Belgium Condemned for Failure to Transpose Article 8(7) ATAD into its CFC Rules

1. The ATAD framework and the initial choice of Belgium

The ATAD requires Member States to implement CFC rules designed to include, under certain conditions, the undistributed profits of low-taxed subsidiaries in the tax base of the resident parent company.

Two models are available for determining the income to be included: Model A (“entity-based”) and Model B (“transactional”). However, Article 8 ATAD governs the calculation of CFC income in all cases and establishes mechanisms to eliminate double taxation, including the mandatory tax credit under Article 8(7).

Belgium introduced its CFC regime in 2019 through Article 185/2 of the Income Tax Code (CIR 92), initially opting for Model B, based on the concept of “non-genuine arrangements” targeting income artificially diverted to a low-taxed CFC.

At the time of transposition, the Belgian legislature expressly decided not to implement Article 8(7) ATAD, arguing that the Directive established only a minimum level of protection and permitted stricter measures, in particular, the denial of any credit for foreign taxes paid by the CFC.

The European Commission initiated infringement proceedings in 2020 and, following a reasoned opinion dated 2 December 2021, referred the case to the CJEU (C‑524/23) in 2023 for failure to transpose Article 8(7).

2. Case C‑524/23 – Scope of Article 8(7) ATAD

The CJEU was asked a straightforward question: may a Member State choose not to transpose Article 8(7) when implementing CFC rules?

Belgium argued, in particular, that:

• ATAD is an instrument of minimum harmonization (Article 3), authorizing national measures that further protect the domestic tax base;
• Article 8(7) would only apply where a Member State opts for Model A (Article 7(2)(a)), and not where it chooses Model B;
• denying the foreign tax credit strengthens the deterrent effect of the CFC rules and thereby furthers the objective of combating base erosion.

The Court adopted a considerably stricter approach:

• Article 8(7) is drafted in mandatory terms and contains no opt-out clause or exception. It requires “the Member State of the taxpayer” to allow the deduction of tax paid by the CFC or permanent establishment. The reference to domestic law relates only to the method for calculating the credit.
• Article 8(7) applies irrespective of the choice between Model A and Model B: while other paragraphs of Article 8 explicitly distinguish between the two models, paragraph 7 is of general application.
• Recital 5 of ATAD states that anti-avoidance rules should not create other obstacles to the internal market, such as double taxation. The tax credit under Article 8(7) is an integral part of that balance.

The Court therefore concluded that the “minimum level of protection” clause in Article 3 does not allow a Member State to neutralize a double-taxation prevention mechanism expressly provided for by the Directive. Stricter measures are permitted, but only beyond this mandatory floor not in contradiction with it.

Since Belgium failed to adopt the provisions transposing Article 8(7) within the period laid down in the reasoned opinion of the Commission, the Court declared that there had been an infringement of the Anti-Tax Avoidance Directive.

3. Interaction with the reformed CFC regime in Belgium

In the meantime, Belgium substantially overhauled its CFC regime through the Programme Law of 22 December 2023, switching to an entity-based model (Model A) applicable from assessment year 2024. The new regime applies to a broader range of entities (foreign companies and permanent establishments of Belgian or foreign companies), with control assessed by combining direct shareholdings and participations held through associated entities, and subject to a low-taxation test (nil tax or tax less than half of the Belgian tax computed under Belgian rules).

The regime includes several safe harbors that exempt a CFC where it carries out substantive economic activity, where its passive income does not exceed one third of total income, or where it is a qualifying financial institution with limited intragroup flows.

In addition, multiple mechanisms are designed to prevent double taxation of CFC income taxed in Belgium, including a tax credit for foreign taxes paid by the CFC, a specific dividend-received deduction (RDT), and a correlative exemption on capital gains on shares in respect of profits already subject to Belgian corporate income tax.

These amendments bring Belgian law into significantly better alignment with the ATAD framework as interpreted by the CJEU, even though the C‑524/23 ruling formally establishes the infringement for the period prior to these adjustments.

4. Recovering denied CFC tax credits in practice

For the period between 2019 and the entry into force of the reformed CFC regime (tax year 2024), Belgian parent companies whose CFC income was included in their tax base were therefore entitled to a credit that was not provided for in Belgian law.

Based on the judgment of the Court of Justice, these taxpayers may claim a refund of the resulting excessive tax, either through the standard administrative appeal procedure (one-year deadline) or through the ex officio relief procedure (five-year deadline). For the purposes of applying the latter procedure, the Court of Justice’s judgment can be regarded as a new fact, which is a prerequisite for its application.

5. Conclusion – A more demanding but more coherent CFC regime

The C‑524/23 judgment confirms that the CFC tax credit under Article 8(7) ATAD is a mandatory obligation that Member States cannot disregard. For Belgian groups, the ruling creates both a recovery opportunity for prior years, to be pursued through the general correction mechanisms of Belgian tax law, and a compliance imperative going forward.

We would be happy to assist you in analyzing your specific situation, identifying the remedies available in your case, and initiating the necessary procedures to that end. We can also support you in ensuring full compliance with the reformed CFC regime going forward.