Netherlands: The Tax Deductibility Of European Fines For Cartel Violations: On Borrowed Time

Last Updated: 26 March 2013
Article by Pascal Faes and François Herbecq

[image]

On 20 December 2012, the Belgian Constitutional Court rendered an important judgment which will certainly have significant consequences for large companies. Indeed, the financial stakes of the question submitted to the court were high, namely the tax treatment of fines imposed by the European Commission for cartel violations.

The origin of the European Commission's investigation

The Treaty on the Functioning of the European Union allows the Commission to impose sanctions for violations of the prohibition on the formation of cartels. In 2004, the Commission launched an investigation into whether the Belgian company Tessenderlo Chemie had violated the rules of European competition law.

From the outset of the investigation, and over the course of many years, Tessenderlo consistently set aside reserves in order to hedge against the risk of the imposition of a fine by the Commission, the amount of which would surely be substantial (more than EUR 84 million).

Under Belgian tax law, "reserves for risks and expenses" are, as a general rule, exempt from tax. That being said, this is only the case when the expenses for which the reserves are constituted qualify as deductible business expenses.

Article 53(6) of the Income Tax Code expressly provides that fines and penalties of any kind do not constitute business expenses. However, this statutory provision has given rise to discussion over the years, mainly concerning the definition of "fines". Indeed, for some time, this article has been interpreted as disallowing the deduction of criminal fines only, not administrative fines.

Consequently, Tessenderlo Chemie set aside, since 2004, tax-exempt reserves to hedge against the imposition of a deductible "administrative" fine by the European Commission.

The administrative circular

On 13 August 2008, the tax administration issued a circular in which it let it be known that, in its opinion, fines for cartel violations were not deductible, having regard to their repressive character. In the wake of this circular, the administration sent Tessenderlo Chemie a notice of adjustment, stating that the reserves it had built up were not tax-exempt and that the company thus owed back taxes amounting to approximately EUR 25 million. It is interesting to note, however, that the Antwerp Court of Appeal, in a similar case in 2009, had accepted the deductibility of a fine imposed by the Belgian Competition Council. 

In the case at hand, after the rejection of its objection, Tessenderlo Chemie commenced proceedings before the Brussels Court of First Instance, contesting the tax adjustment. In the context of these proceedings, the court decided to submit a request for a preliminary ruling to the Constitutional Court on the following question: Is it discriminatory to disallow the deduction of criminal fines, contrary to administrative fines?

Allowing the deduction of fines for cartel violations would undermine the Union's general policy

The proceedings before the Constitutional Court took a remarkable turn, and certain parties were allowed to intervene, including the European Commission, and provide their opinion on the consequences that would follow from a decision to allow the tax deduction of fines for cartel violations.

In its submissions, the Commission stated that the main purpose of fines sanctioning violations of EU competition law is to dissuade companies from engaging in anti-competitive practices (notably, the formation of cartels). It follows that fines for cartel violations are per se both persuasive and punitive in nature.

In other words, allowing the deductibility of fines for cartel violations would undermine the Commission's general policy of dissuasion, which is designed to protect consumers against cartels.

This position was echoed by the Constitutional Court, following its analysis of the case law of the European Court of Justice. It concluded that the possibility to deduct European fines would compromise the efficacy of the sanction. Moreover, the court found that, in the context of European policy, loyal cooperation between the Member States is necessary. Consequently, a provision of domestic tax law should not jeopardise the realisation of the Union's objectives.

Conclusion: a truly dissuasive effect on companies

This judgment comes during a period in which the commitment of the Member States to a European-wide policy of integration is more relevant than ever.

The 2008 circular touched on this point: other Member States, including France and the Netherlands, do not allow the deduction of European fines; moreover, allowing the deduction of European fines would in essence amount to subsidisation by the Belgian government of this sanction.

Finally, it should be noted that the Constitutional Court did not rule on the compliance of the Belgian system with EU law.  Certain questions thus remain unanswered. Nonetheless, the trend appears to be toward disallowing the deduction of European fines, which could have significant financial implications for large companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions