The Court of Appeal upholds the tax-neutral restructuring loss relief scheme

In a ruling dated December 13, 2023, the Court of Appeal of Brussels considered the appeal of a company which had previously experienced substantial tax losses. The company had absorbed another (profit-making) company under the tax neutrality regime. Its previous losses had been reduced (by around 80%) in application of the rule in Article 206 § 2 of CIR 92 (reduction in proportion to the net tax assets of the companies involved). This reduction was contested based on a number of arguments in the context of a dispute relating to the 2010 tax year. It was argued that the Belgian provision was contrary to two European directives (the Third Directive on mergers of public limited companies and the Directive of 23 July 1990 on cross-border mergers for tax purposes). The Court denied that the first of these directives had any effect in tax law, adding that previous losses could not be regarded as constituting assets, nor could their recovery constitute a right, whereas the company argued that both should be recognised as having a value, the disappearance of which in the event of a merger conflicted with the principle of maintaining the entirety of the assets and liabilities of the companies involved. The tax directive, for its part, the Court ruled, was silent on the fate of the losses of the acquiring companies, confining itself to governing the fate of the losses of the acquired companies and ensuring equal treatment of their recovery regime if the transaction was cross-border and not purely domestic. There is nothing to suggest that the Directive requires the losses of an acquiring company to be maintained, added the Court.

The company put forward various complaints based on the discrimination introduced by Article 206 § 2 of CIR 92 (violation of Articles 10 and 11 of the Constitution): why does the provision apply automatically in the event that the tax neutrality regime is opted for, which presupposes that the transaction is not carried out with the aim of obtaining a tax advantage? The situation of a non-neutral merger, in which the acquiring company could retain all of its previous losses, had been highlighted. According to the Court, the legislator's objective was to combat, in a general way, transactions aimed at transferring profit-making capacity to a company with losses carried forward, whether or not this situation was abusive. Furthermore, there is no reason to restrict the comparison between a neutral merger and a taxed merger solely to the fate of previous losses: the tax treatment of other elements (unrealised capital gains, other tax latencies) must also be taken into consideration. All this would make it possible, on the basis of the case law of the Court of Cassation on which the Court of Appeal relies (a judgment of 22 September 2022, F.20.0101.F is cited in particular) to recognise the tax treatment of the two types of restructuring as objectively justified, without having to take account of specific effects. The taxpayer company had argued in vain that articles 79 and 207 paragraph 2 of CIR 92 (abnormal or gratuitous advantages) would in any event have allowed the tax authorities to oppose transfers of profits or profitable activities in abnormal circumstances. The question referred to the Constitutional Court by the appellant company for a preliminary ruling was therefore not raised.