On 21 October 2024, the Court of First Instance of Liège rendered a remarkable judgement in favour of the tax authorities, denying the application of the domestic foreign tax credit (“QFIE” / “FBB”) on royalties received by a Belgian SCS (“société en commandite simple”) based on the general anti-abuse rule (Art. 344, §1 ITC).

This ruling shows that the Belgian tax authorities are increasingly challenging international tax planning arrangements, and sometimes successfully (see also [1] the Johnson Controls case)!

1️⃣ IP Structure

🔸 The Belgian SCS had entered into a “General License Agreeement” with a German group entity (X Services GmbH).
🔸 Under this agreement, the Belgian SCS had to pay to X Services GmbH 97% of the royalties received (in its capacity as “licensee”).
🔸 The SCS applied the domestic foreign tax credit (QFIE/FBB, art. 285 ITC), thereby mitigating its corporate income tax bill.

2️⃣ Group restructuring involving an Hybrid entity : the Belgian SCS

🔸 While the Belgian SCS is opaque from a Belgian tax perspective, it is treated as a tax transparent entity from a German tax point of view.
🔸 The use of a SCS precluded the royalties paid to X Services GmbH from being subject to German commercial tax (Gewerbesteuer).
🔸 The role/function of the Belgian SCS was previously performed by a Luxembourg SCS. The group had decided to carry out a restructuring and set up a Belgian company instead (a Belgian SA, which was later converted into a Belgian SCS) to manage the licenses, in order to benefit from the domestic foreign tax credit on royalties received.

3️⃣ Tax abuse

🔸 The Court considered that the whole structure was not set up for genuine business purposes, but for the main purpose of obtaining a tax advantage (foreign tax credit) contrary to the purpose of the relevant tax provision (Art. 285 ITC):
➡️ The SCS had chosen to receive “royalties” instead of a standard fee (“rémunération”) in order to benefit from the tax credit;
➡️ The SCS had a very limited degree of substance: it did not bear any risks and performed merely administrative and accounting services;
➡️ The court conducted a detailed analysis of the General License Agreement and concluded that the SCS did not have any freedom with respect to the granting of sub licences,…

4️⃣ Key takeaways

☀️ It is quite clear that the lack of substance of the Belgian entity had a significant influence on the court’s decision.
☀️ The fact that the restructuring took place with a view to obtain a (new) tax advantage (tax credit), without apparent economic/financial reasons, also played an important role.
☀️ And, last but not least, the use of an hybrid entity!

Denis-Emmanuel Philippe 

[1] Recent case-law (Johnson Controls case): (i) EU principle of prohibition of abuse – (ii) Transfer pricing (Court of First Instance of Leuven, 6 June 2025 – Denis-Emmanuel Philippe