11th January 2016

EC finds Belgian tax rulings are illegal state aid

On 11 January, the European Commission´s competition department announced that it found Belgian tax rulings regarding the so-called Excess Profit scheme illegal under EU competition law. The investigation was opened last February and was not aimed at a specific ruling, i.e. at a specific company. On the contrary, the EC targeted the idea of the rulings as a whole, as defined in Belgian tax code, and estimates that its decision will affect some 35 large multinationals, mainly from within the EU. Belgian tax authorities were ordered to recover some €700 billion in non-paid taxes.

Belgian tax law enables large multinational companies ask the Belgian tax authority for a binding tax ruling concerning the taxation of its profits. Given that the multinational profits from many synergies in its mother group, it operates with lower costs and thus makes more profit that would normally be subject to corporate tax. However, the Belgian law considered such situation unfair, biased against large multinationals, and enabled re-calculation of the companies´ profits as if they were a “normal”, small- to medium-sized company. In a binding ruling, the Belgian tax authority was allowed to discount such “Excess Profit” from the companies´ tax bases. The resulting tax paid by the multinationals was thus 50% to 90% lower than without such ruling.

The EC investigated the scheme under EU competition rules and found it illegal. On the one hand, it pointed out that the scheme is discriminatory, only available for large firms. On the other hand, responding to Belgian arguments about the danger of double taxation, it noted that the discounted “Excess Profit” is in fact not taxed anywhere else. The discount is a unilateral Belgian act and allows for “double non-taxation” of profits. It is thus an unfair advantage for some firms, which distorts the EU market and damages fair competition – or illegal state aid.

Belgium announced it would study the decision in detail and then consider all options, including legal action against it before the EU court. For more, click here and here.

Members of the American Chamber of Commerce in the Czech Republic