{"id":4386,"date":"2025-08-19T17:45:13","date_gmt":"2025-08-19T15:45:13","guid":{"rendered":"https:\/\/denisemmanuelphilippetax.be\/?p=4386"},"modified":"2025-08-19T17:47:34","modified_gmt":"2025-08-19T15:47:34","slug":"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","status":"publish","type":"post","link":"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\/","title":{"rendered":"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"},"content":{"rendered":"

The Belgian newspaper L’Echo has reported that a Belgian subsidiary of a US MNE (Johnson Controls) has been caught in the tax net. I had the pleasure of sharing some thoughts on this case with Philippe Galloy.<\/strong><\/p>\n

The amounts claimed by the tax authorities were significant. The Belgian tax authorities denied, amongst other things, the Belgian participation exemption regime -the so-called Dividend Received Deduction \/ “DRD”- (\u20ac249,566,745 in tax year 2015 and \u20ac89,520,210 in tax year 2016) on dividend distributions made by a UK company to the Belgian company.<\/p>\n

The Belgian tax authorities also challenged the arm’s length nature of the interest rate applied to a \u20ac800 million loan granted by a Luxembourg finance company to the Belgian company.
\n
\n1. EU principle of prohibition of abuse<\/strong><\/p>\n

\u25aa\ufe0f The Court ruled that the DRD regime should be denied on the basis of the EU principle of prohibition of abuse (abuse of the Parent-Subsidiary Directive, “PSD”).<\/p>\n

\u25aa\ufe0f 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 (DRD regime) contrary to the purpose of the PSD => “artificial structure” (“kunstmatige constructie”) the overal objective of which was to upstream profits without triggering any taxes.<\/p>\n

\ud83d\udd26 note : the profits of the UK subsidiaries were not subject to corporate tax in the UK thanks to group relief provisions. See also my previous post for more details [1]<\/a>.<\/p>\n

\u2600\ufe0f The Court confirmed that the EU principle of prohibition of abuse may be applied “retroactively”, thereby referring to the Supreme Court decision of 30 November 2023 (see also [2]<\/a>).<\/p>\n

2. Transfer pricing <\/strong>
\n<\/strong>
\n\u25fe The tax authorities argued that the interest rate applied (7.22%) was excessive and that the market rate should have been 4.88%.<\/p>\n

\u25aa\ufe0f The Belgian company was however able to produce a TP report prepared by Professors Shapiro and Sarin, supporting the interest rate applied.<\/p>\n

\u25aa\ufe0f Not satisfied with the conclusions of this report, the tax authorities asked the company to carry out a second TP study (conclusion => market rate = fork between 6.95% and 7.65%, based on the modified CUP method).<\/p>\n

\u25aa\ufe0f The tax authorities had challenged the conclusions of this second TP report (the modified CUP method was not appropriate; the Belgian company was a “core subsidiary”, and not merely a “strategically important subsidiary”,…).<\/p>\n

\u25aa\ufe0f The Court largely endorsed the conclusions of the second TP report and ruled that an interest rate of 6,93% was acceptable.<\/p>\n

\u2753 Why 6,93% (and not, e.g., 6,95%) ? The Court refused to take into consideration the subordinated character of the loan (>< 2nd TP report), on the ground that it was “not motivated at all”.<\/p>\n

Denis-Emmanuel Philippe\u00a0<\/strong><\/em><\/p>\n

1 Abus de la Directive m\u00e8re-filiale (PSD RDT) : nouvelle application jurisprudentielle retentissante (trib. Louvain, 6 juin 2025) – Denis-Emmanuel Philippe<\/a><\/p>\n

2 Het Hof van Cassatie verfijnt zijn rechtspraak over het algemene Europese antimisbruikbeginsel – Denis-Emmanuel Philippe<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Belgian newspaper L’Echo has reported that a Belgian subsidiary of a US MNE (Johnson Controls) has been caught in the tax net. I had the pleasure of sharing some […]<\/p>\n","protected":false},"author":2,"featured_media":4169,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","om_disable_all_campaigns":false,"inline_featured_image":false,"_monsterinsights_skip_tracking":false,"iawp_total_views":149,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[37],"tags":[],"class_list":["post-4386","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-news-en"],"acf":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t