UK and International Tax news
EC Opens In Depth Investigations Into Excess Profit Tax Rulings Granted By Belgium To Multinational Companies
Friday 20th September 2019
The European Commission has opened separate in-depth investigations to assess whether “excess profit” tax rulings granted by Belgium to 39 multinational companies gave those companies an unfair advantage over their competitors, in breach of EU State aid rules.
The latest investigations follow the General Court’s February 2019 annulment of the EC’s January 2016 decision concluding that the same tax rulings formed part of a Belgian aid scheme that was illegal under EU State aid rules. The Court did not take a position on whether or not the “excess profit” tax exemptions gave rise to illegal state aid but found that the EC had failed to establish the existence of a scheme. According to the General Court, the compatibility of the tax rulings with EU state aid rules needs to be assessed individually, and thus the EC has now opened separate in-depth investigations into the individual tax rulings. At the same time, the EC has appealed the judgment of the General Court to the ECJ to seek further clarity on the existence of an aid scheme. These proceedings are ongoing.
The in-depth investigations concern individual “excess profit” tax rulings issued by Belgium between 2005 and 2014 in favour of 39 Belgian companies belonging to multinational groups, most of which are headquartered in Europe.
Belgian company tax rules require companies, as a starting point, to be taxed based on profit actually recorded from activities in Belgium. However, the Belgian “excess profit” tax rulings allowed multinational entities in Belgium to reduce their corporate tax liability by so-called “excess profits” that allegedly result from the advantage of being part of a multinational group. These advantages included synergies, economies of scale, reputation, client and supplier networks, or access to new markets. In practice, the rulings usually resulted in between 50% and 90% of those companies’ accounting profit being exempt from taxation.
The EC’s preliminary view is that by discounting “excess profit” from the beneficiaries’ tax base, the tax rulings under investigation selectively misapplied the Belgian income tax code. In particular, the EC has concerns that the rulings endorsed unilateral downward adjustments of the beneficiaries’ tax base, although the legal conditions were not fulfilled. Furthermore, the EC has concerns that the Belgian practice of issuing “excess profit” rulings in favour of certain companies may have discriminated against certain other Belgian companies which did not or could not receive such a ruling. As a result, the tax rulings may have given a selective advantage to the 39 multinational companies, allowing them to pay substantially less tax.
The opening of the in-depth investigations gives Belgium and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.Contact Us