Since taking on her new role, the Commissioner in charge of competition policy, Margrethe Vestager, has targeted selective tax advantages granted by certain States to multinationals, in particular in the area of “rulings”. In this respect, she opened an in-depth investigation in February 2015 regarding Article 185, §2, b) of the Belgian Code on revenue taxes under which an international group may ask for its taxes to be reduced by so-called excess profits, which are registered in the account of the Belgian entity and result from the advantages of being part of an international group.
On 11 January 2016, the Commission concluded that this “excess profit” tax scheme constituted incompatible and illegal aid, given that it derogated from the ordinary law rules on corporation tax.
Although Belgian company tax rules require companies to be taxed on the basis of their profits actually recorded and generated from activities in Belgium, the excess profit scheme, in force since 2005, allowed about 30 multinational group companies to reduce their tax base for alleged “excess profit” on the basis of a binding tax ruling (so-called “rulings”). According to the Commission, the beneficiaries of the scheme were not paying taxes on 50% to 90% of their profit, giving them a selective economic advantage relative to Belgian companies.
During the investigation, Belgium argued that the reductions were necessary to avoid double taxation, but this claim has been rejected by the Commission. It considers that this incentive scheme was unilaterally adopted by Belgium and that these advantages, which were not imposed in Belgium, were not imposed abroad either. The scheme does not require companies to demonstrate any evidence of double taxation or any potential double taxation, which led the Commission to consider that such a regime actually resulted in double non-taxation.
Since the in-depth investigation began in February 2015, the “excess profit” scheme has been suspended and no more binding tax ruling has been granted. Only companies that had already received tax rulings under the scheme (as set up since 2005) have continued to benefit from it.
In its decision, the Commission orders Belgium to cease applying the excess profit scheme. In addition, the Belgian authorities must recover the full unpaid tax from the relevant companies to remove the unfair advantage and re-establish fair competition. This amount has been estimated at approximately EUR 700 million.
Considering the problematic issues and the amounts involved in this case, it is very likely that the decision will be subject to several actions for annulment before the General Court of the EU, which will have the opportunity to examine the arguments invoked by the Belgian authorities and the beneficiaries of this measure during the investigation. The General Court's assessment will not be purely theoretical. In a judgment dated 17 December 2014, the General Court annulled a decision of the Commission dated 17 July 2013 relating to Spanish tax dispositions under certain agreements for the financing and acquisition of vessels.
We should mention that such an action before the General Court is in principle not suspensive and the Belgian authorities are therefore obliged to instigate the difficult recovery process of the amounts saved by the companies referred to in the decision of the Commission.
Belgium is not the only country affected by this strict European policy with regard to tax rulings. For example, on 3 December 2015, the Commission ordered the recovery of tax aid granted by The Netherlands to Starbucks and by Luxembourg to Fiat. Investigations concerning Apple in Ireland, and McDonald’s and Amazon in Luxembourg are still pending.
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Annabelle Lepiece (Annabelle.LEPIECE@cms-db.com)
Olivier Querinjean (Olivier.QUERINJEAN@cms-db.com)
