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Belgian Excess Profits Regime Not Unlawful Says EU Court

by Ulrika Lomas, Tax-News.com, Brussels

26 February 2019


On February 14, 2019, the General Court of the European Union annulled the European Commission's decision that the Belgian tax regime relating to the excess profit of multinational companies is contrary to EU law.

In its ruling, the General Court found that the Commission wrongly concluded that "selective tax advantages" were granted by Belgium under its "excess profit" tax scheme and were therefore illegal under EU state aid rules.

In announcing its decision of January 11, 2016, the Commission said that the excess profit tax scheme, applicable since 2005, "allowed certain multinational group companies to pay substantially less tax in Belgium on the basis of tax rulings. The scheme reduced the corporate tax base of the companies by between 50 percent and 90 percent to discount for so-called 'excess profits' that allegedly result from being part of a multinational group."

The Commission further concluded that its in-depth investigation, opened in February 2015, showed that the scheme derogated from normal practice under Belgian company tax rules and the so-called 'arm's length principle.' "This is illegal under EU state aid rules," it ruled.

The Commission went on to explain that: "The 'excess profit' tax scheme was marketed by the tax authority under the logo 'Only in Belgium.' It only benefited certain multinational groups who were granted a tax ruling on the basis of the scheme, whilst stand-alone companies (that is, companies that are not part of groups) only active in Belgium could not claim similar benefits. The scheme represents a very serious distortion of competition within the EU's Single Market affecting a wide variety of economic sectors."

The Commission subsequently ordered Belgium to recover state aid granted to 55 companies under the scheme.

However, Belgium and Magnetrol International, one of the beneficiaries of the excess profits regime, brought an action before the General Court seeking the annulment of the Commission's decision. They allege that, among other things, the Commission encroached upon Belgium's exclusive tax jurisdiction in the field of direct taxation, and erred in finding an aid scheme in the present case.

While the General Court rejected the argument that the Commission encroached on Belgium's tax sovereignty, it did find that the Commission "erroneously considered that the excess profit exemption system constituted an aid scheme."

According to a General Court statement, first, the provisions identified by the Commission as the basis of the alleged aid scheme did not set out all the essential elements of that scheme. Accordingly, the implementation of those provisions and thus the grant of the alleged aid necessarily depended on the adoption of further implementing measures, which precludes the existence of an aid scheme.

Second, the General Court found that the Belgian tax authorities had a margin of discretion over all of the essential elements of the exemption system in question, allowing them to influence the amount and the characteristics of the exemption and the conditions under which it was granted, which also precludes the existence of an aid scheme.

Last, the General Court held that it cannot be concluded that the beneficiaries of the alleged aid scheme are defined in a general and abstract manner or that there was actually a systematic approach on the part of the Belgian tax authorities as regards all of the advance rulings concerned.

TAGS: court | tax | European Commission | Belgium | law | tax authority | transfer pricing | Europe

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