the new rule entered into force for the anti-abuse rule to apply. The Ghent judges had also stated that the administration’s position infringed the principle of foreseeability of the law, linked to Article 1 of the First Additional Protocol to the European Convention on Human Rights.
Referring in some decisions to the "clear text" of the law and to the preparatory works of the 2012 Act, the Supreme Court ruled unambiguously that "the plea which assumes that, in order to fall within the temporal scope of Article 344, §1, ITC, it is sufficient that the last act of the set of legal acts was performed during the taxable period of the 2013 tax year or the following tax years, is based on an erroneous legal opinion and is therefore legally incorrect.
These decisions, based on the effectively clear text of the law, should put an end to the controversy regarding the application of the new provision in the presence of a "set of acts": the administration must establish that each of the acts in the set that it criticises was performed after the law entered into force.
However, the new Belgian anti-abuse rule is not the only provision that the administration has tried to apply in an anachronistic manner. Thus, in the context of another case submitted to the Supreme Court, the administration argued that Article 6.1 of Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules to combat tax avoidance practices that directly affect the functioning of the internal market, and also invoked the infringement of an alleged general principle of European law prohibiting the abuse of tax law. They tried to question, for the 2015 tax year, a construction set up in 2010 (!).
The European Anti Abuse Rule
In another decision also dated 25 November 2021, (F.20.0094.N) the Supreme Court of Cassation logically rejected the appeal lodged by the Belgian State.
First, the court ruled out the application of Article 6.1 of the Directive, which states : For the purposes of calculating the corporate tax liability, a Member State shall ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part.
The Court held that this provision (enacted by Belgium with effect from 1 January 2019) did not apply to a construction put in place in 2010.
Furthermore, concerning the alleged general principle of European law prohibiting abuse of law, it is true that the Court of Justice of the European Union sometimes recognises the existence of such a principle; however, as the Court of Cassation was careful to specify, such a principle can only be invoked in cases where a taxpayer abusively (in a purely formal and therefore artificial manner) places himself in a position that allows him to take advantage of a provision of European Union law in order to benefit from it. However, in this case, it was a question of interpreting provisions of Belgian domestic law only: since the taxpayer did not base his interpretation on a provision of European law, the Court logically considered that the judge should not interpret the claims of the parties in the light of European law, which is inapplicable to the case in question.
In these decisions, the Supreme Court of Cassation confirms in substance that it would be unreasonable to examine in the light of the new definition of tax abuse a "set of acts" the foundations of which were laid at a time when the new law did not exist. Furthermore, such a selective choosing does not seem to respect the indissociable nature of the set of acts targeted by the law.
Nevertheless, reviewing the arguments of the Belgian State which are sometimes farfetched, show that the tax administration want to apply the Belgian or European anti-abuse provisions at any cost, even if that means using arguments that are against the clear text of the law or persisting in the error of its ways even when the conditions for the application of the anti-abuse provisions are clearly not met.