EU Rules That Belgian Tax Breaks For US Firms Are Illegal

by Ulrika Lomas, for LawAndTax-News.com, Brussels

26 June 2003

The European Commission announced on Tuesday that tax breaks offered to US Foreign Sales Corporations established in Belgium constitute illegal state aid, and must therefore be discontinued.

In a statement released this week, the EC explained that:

'The use of a flat-rate method to determine taxable profits is not in itself challenged by the Commission because under Belgium's law it provides for an appropriate method of taxation of certain activities of foreign groups in Belgium.'

'However, the Commission considers that the Belgian-FSC scheme reduces the normal tax burden that FSCs or the multinational groups to which they belong would face.'

The Commission went on to explain that: 'The benefits derive from the use of a fixed 8% profit margin and from excluding the most relevant activities undertaken by an FSC in Belgium - advertising, sales promotion, carriage of goods and credit - from the base for calculating the taxable income by derogation from the Belgian tax code.'

However, the EC revealed that because the Belgian authorities could not have been aware that the benefits being offered to US exporters were illegal when the scheme was launched, they will not be asked to reimburse the fiscal advantages that may have been received.

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