Articles

Belgium's "excess profit" tax scheme qualified as illegal state aid

Belgium's "excess profit" tax scheme qualified as illegal state aid

Belgium's "excess profit" tax scheme qualified as illegal state aid

02.02.2016 BE law

On 11 January 2016, the European Commission decided that the selective tax advantages and related "rulings" granted by Belgium under its "excess profit" tax scheme are illegal state aid. According to the Commission's press release, Belgium must recover around EUR 700 million from 35 multinational companies. The decision has not yet been published.

Belgium’s tax scheme on "excess profits" and implementing rulings allows multinational group companies under certain conditions to pay substantially less tax in Belgium. The underlying principle is that multinational companies make in specific circumstances "excess profit" following, among others, synergies as a result of being part of a multinational group. According to the Commission, the accounting profits would often be reduced from 50% to 90% for tax purposes.

Following an in-depth investigation initiated in February 2015, the Commission concluded that by discounting excess profit from a company’s actual tax base, the Belgian "excess profit" tax scheme is contrary to state aid rules because it derogates both from normal practice under Belgian company tax rules and from the "arm’s length principle". Companies operating in Belgium that were not part of a multinational group were unable to obtain such ruling but had to pay taxes on their actual profits generated in Belgium. The "excess profit" tax scheme thus gave multinationals a selective advantage. Furthermore, under the arm's length principle, even if multinationals had generated "excess profits", those would have been shared among the group companies and taxed where the profits were generated in a way that reflected economic reality. However, under the contested scheme, such profits were simply discounted unilaterally from the tax base of a single group company.

According to the Commission, preventing double taxation could not be considered as a justification of the scheme's selective tax advantages because it did not require the companies applying for tax rulings to demonstrate any evidence or even risk of double taxation (compare with the OECD model tax Convention on Income and on Capital). On the contrary, the Commission stated that it resulted in double non-taxation.

This decision follows the Commission's earlier investigation into the tax ruling practices of Member States, and the decisions of October 2015 in which the Commission held that Luxembourg and the Netherlands granted selective tax advantages to Fiat and Starbucks, respectively [see our November 2015 newsletter].

The Commission established that Belgium must cease applying the excess profit ruling system at issue and recover the full, unpaid tax from the involved companies. Belgium has announced it will likely appeal the decision. Several companies are considering to appeal as well or to intervene in the Belgian procedure.

This article was published in the Competition Law Newsletter of February 2016. Other articles in this newsletter:

  1. Court of Justice confirmed independence of EU and national leniency programmes
  2. Court of Justice reduced fine imposed on Galp Energía España and acknowledged excessive duration of General Court proceedings
  3. Court of Justice clarified the concept of a concerted practice for unilateral announcements
  4. Court of Justice dismissed Toshiba's appeal in the power transformers cartel case
  5. German Competition Authority fined ASICS for restricting Internet sales of its distributors

Team

Related news

07.02.2019 NL law
The ACM follows EU approach in its first pharmaceutical merger

Short Reads - The Dutch Authority for Consumers and Markets (ACM) recently reviewed its first merger between two pharmaceutical companies. In its conditional clearance of Aurobindo's acquisition of certain European Apotex assets, the ACM followed the European Commission's approach in assessing the merger's impact on competition. Companies will welcome the news that pharma mergers will be reviewed in a similar fashion, irrespective of whether the ACM or the European Commission conducts the review.

Read more

07.02.2019 EU law
Digitisation and competition law: past, present and future

Short Reads - It is nearly time for the European Commission to reveal its course of action in digitisation and competition law. Feedback from a public consultation and the recent conference on 'Shaping competition policy in the era of digitisation' together with the upcoming expert panel's report on the future challenges of digitisation for competition policy are likely to shape the Commission's course of action.

Read more

07.02.2019 NL law
Follow-on cartel damages claim dismissed: don't bury courts under paper work

Short Reads - A recent ruling by the Dutch Court of Appeal confirmed that claimants will need to sufficiently substantiate their claim that they suffered loss due to a cartel, even in follow-on cases. Despite a presumption that sales or service contracts concluded during the cartel period have been affected by the cartel, claimants will still need to provide the courts with concrete, detailed and uncluttered information showing (i) which party purchased (ii) which products from (iii) which manufacturer for (iv) which amount, preferably with copies of the relevant agreements.

Read more

07.02.2019 NL law
The need for speed in mergers is no reason to ignore rights of defence

Short Reads - On 16 January 2019, the European Court of Justice clarified the procedural guarantees the European Commission needs to provide to merging parties during merger reviews. According to the Court of Justice, the General Court (GC) had rightly annulled the Commission's decision to prohibit the merger of UPS and TNT. UPS's right of defence had been infringed because the Commission had failed to share the final version of the econometric model with UPS before adopting its prohibition decision.

Read more

28.01.2019 LU law
The Grand Duchy of Luxembourg implements the Register of Beneficial Owners Law

Articles - The Grand Duchy of Luxembourg has fulfilled its European obligations in the fight against money laundering and the financing of terrorism by transposing Directive 2015/849 of 20 May 2015 (also known as the 4th EU AML Directive) into national law with the brand new Law of 13 January 2019 (the RBE Law). Below is an overview of the important disclosure obligations that will soon apply to a wide range of Luxembourg entities.

Read more

Our website uses cookies: third party analytics cookies to best adapt our website to your needs & cookies to enable social media functionalities. For more information on the use of cookies, please check our Privacy and Cookie Policy. Please note that you can change your cookie opt-ins at any time via your browser settings.

Privacy – en cookieverklaring