OPINION OF ADVOCATE GENERAL

SAUGMANDSGAARD ØE

delivered on 5 September 2019 ( 1 )

Case C‑389/18

Brussels Securities SA

v

État belge

(Request for a preliminary ruling from the tribunal de première instance francophone de Bruxelles (Belgium))

(Reference for a preliminary ruling – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435/EEC – First indent of Article 4(1) – National legislation intended to prevent double taxation of profits distributed by a subsidiary – Dividends deducted from the parent company’s tax base only in so far as there are taxable profits – Surplus capable of being carried forward indefinitely – Mandatory order in which deductible amounts are to be deducted)

I. Introduction

1. This reference for a preliminary ruling from the tribunal de première instance francophone de Bruxelles (Court of First Instance (French-speaking), Brussels, Belgium) concerns the interpretation of Article 4 of Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, ( 2 ) as amended by Directive 2006/98/EC ( 3 ) (‘Directive 90/435’).

2. Under the first indent of Article 4(1) of Directive 90/435, where a parent company receives distributed profits by virtue of its shareholding in a subsidiary located in another Member State, the Member State in which the parent company is established may opt to refrain from taxing such profits. Thus, when it transposed this provision, the Kingdom of Belgium adopted a system designed to exempt parent companies established in Belgium, to a certain extent, from paying tax on dividends received from subsidiaries established in other Member States, in order to avoid double taxation of such profits.

3. The Court has considered the Belgian corporate income tax system on several previous occasions, with particular regard to two systems, namely those of definitively taxed income (‘DTI’) and of deduction for risk capital (‘DRC’), which allow the profits concerned to be deducted, in very specific circumstances, from a company’s tax base. ( 4 )

4. The present case is a continuation of that line of case-law. It arises out of a dispute which in turn arises, essentially, from the fact that under Belgian law, dividends received by a parent company from its subsidiaries must initially be included in the tax base of the parent company and subsequently deducted as DTI – which can now be carried forward indefinitely – while at the same time, the DTI must be deducted before the DRC, which can only be carried forward for a limited time.

5. In essence, the Court is asked to determine whether Article 4(1) of Directive 90/435 precludes national legislation providing for such initial inclusion of dividends in the taxable profits of a parent company, while also making such provision as to the order in which deductible items of that kind are to be deducted. For the reasons set out in this Opinion, I consider that that question should be answered in the affirmative.

II. Legal background

A. European Union law

6. Although repealed by Directive 2011/96/EU, ( 5 ) with effect from 18 January 2012, Directive 90/435 is applicable ratione temporis, having regard to the dates of the facts of the main proceedings.

7. The fourth recital of Directive 90/435 states that ‘[where] a parent company by virtue of its association with its subsidiary receives distributed profits, the State of the parent company must: – either refrain from taxing such profits, – or tax such profits while authorising the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits’.

8. Under Article 4(1) and (2) of that directive: ‘1. Where a parent company or its permanent establishment, by virtue of the association of the parent company with its subsidiary, receives distributed profits, the State of the parent company and the State of its permanent establishment shall, except when the subsidiary is liquidated, either: – refrain from taxing such profits, or – tax such profits while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax related to those profits and paid by the subsidiary and any lower-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary meet the requirements provided for in Articles 2 and 3, up to the limit of the amount of the corresponding tax due. … 2. However, each Member State shall retain the option of providing that any charges relating to the holding and any losses resulting from the distribution of the profits of the subsidiary may not be deducted from the taxable profits of the parent company. Where the management costs relating to the holding in such a case are fixed as a flat rate, the fixed amount may not exceed 5% of the profits distributed by the subsidiary’.

B. Belgian law

1. The 1992 Income Tax Code (ITC 1992)

9. Directive 90/435 was transposed into Belgian law by the Law of 23 October 1991, ( 6 ) which amended the existing DTI system. A codification of the income tax legislation, and in particular the provisions relating to DTI, then took place in 1992. ( 7 )

10. The relevant provisions of the version of the 1992 Income Tax Code ( 8 ) applicable to the main proceedings, which is that relating to the 2011 tax year (‘the ITC 1992’), provide as set out below.

11. As regards DTI, Article 202(1)(1) of the ITC 1992 provides that ‘there shall also be deducted from the profits for the tax period, to the extent to which they are included: … dividends, with the exception of income which is received on the transfer to a company of its own listed or unlisted shares or during the complete or partial distribution of the assets of a company’.

12. Article 204(1) of the ITC 1992 states that ‘income deductible under paragraph 1(1) … of Article 202 shall be deemed to be found in the profits for the tax period up to 95% of the amount collected or received …’.

13. Under Article 205(2) and (3) of the ITC 1992: ‘2. The deduction provided for under Article 202 shall be limited to the amount of profit remaining in the relevant tax period after the application of Article 199, less [the expenses listed below] … The expenses referred to in subparagraph 1 shall not be deducted from income referred to in paragraph 1(1) … of Article 202 which has been allocated or attributed by a subsidiary established in a Member State of the European Union. For the purposes of the preceding subparagraph, “subsidiary” is to be understood in accordance with the definition in Directive [90/435]. 3. Income, to the extent of 95% of the total amount, referred to in paragraph (1)(1) … of Article 202 which has been allocated or attributed by a subsidiary referred to in paragraph 2, subparagraph 3 and established in a Member State of the European Union may, in so far as it has not been possible to deduct it, be carried forward to subsequent tax years.’

14. As regards the DRC, the first subparagraph of Article 205b(1) of the ITC 1992 provides that, ‘in order to determine the [DRC] in respect of a tax period, the risk capital to be taken into account corresponds, subject to the provisions of Article 205b(2) to (7), to the amount of the company’s equity capital at the end of the previous tax period, determined in accordance with accounting legislation and the annual accounts as shown on the balance sheet’.

15. As set out in Article 205d of the ITC 1992, ‘where there are no profits for a tax period in respect of which the [DRC] may be deducted, or where the profits are insufficient, the relief not granted for that tax period shall be carried over successively to the profits of the following seven tax periods’.

16. As regards business losses sustained in previous tax years, the first subparagraph of Article 206(1) of the ITC 1992 provides that such carried-forward losses ‘shall be successively deducted from the business income for each of the following tax periods’.

17. In the words of Article 207 of the ITC 1992, ‘the King shall determine the manner in which the deductions provided for in Articles 199 to 206 are to be made’.

2. The Royal Decree implementing the ITC 1992 (RD/ITC 1992)

18. The relevant provisions of the version of the Royal Decree implementing the ITC 1992 ( 9 ) which relates to the 2011 tax year (‘the RD/ITC 1992’) provide as set out below.

19. Chapter I of the RD/ITC 1992, headed ‘Tax base and calculation of tax’, contains Section XXVIII, headed ‘Determination of taxable income for the purposes of corporation tax’, which in turn contains Articles 74 to 79.

20. Article 77 of the RD/ITC 1992 provides that ‘the amounts referred to in Articles 202 to 205 of the [ITC] 1992 which are deductible as [DTI] or as exempt income from moveable property shall be deducted to the extent of the profits remaining after application of Article 76; that deduction shall be made having regard to the origin of the profits and, as a matter of priority, from the profits which contain those amounts’.

21. Under Article 77/1 of the RD/ITC 1992, ‘the deduction for patent income referred to in Articles 205/1 to 205/4 of the [ITC] 1992 shall be deducted to the extent of the profits remaining after application of Article 77’.

22. Article 77a of the RD/ITC 1992 provides that ‘the [DRC] referred to in Articles 205a to 205f of the [ITC] 1992 shall be deducted to the extent of the profits remaining after application of Article 77/1’.

23. Under the first paragraph of Article 78 of the RD/ITC 1992, ‘the business losses incurred during previous tax periods referred to in Article 206 of the [ITC] 1992 shall be deducted from the profits determined in accordance with Articles 74 to 77a, in so far as it has previously not been possible for those losses, which shall be calculated in accordance with the legislation applicable to the tax periods to which they relate, to be deducted …’.

24. Article 79 of the RD/ITC 1992 provides that ‘the investment deduction referred to in Articles 68 to 77 and 201 of the [ITC] 1992 shall then be deducted from the amount of Belgian profits remaining after the application of Article 78’.

III. The main proceedings, the question referred for a preliminary ruling and the procedure before the Court

25. Brussels Securities SA, which has its head office in Belgium, is subject to corporate income tax there. In its ‘corporate tax return’ for the 2011 tax year, it stated that in determining the tax base it had deducted the DRC first, and then the DTI.

26. By a notice sent on 21 May 2013, the Belgian tax authorities informed Brussels Securities SA of their intention to ‘adjust the amount of DRC which could be carried forward’ at the end of the 2011 tax year, on the basis of the rules set out in Articles 74 to 79 of the RD/ITC 1992, the effect of which is that deductions from taxable profits must be made in the following order: the DTI referred to in Article 77 of the RD/ITC 1992, then the DRC referred to in Article 77a, and finally the losses which may be carried forward referred to in Article 78.

27. As Brussels Securities had not made the deductions in that order in respect of the tax years 2005 to 2011, the tax authorities adopted a tax decision, dated 23 October 2013, in which they adjusted the deductible amounts that could be carried forward at the end of the 2011 tax year. Brussels Securities subsequently lodged an objection, which was rejected on 23 May 2014.

28. It then brought an action before the tribunal de première instance francophone de Bruxelles (Court of First Instance (French-speaking), Brussels) seeking annulment of the correction notice of 21 May 2013 and of the tax decision of 23 October 2013, and a declaration that the amounts of DTI (and surplus DTI) as well as the amounts of DRC (and surplus DRC) available to Brussels Securities had been correctly stated in its tax return for the 2011 tax year.

29. In support of its action, Brussels Securities maintains, inter alia, that the order in which tax deductions are to be applied, as set out in Articles 74 to 79 of the RD/ITC 1992 is not compatible with EU law, in that it entails an ‘infringement of the principle of [Directive 90/435] (more specifically, the prohibition of double taxation of dividends eligible to be treated as DTI)’ and an ‘infringement of [that directive] as interpreted by the judgment in Cobelfret’.

30. In defence, the État belge (Belgian State) argues, inter alia, that Directive 90/435 obliges Member States to refrain from taxing profits distributed by a subsidiary to its parent company, and that, as regards the corrections at issue in the main proceedings, the dividends received by Brussels Securities from its subsidiaries have been deducted from the tax base in their entirety, whereas the directive would only be infringed if they were not deducted.

31. In those circumstances, by decision of 26 January 2018, received at the Court on 13 June 2018, the tribunal de première instance francophone de Bruxelles (Court of First Instance (French-speaking), Brussels) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling: ‘Must Article 4 of … Directive [90/435], combined with other sources of [EU] law, be interpreted as precluding that regulations of a national authority, such as the [ITC 1992] and the [RD/ITC 1992], in the versions applicable in respect of tax year 2011, which opted for a system of exemption (refraining from taxing the distributed profits received by a parent company by virtue of its association with its subsidiary) under which, first, the dividend distributed by the subsidiary is included in the tax base of the parent company and, secondly, 95% of that dividend is deducted from that tax base as [DTI], by reason of the combined application, for the purpose of determining the basis for assessing the corporation tax of the parent company, of that Belgian system of deducting [DTI] and of (1) rules relating to another deduction constituting a tax advantage provided for by those regulations ([DRC]), (2) entitlement to deduct the outstanding amount of previous recoverable losses, (3) entitlement to carry forward to following tax years, where the relevant amount in respect of a tax year is higher than that of the taxable profits, imputation of the surplus [DTI], of the [DRC] and of the outstanding amount of the previous recoverable losses, and (4) the order in which deductions are to be applied, whereby, during those following tax years, deductions must be applied in the following order, until the taxable profits are used up: first, the [DTI], then the [DRC] carried forward (which may only be carried forward for the “following seven tax periods”), and then the outstanding amount of the previous recoverable losses, lead to the reduction, in respect of part or all of the dividends received from the subsidiary, of the losses that the parent company would have been able to deduct if the dividends had been simply excluded from the profits for the tax year during which they were received (with the effect of reducing the taxable profits for that tax year and increasing, where relevant, the tax losses that may be carried forward) rather than being retained within those profits and subsequently being subject to rules governing exemption and carrying forward the amounts which are exempted where there are insufficient profits, that is to say, reduction of the outstanding amount of the parent company’s previous recoverable losses that may occur during tax years following a tax year in respect of which the [DTI], the [DRC] and the outstanding amount of the previous recoverable losses exceed the amount of the taxable profits[?]’

32. Written observations were filed with the Court by Brussels Securities, the Belgian Government and the European Commission. Those same parties and interested parties were represented at two hearings, on 4 April 2019 and 3 July 2019.

IV. Analysis

33. In essence, the referring court wishes to know whether Article 4(1) of Directive 90/435 must be interpreted as precluding legislation of a Member State, such as that laying down the Belgian DTI system, which provides that dividends received by a parent company from its subsidiaries must first be included in the tax base of the parent company and subsequently deducted from it, to the extent of 95%, ( 10 ) that this deduction can be carried forward indefinitely where, for lack of a positive balance after deduction of other exempt profits, it has not been possible to deduct it in a given tax year, and that it is to be deducted before a tax benefit which may only be carried forward for a limited time, here the DRC. ( 11 )

34. The Belgian Government maintains that the referring court’s question must be answered in the negative, while Brussels Securities and the Commission would answer it in the affirmative. For the reasons set out below, I share the view of Brussels Securities and the Commission.

35. Before examining the subject matter of this reference for a preliminary ruling in more detail (Section B), I think it may be useful to summarise the way in which the Belgian DTI system has evolved in response to previous decisions of the Court on the interpretation of Article 4(1) of Directive 90/435 (Section A).

A. How the Belgian DTI system has evolved in relation to the case-law of the Court

36. First, it should be emphasised that, as was confirmed during the hearing before the Court, in adopting the legislation at issue in the main proceedings, the intention of the Kingdom of Belgium was to adapt the pre-existing DTI system ( 12 ) so as to transpose Directive 90/435, and more particularly the first indent of Article 4(1) of that directive, which provides for a system of exemption of income comprising profits received by a parent company from a subsidiary established in another Member State, in contradistinction to the second indent of that paragraph, which provides for a system of imputation of the tax already paid by the subsidiary, in respect of those profits, against the tax payable by the parent company. ( 13 )

37. Although not necessarily leading to the same concrete outcome for the recipient of the dividends, ( 14 ) the essential purpose of both systems is to prevent cross-border distributions of profits being subject to double economic taxation, ( 15 ) in that they are taxed once in the hands of the distributing company, then again in the hands of the receiving company. Indeed, as its third recital indicates, Directive 90/435 seeks, by the introduction of a common system of taxation, to eliminate any disadvantage to cooperation between companies of different Member States as compared with cooperation between companies of the same Member State and thereby to facilitate the grouping together of companies at EU level. All the provisions of that directive, and in particular Article 4(1), thus seek to ensure the neutrality, in fiscal terms, of the distribution of profits by a subsidiary established in one Member State to its parent company established in another Member State. ( 16 )

38. Secondly, I would point out that in the judgment in Cobelfret, the first indent of Article 4(1) of Directive 90/435 was interpreted as precluding legislation of a Member State such as the Belgian DTI legislation which was applicable in that case. ( 17 )

39. In this respect the Court noted that under the DTI system then in force it was provided, for the purposes of exempting dividends received by a parent company established in Belgium from a subsidiary with a head office in another Member State, that such dividends were to be included in the tax base of the parent company and subsequently deducted, in the amount of 95%, only in so far as the parent company had, for the tax year in question, a positive profit balance after deduction of other exempt profits. In other words, such dividends could only be deducted in so far as there were sufficient taxable profits remaining in the hands of the parent company in respect of the tax period during which the dividends had been distributed.

40. The Court also observed that the effect of such national legislation was that the parent company could benefit in full from the tax advantage only on the condition that it had not suffered negative results for the same tax period with regard to its other taxable income, and, furthermore, that when the parent company had not made other taxable profits in the tax period concerned, the effect of the legislation was that the losses which the parent company was able to carry forward were reduced to the amount of the dividends received. However, Member States could not unilaterally introduce restrictive measures and impose conditions on the possibility of benefiting from the advantages provided for in Directive 90/435.

41. The Court accordingly held that, even if the dividends received were not subject, directly, to corporation tax for the tax year in the course of which they had been distributed, the consequential reduction in the losses capable of being carried forward by the parent company to subsequent tax years could have the effect that the parent company was subject, indirectly, to taxation on those dividends in subsequent tax years when it had a positive financial balance. ( 18 ) Such effect of restricting the ability of a parent company to deduct dividends received from its subsidiaries, as DTI, was not compatible with the terms or the objective and scheme of Directive 90/435.

42. I understand this decision as meaning that, in order to comply with the first indent of Article 4(1) of Directive 90/435, legislation of a Member State relating to parent companies receiving dividends from subsidiaries located in other Member States cannot have the de facto effect of causing the parent company to lose another tax advantage which is provided for in national law, and which would have been fully available to the parent company if the dividends had not been so treated, as such a loss can be equated to indirect taxation of the dividends.

43. Thirdly, I note that in the order in KBC, which was made a few months after the judgment in Cobelfret had been delivered, the Court began by reiterating in essence the abovementioned considerations set out in that judgment, being conscious that the factual and legal circumstances of Cobelfret were analogous to those which had given rise to the first question considered in that order. ( 19 )

44. The Court went on to interpret the first indent of Article 4(1) of Directive 90/435, read in conjunction with Article 4(2) of that directive, as not necessarily requiring a Member State to permit profits distributed to a parent company by its subsidiary established in another Member State to be deducted in full from the parent company’s profits from the tax period in question, and any resulting loss to be carried forward to a later tax period. It was for each Member State to determine the detailed arrangements for ensuring that the result prescribed by the first indent of Article 4(1) of Directive 90/435 was attained. However, where a Member State had chosen the exemption system provided for in the first indent of Article 4(1) of Directive 90/435 and, in principle, allowed losses to be carried forward to subsequent tax periods, that provision precluded legislation which reduced, in the amount of the dividends received, the losses of the parent company which could be carried forward. ( 20 )

45. Fourthly, I note that, following the judgment in Cobelfret and the order in KBC, the provisions of Belgian law in question have been amended. As indicated in the order for reference, the Belgian State has reformed its system for deduction of DTI by adding a paragraph 3 to Article 205 ITC 1992, which is applicable ratione temporis in the present case. ( 21 )

46. Under that provision, up to 95% of the total amount of DTI which the parent company has not been able to deduct immediately, for lack of sufficient profits in the tax year during which its subsidiary distributed the dividends, may now be carried forward to subsequent tax years. Surplus DTI may, moreover, be carried forward indefinitely in this manner. Accordingly, the ability to deduct DTI is no longer limited to cases where, looking only at the tax year in which the distribution took place, there is a positive profit balance remaining after deduction of other exempt profits.

47. The referring court considers that, notwithstanding the improvements made by this reform, the possibility remains that the Belgian system of deduction of DTI, as it stood at the time of the facts of the main proceedings, infringed Directive 90/435 – a question to which I shall now turn.

B. Assessment of the compatibility with EU law of national legislation such as that at issue in the main proceedings

48. According to the referring court, Brussels Securities ‘specifically submits’ in the main proceedings that ‘the system of exemption of DTI laid down by the [ITC 1992], combined with the order in which deductions are to be applied as set out in the [1992 RD/ITC], leads indirectly – but ineluctably – to the [parent] company being taxed more heavily than if the dividends had simply been excluded from the tax base’, which may be incompatible with the first indent of Article 4(1) of Directive 90/435. Brussels Securities maintains that position before the Court. On the other hand, the Belgian government defends the contrary view. For its part, the Commission submits that a system such as that relating to DTI is incompatible with that provision not in itself, but on account of it applying in conjunction with the rules laying down the order in which other tax deductions are to be made and, where applicable, carried forward. I share the Commission’s view.

49. It seems to me that this reference for a preliminary ruling raises two issues, namely whether it is consistent with the first indent of Article 4(1) for legislation of a Member State to provide (1) for dividends received to be included and subsequently deducted from the parent company’s tax base, rather than being immediately excluded from it, and (2) for the order in which deductions are to be applied, according to which such dividends, or surpluses of such dividends, must be deducted – here as DTI – in advance of another tax advantage which is provided for by national law and which cannot be carried forward indefinitely – here the DRC. I consider that that provision must be interpreted to the effect that such national legislation is incompatible with it in that second respect.

1. The inclusion of the dividends in the parent company’s tax base, and their subsequent deduction

50. First of all, I observe that the Court has not yet ruled on whether national legislation such as that laying down the Belgian DTI system, under which profits distributed by a subsidiary are initially included in the tax base of a parent company established in another Member State, to be subsequently deducted from the tax base, ( 22 ) is in itself compatible with the first indent of Article 4(1) of Directive 90/435, under which Member States which have opted for the system contemplated by that provision – an exemption system – must refrain from taxing profits of that kind. I note that doubts as to whether such a mechanism is compatible with the directive were expressed at the time of its transposition in Belgium, and also in subsequent academic commentary on the matter. ( 23 )

51. Of course, closely related issues did come before the Court in the cases giving rise to the judgment in Cobelfret and the order in KBC, where the disputes in the main proceedings also related to provisions of the Belgian DTI system, some of which were the same as those at issue in the present case, since the provisions in force then already laid down a mechanism under which dividends were included in the parent company’s tax base and subsequently deducted as to 95%. However, the requests for preliminary rulings in those cases did not relate to whether such a mechanism was compatible with Directive 90/435 in itself, but focused on legal issues connected with that aspect of the DTI system, and more specifically the conditions which then applied to the deduction of DTI. ( 24 )

52. Thus, although the legal background to those cases was partly analogous to that of the present case, they did not lead to a ruling from the Court on the question, which appears to me to be submitted by the referring court, of whether it is compatible with the first indent of Article 4(1) of Directive 90/435 for national legislation to require dividends received from a subsidiary by a parent company established in another Member State to be initially included in the tax base of the parent company and subsequently deducted from it, rather than ‘simply’ excluding them from the tax base. ( 25 )

53. I consider that such an approach is not in itself incompatible with the system of exempting profits distributed by a subsidiary, which is provided for by the first indent of Article 4(1) of Directive 90/435. In my opinion, this conclusion follows not only from the wording and origins of that provision, but also from its objectives and context; ( 26 ) those are the matters which must be considered in order to identify the relevant assessment criteria, before the national legislation at issue in the present case is examined in the light of those criteria.

54. As regards the terminology used in Article 4(1) of Directive 90/435, and in the fourth recital of that directive, I note that these state that, when transposing the directive, each Member State must, in respect of parent companies established within its territory, either refrain from taxing the profits that such companies receive from subsidiaries located in another Member State (first indent), or tax such profits while authorising the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those same profits (second indent).

55. Having regard to that formulation, I consider that the first of the approaches thus available – the ‘exemption system’, ( 27 ) chosen by the Kingdom of Belgium ( 28 ) – implies only that no tax is ultimately payable, ( 29 ) either directly or indirectly, in respect of the distributed profits, and not necessarily that they must be excluded ab initio from the tax base of the parent company. It does not seem to me that the legislative work which preceded Directive 90/435 contradicts that interpretation. ( 30 ) I note that, by contrast, the second approach – the ‘imputation system’ – permits such profits to be taxed, but on the basis that they are deductible from the tax paid by the subsidiary, subject to the conditions set out above. ( 31 )

56. As regards the objectives of Directive 90/435, and in particular of the first indent of Article 4(1) of that directive, I observe that the Court has already pointed out that it is apparent, particularly from the third recital of the directive, that its aim is to eliminate, by introducing a common system of taxation, any disadvantage to cooperation between companies of different Member States, as compared with cooperation between companies of the same Member State, and thereby to facilitate the grouping together of companies at EU level. In order to ensure the neutrality, for tax purposes, of the distribution of profits by a subsidiary established in one Member State to its parent company established in another Member State, the directive aims to avoid, in economic terms, double taxation of profits, in other words, to avoid taxation of distributed profits, first, in the hands of the subsidiary and, then, in the hands of the parent company. ( 32 ) My proposed interpretation of the first indent of Article 4(1) of the directive is fully in line with those objectives.

57. As regards the context in which Article 4(1) of Directive 90/435 appears, I would emphasise that it lays down the result to be achieved by the Member States, namely to prevent double taxation of the profits concerned by choosing one or other of the systems for which it provides, but that, because of the specific nature of EU legal instruments of its type, it does not constrain the Member States as regards the detailed rules to be made for that purpose.

58. The Court made reference to those rules in the order in KBC, ( 33 ) pointing out first of all that it is for each Member State to organise, in compliance with EU law, its system for taxing distributed profits and to define, for that purpose, the tax base and rate applicable to the recipient shareholder. It added that the first indent of Article 4(1) of Directive 90/435 does not prescribe the manner in which a Member State that has chosen the exemption system must implement it, given that, under Article 249 EC (now Article 288 TFEU), Member States may choose the form and methods for implementing directives which best ensure the result to be achieved by those directives. The Court concluded that Member States are free to determine, in particular taking into account the requirements of their domestic legal systems, the detailed arrangements for ensuring that the result prescribed by the first indent of Article 4(1) of Directive 90/435 is attained.

59. It is well settled that, as EU law presently stands, the field of direct taxation traditionally falls within the competence of the Member States, which must nonetheless exercise that competence in compliance with their obligations under EU law. ( 34 ) In particular, within the area harmonised by Directive 90/435, Member States must observe the provisions of that directive, which allocate the power of taxation between them by prohibiting the Member State of the parent company from taxing, directly ( 35 ) or indeed indirectly, profits which are distributed to the parent company by the subsidiary, in order to prevent double taxation of such profits. In the order in KBC, the Court set out the substance of those principles and drew conclusions from them with more specific regard to the exemption system contemplated by Article 4(1) of Directive 90/435. ( 36 )

60. Having regard to all the above considerations, I take the view that, in the present case, a mechanism under which such profits are initially included in the tax base of the parent company, and subsequently deducted from it, as prescribed by the Belgian DTI system at issue in the main proceedings, is not in itself incompatible with the first indent of Article 4(1) of Directive 90/435, in so far as the use of that mechanism effectively enables the result prescribed by that provision to be attained.

61. I observe, first of all, that, as the Belgian Government has indicated, the provisions at issue in the main proceedings satisfy the requirement of Directive 90/435 that cross-border corporate groups must not be subject to differential treatment as compared with Belgian corporate groups. Meeting that requirement of not penalising cooperation between companies established in different Member States as compared with cooperation between companies established in the same Member State is a necessary, but not, in itself, a sufficient condition of compatibility of such a mechanism with the requirements arising from the first indent of Article 4(1) of Directive 90/435. ( 37 )

62. Secondly, I observe that the first indent of Article 4(1) defines the result to be attained, namely that profits distributed by a subsidiary established in a Member State are not taxed again in the Member State of its parent company, but does not prescribe the means by which it is to be attained. It follows, in my opinion, that a Member State which has opted for the exemption system contemplated by that provision retains the possibility of employing a method of inclusion and deduction of such profits, such as that established by the Belgian DTI system, even though – quite evidently – there are simpler methods of attaining the result described above, such as excluding the profits from the parent company’s tax base ab initio. I emphasise that, in my view, there is no requirement to be found in the wording, the scheme, or the objectives of Directive 90/435 dictating the use of the latter method, which I would describe as ‘basic’, notwithstanding that such a variant appears to have been chosen by certain Member States. ( 38 ) Nonetheless, whatever procedure is chosen by a Member State, its application must necessarily result, regardless of the situation or circumstances, in effective exemption of the profits in the hands of the parent company.

63. In this regard, to my mind the essential point is that national legislation such as that at issue in the main proceedings must allow dividends which have been distributed by subsidiaries and included in the tax base always to be deducted in fine, ( 39 ) so that the mechanism of inclusion and deduction does not have the effect of putting the parent companies concerned in a less favourable economic position than they would be in if the profits they received from subsidiaries established in other Member States were simply excluded in the calculation of their tax. However, like the Commission, ( 40 ) I consider that the ability to carry DTI forward indefinitely, introduced following the judgment in Cobelfret and the order in KBC, means that the Belgian DTI system now potentially enables all the parent companies concerned to deduct 95% ( 41 ) of surplus dividends ( 42 ) at some point in time, so as to avoid double taxation of such dividends.

64. I therefore take the view that national rules which, like those at issue in the main proceedings, provide for a mechanism under which profits distributed by a subsidiary are included in the tax base of a parent company, and then deducted in the year of distribution, or over subsequent years, with no time limit, are not in themselves incompatible with the first indent of Article 4(1) of Directive 90/435, provided that the company concerned does not suffer a de facto loss of another tax advantage provided for by national law which would, all things being equal, have been available to it if the dividends had been exempted ab initio.

65. Accordingly, it remains necessary to determine whether a mechanism of that kind, while permissible in itself, nevertheless generates effects prohibited by the first indent of Article 4(1), which materialise in the years after the distribution of profits ( 43 ) as a result, more specifically, of the interaction of that mechanism with the prescribed order in which other tax advantages are to be deducted. It is in precisely that respect that, in my view, incompatibility arises in the present case.

2. The combination of the system of deferred deduction of dividends and the order in which other tax advantages must be deducted

66. As I have mentioned, the referring court also invites the Court to determine whether the first indent of Article 4(1) of Directive 90/435 precludes national legislation under which a parent company’s obligation to deduct profits received from subsidiaries established in other Member States – here, under the Belgian DTI scheme – indirectly affects the right to deduct other tax advantages – here, the DRC – as a result of the order in which the deductions in question are required to be made from the company’s tax base. I propose to answer that question in the affirmative.

67. First, I think it is necessary to highlight the two principally relevant aspects of the national legislation at issue in the main proceedings.

68. On the one hand, the Belgian DTI system interacts with the other tax advantage – the DRC ( 44 ) – in that the DRC can also be subtracted from the tax base of a parent company, but only to the extent of the profits remaining after deduction of DTI. The DRC is thus deducted after DTI. ( 45 ) It is apparent from the order for reference that this order of deduction was introduced in 2005, and thus well before the reform prompted by the judgment in Cobelfret. ( 46 ) As to the considerations which led to the adoption of that rule, the Belgian Government stated in its oral submissions that there was ‘a certain logic’ in deducting accounting items which the legislature did not wish to tax, such as DTI or patent revenue, ( 47 ) before making non-accounting deductions, notably in respect of the investment deduction ( 48 ) or the DRC. ( 49 )

69. On the other hand, unlike surplus DTI, which can be carried forward indefinitely, surplus DRC can only be carried forward for a period of seven years, pursuant to the version of Article 205d of the ITC 1992 which applies to the dispute in the main proceedings. ( 50 ) The Belgian Government states that the restriction of the period over which the DRC may be carried forward was intended to counterbalance the extent of that deduction, which, at the time of its introduction, was calculated on the basis of the entire equity capital of the company.

70. Secondly, it is necessary to consider whether such national legislation is or is not compatible with the first indent of Article 4(1) of Directive 90/435 having regard, principally, to the practical effects of combining the DTI system, under which dividends received are included in the tax base of the parent company and subsequently deducted from it, with the obligation to deduct DTI before the DRC, which, moreover, may only be carried forward for seven tax years.

71. In this regard, the referring court correctly observes that, in contrast to the situation arising under legislation of the type at issue in the main proceedings, ( 51 ) under what might be described as a ‘basic’ exemption system, ( 52 ) the dividends distributed by the subsidiary are simply excluded from the profits for the tax year in which they were received, and this immediate exclusion results in a corresponding reduction in taxable profits and, where applicable, a corresponding increase in losses capable of being carried forward to subsequent tax years.

72. Referring to a worked example which also appears in the material submitted by Brussels Securities, ( 53 ) the referring court notes, rightly in my view, that in cases where the parent company achieves a positive result in one of the ‘following seven tax periods’ referred to in Article 205d of the ITC 1992 (which limits the period over which the DRC can be carried forward), the system of deduction of DTI is liable to result in a higher tax burden than would be imposed by a system of immediate exclusion of dividends received from subsidiaries, as a result of the order in which tax deductions are to be applied as set out in the ITC 1992 and the RD/ITC 1992. That court explains that under a theoretical immediate exclusion of such dividends, the DRC would be deducted as a priority over the outstanding amount of losses brought forward, with the result that the balance of such losses to be carried forward to the following tax period would be higher than under the Belgian DTI system, under which, where a positive result has been achieved in the course of the ‘seven following tax periods’, the balance of DTI brought forward is required to be deducted before the balance of DRC brought forward, thus restricting the use of that tax advantage.

73. Furthermore, the comparative tables produced by the Commission at the hearing confirm that the DTI system, combined with the mandatory order in which deductions are to be made, can prevent a parent company from carrying forward the whole of its surplus DRC, in contrast to a mechanism permitting the company to exclude dividends received from its tax base immediately, or to choose the order in which it wishes to deduct the tax advantages available to it. ( 54 ) While it has sought – in vain, as I see it ( 55 ) – to play down the effect in the present case, the Belgian Government does not contest this data, ( 56 ) which shows that the legislation at issue in the main proceedings can lead to the loss of a tax advantage, and thus to a correspondingly higher tax burden.

74. Having regard to those considerations, I share the view of Brussels Securities and the Commission that, under the national legislation at issue in the main proceedings, the ability to benefit from the DRC is affected by the requirement to deduct DTI from the tax base first. The rule giving priority to DTI is, in fact, intended to run down the balance of DTI, which can be carried forward indefinitely to subsequent tax years, but it also has a detrimental effect on the DRC, which it is in the parent company’s interests to deduct as quickly as possible, given that the right to carry DRC forward is, in contrast, limited to the following seven tax periods, such that there is a greater risk of that right being nullified by the treatment given to dividends under the DTI system.

75. In other words, the combined effect of the national provisions in question is to tax the parent company more heavily than it would have been if the requirements of Directive 90/435 had been fully complied with, as the Belgian DTI system may, on account of its combined application with the prescribed order in which deductions are to be applied, have the effect of preventing a loss-making company from deducting another brought-forward item, namely the DRC, in subsequent tax years, when it would be advantageous to the company to give priority to that deduction so as to prevent it from expiring before it can be fully used. The practical result of such national legislation is thus to deprive the parent companies concerned, in certain circumstances, of a tax advantage provided for by national law which would have been fully available to them if the dividends received from subsidiaries had not been treated in the manner prescribed by that legislation.

76. I reiterate that the Court has already held that the first indent of Article 4(1) of Directive 90/435 is to be interpreted as precluding national legislation which has the effect of reducing the losses of the parent company which are capable of being carried forward to the extent of the dividends distributed, where – as in the present case – a Member State has chosen the exemption system contemplated by that provision and, in principle, allows losses to be carried forward, given that such a reduction of losses may lead to the company in question being indirectly taxed on those dividends in future tax years in which it has taxable profits. ( 57 )

77. Like the Commission, I take the view that these considerations are fully applicable to the present case, with regard to the practical consequences of combining the system of inclusion and deduction of DTI with the order in which DTI are required to be deducted where there are other tax deductions to be made. I emphasise that, in my view, such a system can only be considered to comply with the requirements of Directive 90/435 to the extent that its implementation has a perfectly neutral outcome, which is to say that there are no circumstances in which the parent companies concerned receive less economically favourable treatment than they would if the dividends distributed were excluded from the tax base at the outset.

78. Accordingly, national legislation such as that at issue in the main proceedings is, in my opinion, not compatible with the first indent of Article 4(1) of Directive 90/435 in so far as it has the potential to cause parent companies receiving dividends from subsidiaries established in other Member States to lose a tax advantage, by reducing the losses capable of being carried forward to subsequent tax years by the amount of those dividends, and can therefore be regarded as indirectly taxing such dividends, contrary to both the objective of exempting them, which is specifically contemplated by that provision, and the general objective of fiscal neutrality, which is pursued by that directive. ( 58 )

79. In other words, in seeking to remedy the shortcomings identified by the Court in the judgment in Cobelfret and the order in KBC, the reform enacted by the Belgian legislature in December 2009 led to non-compliance with that directive in another respect, since the new DTI system has a negative impact on the carrying-forward of the DRC, in that the treatment given to dividends distributed by subsidiaries has led to an increased risk of the parent companies concerned losing surplus DRC. ( 59 )

80. Thirdly, the arguments advanced by the Belgian Government in support of the argument that such national legislation complies with Article 4(1) of Directive 90/435 are, in my view, unconvincing.

81. First of all, the Belgian Government maintains that even if deferring the deduction of DTI can, ultimately, prevent the deduction of DRC brought forward, that situation cannot be regarded as indirect taxation of the dividends received, because such taxation will not necessarily occur. ( 60 )

82. I consider, however, that the fact that the detrimental effects of the national legislation concerned, consisting in double taxation of profits distributed by a subsidiary to its parent company, only materialise in certain circumstances, ( 61 ) and not systematically, does not in any way affect the matrix of considerations set out above, since the existence of such potential effects is, in itself, sufficient to establish incompatibility with EU law.

83. Next, the Belgian Government asserts that in any event, even where the loss of the right to carry DRC forward does amount to taxation of the parent companies concerned, ( 62 ) such taxation does not – even indirectly, as in Cobelfret – relate to the dividends received. It argues that if, at the point in the tax calculation at which the DRC is deducted, there are profits remaining, that can only mean that there is no further DTI to be deducted, given that DTI is deducted before the DRC, and thus that the dividends received from subsidiaries have been fully extracted from the tax base, such that any taxation resulting from the loss of the ability to carry the DRC forward cannot relate to those dividends. It also maintains that a tax which does not relate to dividends received by a parent company cannot infringe Article 4(1) of Directive 90/435, any more than a tax which is chargeable when a subsidiary makes a distribution of dividends, but does not relate to those dividends, can infringe Article 5(1) of that directive. ( 63 )

84. However, I consider that this line of argument is invalidated by the judgment in Cobelfret and the order in KBC, where the Court, in interpreting the obligations arising from Article 4(1) of Directive 90/435, had regard to the corollary effects that national legislation such as that at issue in the main proceedings could have, in terms of reducing the losses which the parent company in question was able to carry forward, and held that that such a reduction could lead to indirect taxation of dividends received from a subsidiary in subsequent tax years. ( 64 ) In that way, the Court assimilated a ‘loss of losses’ with an indirect ‘taxation of profits’, thus taking an ‘economic’ approach, which is consistent with the objective pursued by the directive, ( 65 ) as the fact that brought-forward losses are no longer available to be set off against future taxable profits has the potential to lead to double taxation of such dividends. In my view, as I have indicated above, this is precisely the kind of case that calls for such an approach. ( 66 )

85. Lastly, the Belgian Government maintains that the legislative choices of the Kingdom of Belgium which are at issue – those relating to the order in which deductions are to be made and the restriction of the period over which the DRC can be carried forward – fall within the exclusive competence of the national legislatures.

86. However, I would point out that Member States are required to comply with the provisions of Directive 90/435, and in particular to take all necessary steps to achieve the result prescribed by the first indent of Article 4(1) of that directive, ( 67 ) which is that dividends received from subsidiaries established in other Member States are not – even indirectly —taxed twice; as I have stated above, national rules such as those arising from the Belgian DTI system, in conjunction with the provisions restricting deduction of the DRC, do not achieve that result.

87. Accordingly, my opinion is that the first indent of Article 4(1) of Directive 90/435 is to be interpreted as precluding legislation of a Member State which provides for dividends received by a parent company to be included in the tax base of that company and subsequently deducted, as to 95%, from that tax base, to the extent that a positive profit balance remains in the tax period concerned, or in any subsequent tax period, while also providing that such dividends are to be deducted prior to another tax advantage which is provided for by national law, and which can only be carried forward for a limited time.

V. Conclusion

88. In the light of all the foregoing considerations, I propose that the Court should answer the question referred by the tribunal de première instance francophone de Bruxelles (Court of First Instance (French-speaking), Brussels, Belgium) as follows: The first indent of Article 4(1) of Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States must be interpreted as precluding legislation of a Member State which provides for dividends received by a parent company to be included in the tax base of that company and subsequently deducted, as to 95%, from that tax base, to the extent that a positive profit balance remains in the tax period concerned, or in any subsequent tax period, while also providing that such dividends are to be deducted prior to another tax advantage which is provided for by national law, and which can only be carried forward for a limited time.

( 1 ) Original language: French.

( 2 ) Council Directive of 23 July 1990 (OJ 1990 L 225, p. 6).

( 3 ) Council Directive of 20 November 2006 (OJ 2006 L 363, p. 129).

( 4 ) See, principally, judgment of 12 February 2009, Cobelfret (C‑138/07, EU:C:2009:82), ‘the judgment in Cobelfret’, and order of 4 June 2009, KBC Bank and Beleggen, Risicokapitaal, Beheer (C‑439/07 and C‑499/07, EU:C:2009:339), ‘the order in KBC’. See also judgments of 4 July 2013, Argenta Spaarbank (C‑350/11, EU:C:2013:447, paragraphs 3 to 9 of which contain a succinct description of the DRC system), and of 26 October 2017, Argenta Spaarbank (C‑39/16, EU:C:2017:813, paragraph 10 of which contains a succinct description of the DTI system).

( 5 ) Council Directive of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 2011 L 345, p. 8).

( 6 ) Moniteur belge of 15 November 1991, p. 25619.

( 7 ) For more detail, see the judgment in Cobelfret (paragraph 6 and onwards), and judgment of 26 October 2017, Argenta Spaarbank (C‑39/16, EU:C:2017:813, paragraph 7 et seq.).

( 8 ) Moniteur belge of 30 July 1992, p. 17120.

( 9 ) Moniteur belge of 13 September 1993, p. 20105.

( 10 ) I would point out that the fact that the deduction is limited to 95% is due to the Kingdom of Belgium having made use of the option, provided for in Article 4(2) of Directive 90/435, to fix the non-deductible (and hence taxable) management costs at a flat rate not exceeding 5% of the profits distributed by the subsidiary (see the order in KBC, paragraphs 51 and 52).

( 11 ) Brussels Securities has also argued, both at national level and before the Court, that this order of deduction contravenes the freedom of establishment provided for by Article 49 TFEU. I propose, however, to leave that issue to one side, as the Belgian Government and the Commission have done. It is apparent from the order for reference that this argument was connected with a submission – rejected by the referring court – that the Belgian constitution has been infringed. Furthermore, the question submitted to the Court does not refer, even by implication, to Article 49 TFEU, and it does not seem to me that interpreting that provision would assist the national court to determine the case before it, in the sense in which that expression has been used in settled case-law of the Court (see, inter alia, judgment of 19 December 2018, AREX CZ (C‑414/17, EU:C:2018:1027, paragraphs 34 and 35)).

( 12 ) As to the origins of the DTI system and the reasons given for retaining it, see Malherbe, J., ‘Le régime mères-filiales en Belgique: la leçon d’anatomie’ (The Belgian parent-subsidiary regime: an anatomy lesson), Revue pratique des sociétés, 2010, pp. 34 to 37.

( 13 ) Whereas, under the exemption system, the Member State in which the parent company is established does not tax such profits, the imputation system involves taxing them while authorising the parent company to deduct, from the amount of tax it is liable to pay, that fraction of the corporation tax paid by the subsidiary which relates to those profits, together with any withholding tax collected by the Member State in which the subsidiary is resident, up to the amount of the corresponding tax (see, in particular, the judgment in Cobelfret, paragraphs 31 and 43, and judgments of 26 October 2017, Argenta Spaarbank, C‑39/16, EU:C:2017:813, paragraph 49, and of 26 February 2019, T Danmark and Y Denmark, C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 12).

( 14 ) See judgment of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 43), and the judgment in Cobelfret (paragraph 31).

( 15 ) Double taxation is referred to as ‘economic’ when two States subject different taxpayers to tax in respect of the same income, and as ‘juridical’ where two States subject the same taxpayer to tax in respect of the same income (see Jourdain, S., ‘Excédents de RDT : une véritable odyssée fiscale’ (DTI surpluses: a veritable tax odyssey), Comptabilité et fiscalité pratiques, No 8, 2009, p. 209).

( 16 ) See, in particular, the judgment in Cobelfret (paragraphs 29 and 46), and judgments of 8 March 2017, Wereldhave Belgium and Others (C‑448/15, EU:C:2017:180, paragraphs 25, 35 to 37 and 39), and of 26 October 2017, Argenta Spaarbank (C‑39/16, EU:C:2017:813, paragraphs 47 and 48).

( 17 ) See paragraphs 27 to 57 (particularly 35 to 41) of the judgment in Cobelfret. Moreover, in paragraphs 58 to 65 of that judgment, the Court held that the first indent of Article 4(1) had direct effect, being unconditional and sufficiently precise to be capable of being relied on before national courts. See also Opinion of Advocate General Sharpston in Cobelfret (C‑138/07, EU:C:2008:268, point 12 et seq.).

( 18 ) Since, in principle, the tax legislation in question allowed losses to be carried forward to subsequent tax years, the reduction of losses to the parent company which could benefit from being thus carried forward up to the amount of the dividends received had an effect on the tax base of that company during the tax year following that in which those dividends had been received, in so far as its profits exceeded the losses which could be carried forward. Following the reduction in the losses which could be carried forward, the basis of assessment was increased.

( 19 ) See paragraphs 33 to 44 and point 1 of the operative part of the order in KBC, interpreting the first indent of Article 4(1) of Directive 90/435 as ‘precluding legislation of a Member State which, for the purposes of the exemption of dividends received by a parent company established in that State from a subsidiary established in another Member State, requires such dividends to be included in the parent company’s basis of assessment, in order subsequently to be deducted in the amount of 95%, in so far as the parent company has, for the tax period in question, a positive profit balance after deduction of other exempted profits, and as a result of which:

– if the parent company had no or insufficient taxable profits during the taxable period in which those distributions were made, it is to be taxed in respect of a later taxable period on the distributed profits received, or

– the losses of that taxable period are to be offset against distributed profits and cannot be carried forward, up to the amount of those distributions, to a subsequent taxable period.’

( 20 ) See paragraphs 45 to 54 and point 2 of the operative part of the order in KBC. The Court also ruled on questions with no direct bearing on the present request for a preliminary ruling, namely the jurisdiction of the Court where the request for a preliminary ruling is based on the applicability, to a purely internal situation, of provisions of a directive which have been transposed into national law, the interpretation of provisions of the EC Treaty concerning free movement of capital, and the interpretation of Article 43 EC (now Article 49 TFEU) concerning freedom of establishment (see paragraphs 55 to 82 and points 3 to 5 of the operative part).

( 21 ) The Belgian Government states that the new paragraph 3 is applicable to the 2011 tax year – the year to which the main proceedings relate – having been inserted into the ITC 1992 by Article 8 of the Law of 21 December 2009 (Moniteur belge of 31 December 2009, p. 82816), which entered into force on 1 January 2010.

( 22 ) It seems that the procedure of including such profits in the tax base and subsequently deducting them from it is related to the principle of taxing the ‘overall’ – hence worldwide – income of companies, which is articulated in Article 1(1)(2) of the ITC 1992 (see, to that effect, Richelle, I., ‘Cobelfret et l’interprétation de la directive mère-filiales : le régime belge des RDT est contraire au droit communautaire’ (Cobelfret and the interpretation of the parent-subsidiary directive: the Belgian DTI system is contrary to EU law), Revue générale de fiscalité, No 3, 2009, pp. 4 and 6).

( 23 ) According to Jourdain, S., op. cit. note 15, p. 210, not only the Commission, in a letter of 5 July 1991, but also a report by independent experts published in March 1992, and much of the academic commentary, took the view that implementing Directive 90/435 correctly meant excluding dividends from taxable income ab initio, as opposed to including and subsequently deducting them.

( 24 ) See points 38 to 46 of this Opinion.

( 25 ) In the words of the question referred and the reasoning of the order for reference.

( 26 ) It is settled case-law that a provision of EU law must be given an autonomous and uniform interpretation throughout the European Union, which must take into account its wording, its context, the objective pursued by the legislation of which it forms part, and its origins (see, inter alia, judgments of 17 January 2019, Brisch (C‑102/18, EU:C:2019:34, paragraph 22), and of 11 April 2019, Tarola (C‑483/17, EU:C:2019:309, paragraphs 36 and 37)).

( 27 ) The Court has stated that there is no significant difference between the concepts of ‘refraining from taxing’ and ‘exempting’ the profits received by the parent company (see the judgment in Cobelfret, paragraph 43, and the case-law cited in footnote 13 of this Opinion).

( 28 ) See point 36 of this Opinion.

( 29 ) See, to that effect, judgment of 22 December 2008, Les Vergers du Vieux Tauves (C‑48/07, EU:C:2008:758, paragraph 42), where the Court held that the tax advantage available to a parent company under the first indent of Article 4(1) of Directive 90/435 is to ‘receive profits without being taxed’.

( 30 ) The proposal for a Council Directive on the common system of taxation applicable in the case of parent companies and their subsidiaries of different Member States, presented by the Commission on 16 January 1969 (OJ 1969 C 39, p. 7), Provided, in Article 4(1) thereof, that ‘distributed profits received by any parent company by virtue of its association with its subsidiary … shall not form part of its taxable profits’ (my emphasis), but did not prescribe any method to be adopted to that end. The Opinion of the Economic and Social Committee of 26 June 1969 on that proposal (OJ 1969 C 100, p. 7, point 2) noted that ‘the underlying principle of the directive, as regards the tax treatment of distributions of profits, [is that] any profits already charged to corporation tax shall no longer be subject to such tax if they are received by another company liable for corporation tax’ (my emphasis). The proposal submitted on 5 July 1985 (COM(1985) 360 final), which led to the adoption of Directive 90/435, does not contain any indication on this point.

( 31 ) See footnote 13 of this Opinion.

( 32 ) See, in particular, the judgment in Cobelfret (paragraphs 28 and 29), and the case-law cited in footnote 16 to this Opinion.

( 33 ) See paragraphs 46 to 50 and point 53 of the order in KBC.

( 34 ) See, inter alia, judgments of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraph 33); of 19 July 2012, A (C‑48/11, EU:C:2012:485, paragraph 16); and of 19 December 2018, Cadeddu (C‑667/17, EU:C:2018:1036, paragraph 15).

( 35 ) I would point out that, in the present case, it is common ground that the legislation at issue in the main proceedings does not lead to direct taxation of dividends in the hands of the parent company. See also the judgment in Cobelfret (paragraph 40), and the order in KBC (paragraph 40).

( 36 ) See paragraph 54 of the order in KBC and point 44 of this Opinion.

( 37 ) In that regard, I note that the Court has held that even though, in applying the DTI system to the dividends distributed by both resident subsidiaries and those established in other Member States, the Kingdom of Belgium seeks to eliminate all penalisation of cooperation between companies of different Member States as compared with cooperation between companies of the same Member State, nevertheless such equal treatment does not justify the application of a system which is not compatible with the system for preventing economic double taxation set out in the first indent of Article 4(1) of Directive 90/435 (see the judgment in Cobelfret, paragraphs 45 and 46, and the order in KBC, paragraph 42).

( 38 ) Other countries do not include distributed dividends in the tax base of parent companies, according to Richelle, I., ‘L’arrêt Cobelfret de la CJCE et ses conséquences sur le régime des RDT’ (The CJEU’s judgment in Cobelfret and its consequences for the DTI system), Tax Audit & Accountancy, No 4, 2009, p. 11, and Hermand, O. and Vanoppen, S., ‘Non-report des excédents de RDT : violation du droit européen’ (Inability to carry forward surplus DTI: an infringement of EU law), Le Fiscologue, No 1148, 20 February 2009, p. 12 et seq. For its part, Malherbe, J., op. cit. note 12, p. 35, states that ‘in France, dividends received by parent companies are deducted outwith the accounts and can be transferred freely within the group’. I note that the current Article 216 of the French General Tax Code provides that ‘net returns on shareholdings which give rise to an entitlement to the application of the parent company system … may be deducted from the total net profit of the parent company’.

( 39 ) See, by analogy, the Opinion of Advocate General Sharpston in Cobelfret (C‑138/07, EU:C:2008:268, paragraph 21), concerning the regulations applicable at that time.

( 40 ) In the Commission’s view, the provisions of Belgian law transposing the first indent of Article 4(1) of Directive 90/435, in the version applicable to the main proceedings, do not appear in themselves to prevent the non-taxation of distributed profits falling within the scope of that directive, as the DTI system ensures, in principle, that dividends are not taxed in the hands of the parent company, albeit that the deduction is potentially effected over several tax years.

( 41 ) Remembering that this restriction is permitted (see footnote 10 to this Opinion).

( 42 ) That is, dividends which could not be deducted from the tax base of the company in the tax year of distribution, due to insufficient profits.

( 43 ) The Commission made reference, rightly in my opinion, to the risk of the parent company’s use of the DTI deduction being ‘spread over time’, where the parent company has an insufficient tax base in the year of distribution, or indeed in subsequent years.

( 44 ) As to this characterisation of the DRC, see judgment of 4 July 2013, Argenta Spaarbank (C‑350/11, EU:C:2013:447, paragraph 24).

( 45 ) Noting that DTI and the DRC are deducted before deductible business expenses (see Articles 77, 77a and 78 of the RD/ITC 1992)

( 46 ) The order for reference states that the preparatory work relating to the Law of 22 June 2005 introducing the DRC (Moniteur belge of 30 June 2005, p. 30077), in particular the commentary to Article 5 of the draft law dated 11 May 2005, show that it was the legislature that determined the order of deduction which is laid down by the RD/ITC 1992 and which, according to Brussels Securities, may affect the future tax base of a company in certain circumstances.

( 47 ) Noting that patent revenue is deducted after DTI but before the DRC (see Articles 77/1 and 77a of the RD/ITC 1992).

( 48 ) Investment deduction referred to in Article 79 of the RD/ITC 1992.

( 49 ) The Belgian government characterises these as ‘non-accounting deductions’ in the sense that the items subtracted from the company’s accounting profits are not items that would initially have appeared in its profit and loss account, such as dividends received from subsidiaries or patent income, but items appearing on the company’s balance sheet, either as assets (such as the investment deduction) or as liabilities (such as the DRC).

( 50 ) It emerged at the hearing that the provisions restricting the period over which the DRC can be carried forward were amended in 2012, with the amended provisions taking effect after the tax year at issue.

( 51 ) The Belgian legislation having the effect, as it is put at the end of the third paragraph of the question referred, that ‘imputation must cover, until the taxable profits are used up, first, the [DTI] carried forward, then the [DRC] carried forward (which may only be carried forward for the “following seven tax periods”), and then the balance of the previous recoverable losses’.

( 52 ) See also point 62 of this Opinion.

( 53 ) The worked example compares the determination of the tax position of a parent company on two bases, other things being equal: firstly, on the basis of the order in which tax deductions are to be applied as set out in the RD/ITC 1992, in conjunction with the Belgian DTI system (which gives rise to taxable profits corresponding to the surplus DRC which was lost because it was not used before the end of the prescribed seven-year period), and secondly, on the basis of that same order of deduction but with a theoretical immediate deduction of dividends received (which gives rise to taxable profits of nil, because, instead of having surplus DTI to be deducted before the DRC, the company has losses capable of being carried forward which are deducted after the DRC and thus extinguish the surplus DRC).

( 54 ) In these tables, which are similar in content to the worked example provided by the referring court, the Commission notes that in the first case, under the Belgian legislation, the parent company loses all the DRC which it is unable to use within the prescribed seven-year period, while in the second case, under an system of ab initio exemption of the dividends, compliant with Directive 90/435, the company has taxable profits of nil, and the amount of surplus DRC which it is unable to deduct, and therefore loses, is lower than in the first case.

( 55 ) See point 81 et seq. of this Opinion.

( 56 ) The Belgian Government expressly admitted in the course of its submissions that ‘the inclusion of dividends received in the tax base of a [loss-making] parent company, leading to DTI being carried forward instead of losses, may, because of the order in which the deductions are made, have the effect of deferring the deduction of DRC carried forward, with the risk, it is true, that the period for doing so may expire’.

( 57 ) See the judgment in Cobelfret (paragraphs 39 to 41), and the order in KBC (paragraphs 39, 40 and 54). It was rightly noted, in relation to the provisions which were in force at the time of the cases giving rise to those decisions, that the DTI system penalises a parent company which, if the dividends had not been dealt with in the manner laid down by that system, would have recorded a loss for the tax period in question, and would have been able to deduct that loss from the profits for subsequent periods, given that including the dividends in the tax base, while also restricting the deduction of DTI to the amount of taxable profits, causes the loss capable of being carried forward to disappear (Garabedian, D., ‘L’influence de la jurisprudence Cobelfret sur le régime fiscal des dividendes à l’impôt des sociétés’ (The influence of the Cobelfret case-law on the corporation tax treatment of dividends), Les dialogues de la fiscalité, Larcier, Brussels, 2010, p. 59).

( 58 ) As regards those objectives, see point 56 of this Opinion.

( 59 ) See also Hermand, O., Delacroix, P. and Wils, C., ‘Une nouvelle déduction fiscale est née : “les excédents RDT” – Commentaire du nouvel article 205, § 3, du CIR 1992’ (The birth of a new tax deduction: Surplus DTI – Commentary on the new Article 205(3) of the ITC 1992), Revue générale de fiscalité, No 2, 2010, p. 7, and Dassesse, M., ‘Impôt des sociétés – Déduction prioritaire des RDT vis-à-vis des excédents de DCR – La Belgique viole les principes de l’arrêt Cobelfret’ (Corporation tax – Deduction of DTI prior to surplus DRC – Belgium in breach of the Cobelfret principles), Actualités fiscales, No 41, 2014, pp. 2 and 4 (this article was cited by Brussels Securities, with particular reference to the worked example which is reproduced in its written observations).

( 60 ) It argues that limiting the period over which the DRC can be carried forward leads to taxation only if, after recording insufficient profits for seven years, the parent company subsequently records a profit, whereas if the company does not return to profitability, or is liquidated, it is not affected by the loss of the right to carry the DRC forward, and the disadvantage thus remains theoretical.

( 61 ) That is, wherever the priority given to the deduction of DTI results in the tax base being extinguished, or reduced to such an extent that another tax advantage cannot be fully deducted from it (see, to that effect, Dassesse, M., op. cit. note 59, p. 2).

( 62 ) That is, in the situation just referred to, where the company returns to profitability after the seven-year period prescribed by Article 205d of the ITC 1992 has expired.

( 63 ) In this last respect, the Belgian Government refers to the judgments of 25 September 2003, Océ van der Grinten (C‑58/01, EU:C:2003:495, paragraphs 55 and 56), and of 24 June 2010, P. Ferrero e C. and General Beverage Europe (C‑338/08 and C‑339/08, EU:C:2010:364, paragraphs 40 and 41). However, I am not convinced that there is any relevant analogy to be drawn with those judgments, which concern the concept of ‘withholding tax’ within the meaning of Article 5 of Directive 90/435, which prohibits such a tax being charged on profits distributed by a subsidiary to its parent company, except in certain specific cases, as also set out in the fifth recital of that directive. See, to that effect, judgment in Cobelfret (towards the end of paragraph 53), where an analogy between Article 4(1) and Article 6 of that directive was rejected.

( 64 ) See the judgment in Cobelfret (paragraphs 39 to 41), and the order in KBC (paragraphs 39 and 40). See also points 41, 44 and 76 of this Opinion.

( 65 ) To use the terminology of an academic analysis which I regard as correct (see Hermand, O. and Vanoppen, S., op. cit., note 38).

( 66 ) See, especially, points 76 and onwards of this Opinion.

( 67 ) See also point 57 et seq. of this Opinion.