Belgium's Constitutional Court ruled on 9 April 2026 that tax provisions denying loss carry-forwards when companies face penalties of at least 10% for late or incorrect filing comply with constitutional principles, rejecting challenges that the rules grant excessive discretion to tax inspectors or discriminate against companies in liquidation.
Belgium’s Constitutional Court delivered its decision regarding Case No. 41/2026 of 9 April 2026, following preliminary questions from the Dutch-language Brussels Court of First Instance, the Limburg Court of First Instance (Hasselt division), and the Ghent Court of Appeal.
The cases involved multiple companies whose taxable income was increased by punitive surcharges of at least 10% due to filing violations.
Under Article 207(7) of the Income Tax Code, when such penalties are imposed, companies cannot reduce their taxable base through loss carry-forwards or various other deductions. For businesses in liquidation, this means permanently forfeiting accumulated losses, as they have no future profits against which to offset them.
Legality and predictability
The Court examined whether the provision violated Article 170 of the Belgian Constitution, which requires tax laws to be sufficiently clear and precise. Taxpayers challenged the measure on the grounds that tax inspectors possessed excessive discretionary power in deciding whether to impose the 10% penalty.
The Court determined that granting discretionary authority to tax administration does not inherently breach constitutional requirements, provided judicial oversight exists. Tax inspectors can waive the penalty if taxpayers demonstrate they acted without bad faith, and officials must adhere to principles of due care, legal certainty, equality and proportionality when making decisions.
The Court concluded that legislators provided sufficiently clear criteria for inspectors to assess each case individually, making the tax consequences reasonably foreseeable for taxpayers who seek appropriate professional advice.
Non-discrimination analysis
Regarding equality principles under Articles 10, 11 and 172 of the Constitution, the Court found the distinction created by Article 207(7) rests on objective criteria and serves a legitimate purpose: ensuring companies fulfil tax filing obligations.
The measure is proportionate because it only applies when non-declared income exceeds EUR 2,500, and penalties range from 10% to 200% depending on the severity of the violation. The Court noted that allowing loss carry-forwards could completely nullify the deterrent effect of penalties, undermining tax compliance objectives.
Treatment of liquidated companies
A specific constitutional challenge addressed whether the rules unfairly discriminate against companies in liquidation, which permanently lose deduction rights rather than merely deferring them.
The Court ruled that liquidated and active companies occupy comparable positions regarding filing obligations. The permanent forfeiture of losses stems not from the penalty provision itself, but from the termination of business activities inherent in liquidation.
Additionally, courts retain full authority to review assessments and waive penalties when no bad faith exists, thereby restoring deduction rights in appropriate circumstances. This judicial oversight provides adequate protection against disproportionate outcomes.
