Fiscal investment institutions are outside the scope of Parent Subisidiary Directive


Fiscal investment institutions are outside the scope of Parent Subisidiary Directive

The Court of Justice judged that fiscal investment institutions cannot be qualified as “companies of a Member State”, since application of the 0% rate effectively rules out taxability.

22 march 2017

Dutch version

Facts and circumstances

A Belgium based CV (limited partnership) paid dividends to its shareholders in 2000. Two shareholders of the CV were Dutch resident companies that were subject to the Dutch regime for fiscal investment institutions. The dividend distributions were subject to withholding tax (roerende voorheffing) in Belgium. The Court of Justice (CJEU) was asked whether this deduction at source is compatible with the provisions of the Parent Subsidiary Directive.

Parent Subsidiary Directive

The Parent Subsidiary Directive provides for a prohibition of withholding taxes in qualifying situations. Such situations occur when the respective companies (i) have a qualifying legal form and (II) are tax residents of an EU Member State, while (III) there is a shareholding of at least 10%, and (IV) both companies would be subject - without freedom of choice and without being exempt - to a profit tax referred to in the Annex to the Parent Subsidiary Directive. The discussion in this case focused on the last condition.

Fiscal investment institutions

Fiscal investment institutions are subjectively subject to corporate income tax. However, the rate is 0%, as a result of which fiscal investment institutions effectively do not pay any corporate income tax. One of the requirements for qualification as a fiscal investment institution is that the entire profit of the fiscal investment institution must be distributed to the underlying participants within eight months after the end of the financial year in which the profit was realized.

CJEU judgment

The CJEU interpreted the taxability test such that a company - like a fiscal investment institution - formally falling within the scope of the corporate income tax alone does not suffice. On top of that, the Court argues, the company should be excluded from the scope of the Directive as and when this tax is not effectively paid. According to the CJEU, application of the 0% rate is to be put on a par with non-tax liability. Since fiscal investment institutions fall outside the scope of the Parent Subsidiary Directive, the withholding exemption does not have to be applied under that Directive either.


The judgment provides some clarity about one of the conditions for application of the Parent Subsidiary Directive. This is an interesting question from a scientific perspective, given that most authors argued that subjective taxability alone would be sufficient. This now appears not to be the case.

Yet the CJEU’s judgment does not mean that all dividend distributions to Dutch fiscal investment institutions can be subject to dividend withholding tax. The Parent Subsidiary Directive may not be applicable, but the European freedoms of movement certainly are. Depending on the individual situation, a withholding exemption may still be granted. The Belgian judge also asked the CJEU whether this was the case for the Belgium CV. However, the CJEU did not address this question because the judge had failed to substantiate it. So the debate on this point has not yet come to an end.

Source: Court of Justice March 8, 2017, C-448/15 (Wereldhave Belgium), ECLI:EU:C:2017:180.

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