Holdings structures are coming under increasing scrutiny worldwide. While they were long accepted as a way to spread risk, manage investments, and organize a business with an eye toward the future, they are now being viewed with growing skepticism at both the national and international levels. Passive holding companies (those with no demonstrable economic activity) are coming under particularly heavy criticism.
This trend is not only taking place beyond our borders, but is also becoming increasingly evident in Belgian case law and tax practice. What does that mean for you?
An international trend against passive investment funds
The focus on passive holding companies is by no means a purely Belgian issue. At the international and European levels the pressure is mounting to grant tax benefits only to structures with real economic substance.
In the application of the European Parent-Subsidiary Directive, we see that tax authorities and courts are applying increasingly strict criteria to determine whether a holding company effectively functions as final beneficiary can be considered. In early 2025, an opinion from the Dutch Advocate General clearly illustrated that trend: a Belgian intermediate holding company that holds only passive equity interests can be excluded from the exemption Dutch dividend tax. In that case, withholding tax imposed, despite the fact that the formal requirements of the directive have been met.
This approach is part of a broader international movement in which anti-abuse provisions be applied more actively and artificial structures are more likely to be rejected. For entrepreneurs with international group structures, the message is clear: A holding company must do more than just keep track of shares.
Belgium isn't falling behind
These stricter international regulations are having an impact in Belgium as well. The Belgian tax authorities are also taking a closer look today more critical than ever before to holding companies with no clear economic function, with a specific focus on passive holding companies.
A recent ruling by the Court of Appeals in Bergen confirms this position. In this case, a new holding company, A, was established within a family group. The structure was as follows:
- Shares in an existing family-owned holding company B were contributed to the new holding company A;
- Subsequently, the new holding company A also purchased the remaining shares from other family members, without immediate payment;
- Shortly thereafter, dividends from the operating company C flowed through the former holding company B to the new holding company A;
- Those dividends were used to pay off the purchase price of the shares.
The holding company adjusted the FDI Deduction in order to exempt the dividends received from corporate income tax. However, the tax authorities (and later the courts as well) ruled that the structure had been set up primarily to obtain the following tax benefits:
- receive dividends tax-free, and
- to finance the purchase of shares using funds from within the group.
Since the holding company itself engaged in virtually no economic activity, the structure was considered artificial was considered, and the DBI deduction was denied.
What does this mean for you as an entrepreneur?
The (international) trend is clear: a passive holding company without business purposes is vulnerable from a tax perspective.
Do you have a holding structure, or are you considering one? If so, it is crucial to be able to demonstrate that:
- Your holding company actual economic function has. This can be done, for example, by taking an active role on the boards of subsidiaries.
- The structure is based on business reasons, not just for tax reasons. This can be achieved, for example, by centralizing decision-making at the holding company level and providing strategic, financial, or support services through the holding company.
- Making good decisions well-founded and documented.
How do you activate a holding company?
The holding company must therefore not merely act as a conduit, but must active management tasks perform tasks such as:
(i) the strategic management of subsidiaries
(ii) monitoring budgets and business plans
(iii) serve on boards of directors
In addition, the holding company’s economic substance is also evident from concrete investments and resources, such as investments in property, plant, and equipment (for example, the Setting up your own office), the staff recruitment or bringing in permanent staff to effectively take on responsibilities at the holding company level.
These tasks must structural (not on an occasional basis) and must be capable of being demonstrated and documented. Therefore, enter into management or service agreements between the holding company and its subsidiaries. And ensure that a fair (market-based) fee is paid for these services. Maintain detailed agendas (covering strategy, investments, financing, and monitoring of investments) at the holding company level, complete with comprehensive minutes.
Existing holding structures require extra vigilance. Determine the original purpose for which the holding company was established and assess whether its authority has evolved in tandem with the group’s activities.