On 21 January 2016, the European Commission decided that the corporate tax exemptions granted to seaports under the existing Dutch and Belgian tax regimes constitute state aid. These exemptions need to be removed from the tax code since they are incompatible with the internal market. The Commission decisions are a result of a broader investigation into the functioning and taxation of ports across EU Member States aimed at ensuring fair competition.
The Commission emphasized in both cases that although it accepts that certain activities of the ports cannot be considered economic activities - and thus fall outside the scope of EU state aid control - the commercial operation of port infrastructure constitutes an economic activity which can be in competition with private companies who are subject to corporate income tax. Furthermore, the Commission found that the tax exemptions for ports are "existing aid" since they predate the entry into force of the Treaty of Rome. This means that any state aid given to the seaports in the past does not need to be recovered.
As far as the Netherlands is concerned, the Commission already proposed measures to reform the Dutch Corporate Income Tax Code ("Wet Vpb 1969") in May 2013 which also contained exemptions for other public undertakings besides public seaports. Subsequently, the Dutch government adopted revised legislation ("Wet Vpb 2015"), aimed at subjecting public undertakings to corporate tax in the same manner as private undertakings. The Wet Vpb 2015 however, maintains exemptions for Dutch public seaports and for bodies whose activities consist mainly of the management, development or operation of seaports. This remaining exemption triggered the European Commission to start an in-depth formal investigation which resulted in the binding decision of 21 January 2016.
The Dutch government and interested seaports put forward several arguments for upholding the tax exemptions. One of their main arguments was that the Commission's investigation into tax exemptions in other Member States was not progressing at the same pace. As a consequence, Dutch seaports have to compete with seaports that are still benefitting from these tax exemptions. The European Commission considered that this argument does not change the fact that the exemptions constitute state aid, and it does not justify a transitional period with regard to the exemptions for seaports. In absence of EU harmonization of direct taxes, the Commission concluded that the tax position of ports will vary amongst Member States in any event.
While the Dutch state does not have to recover any state aid given to the seaports, it must take the necessary steps to remove the corporate tax exemption for seaports as of 1 January 2017.
As regards Belgium, the Commission found that ports are also subject to a different tax regime, with different base and tax rates, resulting in an overall lower level of taxation compared to other companies active in Belgium and therefore grants the ports a selective advantage.
Based on this finding, the Commission proposed measures to Belgium to adapt its legislation in order to ensure that both public and private ports pay corporate tax on their economic activities in the same way as other companies. Belgium has two months to react. If Belgium refuses the Commission’s proposal, the Commission might open an in-depth formal investigation. This final phase may be closed by a Commission decision requiring Belgium to put an end to the existing taxation regime.
This article was published in the Competition Law Newsletter of March 2016. Other articles in this newsletter:
1. General Court largely confirmed Commission's freight forwarding cartel decision
2. CBb ruled that the ACM wrongfully blocked merger between baking companies