A Belgian court asked the European Union's highest court to rule on whether the country can tax dividends transferred from a subsidiary to a parent company, despite an EU law apparently prohibiting this, a document published Monday showed.

The Belgian court of first instance in Liège lodged a request for a preliminary ruling by the European Court of Justice on Feb. 20. The request was published in the EU's Official Journal.

In 2021, the Belgian engineering group John Cockerill appealed tax levied for the previous year because it was unable to deduct its dividends from an intragroup transfer it had received. The company said the decision violated the EU's parent-subsidiary directive, which eliminates withholding taxes on intercorporate dividends from subsidiaries to parent companies, a working document of the European court said.

Under Belgian law, companies are allowed to transfer their profits to loss-making companies in the same group during the same year. But only an amount up to the loss is tax-deductible that year, while the rest is carried forward to subsequent years, the working document said.

The Belgian state acknowledged that companies were not prohibited from transferring more profits than was required to offset a loss in a company in the group. But in that case, Belgian law neutralized such surplus transfers to prevent abuse and distortion of competition on the EU's internal market, which are objectives that the parent-subsidiary directive allows, the working document said.

The case is John Cockerill SA v. the Belgian state, case number C-135/24, in the European Court of Justice, Luxembourg.