Denial of excess DRD carry-forward for third country dividends compatible with Constitution

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On 10 October 2012, the Constitutional Court ruled that the denial of the carry-forward of excess dividend received deduction (DRD) for third country dividends does not constitute a violation of the constitutional non-discrimination principle (judgment 118/2012).


The Parent-Subsidiary Directive requires under certain conditions that Member States refrain from taxing parent companies on dividend income received from a subsidiary established in another Member State.

In the implementation of this directive into domestic law, the Belgian legislator extended the DRD regime to dividends from subsidiaries from outside of the EU. Originally, the legislator provided for a regime in which the dividend income is first included in the taxable basis of the parent company only to be deducted for 95% in the fourth operation insofar there was still a taxable  basis. If the taxable basis was insufficient after the third operation, any excess DRD was lost.

Following the decisions of the Court of Justice of the European Union in the Cobelfret case (C-138/07) and in the joined cases KBC and Beleggen, Risicobeheer, Beheer NV (C-439/07 and C-499/07) the legislator in 2009 introduced the carry-forward of the excess DRD in case of an insufficient  taxable basis in article 205, §3 Income Tax Code 1992 (ITC 1992). The carry-forward is limited, however, to dividends from subsidiaries located in Belgium, EU/EEA Member States and third countries with which Belgium has a double tax treaty containing an equal treatment clause for dividends. No carry-forward applies to excess DRD relating to dividends from subsidiaries from other countries.

Compatibility with the Constitution

The claimant before the Constitutional Court had received dividends from subsidiaries in South-Korea and Venezuela and was not allowed to carry-forward the excess DRD relating to those dividends. He considered this difference in treatment to constitute discrimination.

The Constitutional Court rejects the claim. The Court rules that it is up to the legislator to decide which items are included in the taxable basis and to determine his tax policy. The Constitution does not require that all dividends are treated in the same way. As the EU constitutes a specific legal order with extensive legal integration, the difference in treatment in article 205, §3 ITC 1992 is justified.

The fact that the ratification laws of the double tax treaties with South-Korea and Venezuela do not provide for an equal treatment on this matter is also not considered to be discriminatory.


No carry-forward of excess DRD is possible for bad dividends, i.e. income distributed by companies located outside of the EU and EEA (except when the applicable double tax treaty contains an equal treatment clause for dividends). Note that this exclusion principle is to a certain extent softened by deducting the "bad" DRD's before deducting or carrying over the "good" DRD's (i.e. the dividends for which a carry-forward is allowed) (Adm. Circ. nr. Ci.RH.421/597.150 , AOIF 32/2009 of 23 June 2009).