Belgium Can Keep Company Tax Breaks Until 2010

by Ulrika Lomas, Tax-News.com, Brussels

26 June 2006

A system of tax breaks created by Belgium in the 1980s to attract multinationals to locate their European headquarters in the country can continue until the end of 2010, under a ruling made by the European Court of Justice last week.

The ECJ's ruling overruled a 2003 decision by the European Commission, ordering Brussels to withdraw a special tax regime for so-called 'coordination centres' in which foreign companies conducted administrative functions like human resources, advertising, and accounting. The scheme attracted about 200 multinationals, including General Motors Corp and International Business Machines Corp. (IBM).

In 1984 and 1987, the tax regime for the coordination centres was examined by the Commission. The EC found, in essence, that the regime did not breach rules on state aid, which are designed to maintain fair competition throughout the EU. However, in 1997, as part of an overall review of harmful tax competition the Council adopted a code of conduct for business taxation, and a subsequent Council report found that the Belgian provisions concerning the coordination centres were harmful tax measures which should be withdrawn by 31 December 2005.

While the ECJ agreed with the Commission that the existence of the coordination centres distorts competition, it ruled that the lack of appropriate transitional arrangements infringed the affected firms' rights to equal treatment, and therefore held that the current system could remain in place until 2010.

"By failing to adopt transitional measures for those coordination centres with an authorisation which terminated, the Commission infringed the general principle of equal treatment," the ECJ stated in its judgment.

"The Court accordingly annulled the Commission's decision in so far as it did not lay down any transitional measures," the judges added.

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