Court of Appeal confirms non-deductibility of recharged capital losses on shares

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On 16 April 2010, the Brussels Court of First Instance ruled that the recharge of the capital losses on shares by a foreign parent company to its Belgian subsidiary in the framework of a stock option plan for its employees is not deductible at the level of the Belgian subsidiary.

The Brussels Court of Appeal recently confirmed this decision (judgment of 25 June 2014).


The recharged costs relate to a stock option plan whereby employees of a Belgian subsidiary are given the opportunity to acquire shares in the quoted foreign parent company at a predetermined price. At the time of the execution of the stock option plan, a group entity acquires shares in the quoted parent company, which are put at the disposal of the employees (for a lower price). The difference between the acquisition price and the lower sales price of the shares is recharged to the Belgian subsidiary, which deducts it as a professional expense. The tax authorities and the Court of First Instance of Brussels, however, characterized the recharge as a capital loss on shares and denied its deduction.

Judgment of the Court of Appeal

The Court of Appeal of Brussels now follows the reasoning of the Court of First Instance. The basis of its decision boils down to these points:

  • It is not required for the Belgian subsidiary to have realized the capital loss itself in order for the deduction to be disallowed;
  • The recharge of the capital loss in the framework of the incentive plan does not change the nature of the cost into a personnel cost, which would be deductible sub article 49 jo 52, 3° ITC 1992. As a result, its nature remains that of a capital loss on shares which is not deductible for corporate tax purposes.


The Court decision can be criticized as it appears to neglect a few fundamental principles.

In our view, it is implied in the accounting notion of a “capital loss” that the taxpayer should have the ownership or possession of the assets on which the capital loss is realized. Under accounting law, a taxpayer can only realize a capital loss on shares to the extent that the shares were acquired at a certain price and disposed of at a lower price. That difference constitutes a non-deductible capital loss on shares in the sense of article 198, §1, 7° ITC 1992. This presupposes that shares were recorded as assets on the balance sheet of the Belgian subsidiary, which was not the case in the given situation.

Furthermore, we consider it defendable that the costs are characterized as personnel costs at the level of the Belgian subsidiary. The remuneration of employees is explicitly defined as a deductible business expense in article 52, 3° ITC 1992. The tax authorities’ position in general in this respect is that costs incurred to grant benefits in kind to employees, constitute deductible business expenses (commentary ITC 1992, nr. 57/4).

The taxpayer is currently contemplating lodging an appeal with the Supreme Court. If the judgment of the Court of Appeal would become final, this may have far-stretching consequences in pending and future tax controversies.

Do not hesitate to get in touch with the contact persons listed here or with your regular contact at EY Tax Consultants for more information or assistance in this matter.