On 21 January 2026, the Court of Appeal of Mons denied the application of the DRD Regime on dividends (approx. 22mio €) distributed by a Belgian company to its Belgian parent company, based on the specific anti abuse provision of the PSD (Art. 203, §1, 7° ITC).

1️⃣ A passive holding company

🔸 The Court considered that the use of the holding company was abusive based on the following arguments:

➡️ The holding had a very limited degree of substance. Its activity was limited to the holding of two subsidiaries. Its income amounted to 6k € per year (to cover the operational costs). No employees. No infrastructure… 🫣
➡️ The holding was set up for the main purpose of obtaining a tax advantage (DRD Regime) contrary to the purpose of the PSD. According to the judge, the holding was non genuine/artificial.
➡️ The dividend distribution occurred only a few days after the incorporation of the holding / the transfer of the participations to the holding 🫣.
➡️ The dividends received were used by the holding to finance the share price. The amount of the dividends was almost equal to the share price…. 🫣

2️⃣ Even domestic dividend distributions may be targeted

☀️ This court case echoes the judgement issued by the Tribunal of First instance of Bruges on 21 October 2024 (denial of the withholding tax exemption on dividends between two Belgian companies, based on Art. 266, (4) ITC). In this case, the holding also lacked economic substance…

🤔 This case-law shows that the participation exemption regime may be challenged even in the case of dividend distributions between two Belgian companies!

3️⃣ Paradigm shift

Tax practitioners have seen a huge paradigm shift during the last couple of years. The economic substance of holding companies is becomingly increasingly important (even in a pure domestic context), which can be explained by the adoption of numerous anti-abuse rules in the international tax arena (GAAR)

For other recent examples:

🔸 The Johson Controls case (Trib. Leuven, 6 June 2025, see also my previous post [1]) : application of the DRD Regime rejected on dividend distributions made by a UK company to a Belgian company (on the basis of the EU principle of prohibition of abuse).
🔸 The Primus Case (Court of Appel of Ghent, 1 December 2020): denial of the withholding tax exemption of the Parent-Subsidiary Directive on dividend distributions made by a Belgian company to a SOPARFI, on the grounds that the latter lacked economic substance (no genuine economic activity in Luxembourg), based on the EU principle of prohibition of abuse.

Key takeaway: The substance of holding companies is crucial. Even for domestic groups!

Denis-Emmanuel Philippe 

[1] https://denisemmanuelphilippetax.be/en/tax-news-en/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/