A “fairness” tax?

In Belgium they have a tax called a “fairness tax”. It is a 5.5% tax on dividends paid by certain companies – on top of corporate taxes paid.

Interestingly it is so “fair” that it is likely to be struck down in both the Belgium Supreme Court and the European Court of Justice.

So when does a “fairness tax” apply?

There has always been a problem with the fact that if you fund operations by debt you get deductions that you don’t get if you fund the operations with equity. So many countries, like Belgium, have an “Allowance for Corporate Equity”, or ACE as it is more commonly known. This is a tax deductions for using equity and is supposed to remove the tax difference between using debt and equity. Economists love these and get a run in every tax review (even got a run in the Henry Review final report).

After implementing an ACE the Belgium tax authorities found companies were claiming deductions for their equity – exactly as they were supposed to.

And this meant some of the company’s accounting profit was not subject to tax. And this profit, like any other profit, could be paid out as a dividend.

So to penalise corporates for doing what they were supposed to do under an ACE the Belgium government taxes dividends paid from untaxed profits at 5.5% – and they call this tax a “fairness tax”.

It appears in Belgium it is unfair to claim deductions that the tax laws specifically allow you to claim…


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