Law & Numbers - News Tax

Loss in head office/profit in permanent establishment


A Belgian company has permanent establishments in Nigeria and Ghana. In 2002, the company sustains a loss in Belgium while it makes profits in Africa.

In 2003, the company deducts the 2002 Belgian loss against its Belgian profits of 2003. Based on art. 75 of the Royal Decree executing the Income Tax Code, the tax authorities rejected the deduction : loss has already been set off against profits made in Ghana and Nigeria. The fact that these profits are not taxable in Belgium anyway (there is a tax treaty with Nigeria) is irrelevant.

The tribunal of first instance in Brussels (October 26th, 2007) turns down the reasoning of the tax Administration. The judge considers that art. 75 conducts to a illegal discrimination since a Belgian company that owns a permanent establishment abroad bears globally the same tax burden, whatever the results (profit or loss) of the head office.

It should be reminded that the European Court of Justice had already condemned the principle on which art. 75 is based but only in relations inside Europe. The Belgian Tax Authorities have accepted this ruling but stick to the text in extra-european relations.

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