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The EU Commission decides on Belgian excess profit rulings: not unexpected, but not the final word

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The European Commission deems illegal the Belgian "Excess Profit" tax scheme which allowed the grant of  €700 million now to be recovered from at least 35 multinational companies.

The European Commission announced on 11 January 2016 that Belgian excess profit tax regime based on Art. 185§2(b) BITC and granted to at least 35 multinationals mainly from the EU constitutes illegal state aid.

The excess profit tax regime

Under this regime, the Belgian tax authorities compared the actual recorded profit of a multinational with the hypothetical average profit a stand-alone company in a comparable situation would have made. The difference between the two was deemed to constitute an "excess profit" which was used to reduce the corporate tax base of the companies by 50% to 90%.

Those tax reductions based on the premise that multinational companies make "excess profit" as a result of being part of a multinational group were acknowledged in tax rulings and represent an amount estimated by the European Commission of EUR 700 million.

Illegal state aid according to the Commission

According to the Commission, the excess profit tax regime is illegal under state aid rules because it deviates from normal practice under Belgian company tax rules, i.e. while other companies paid taxes on their actual profits recorded in Belgium, the beneficiaries of the tax rulings were granted a preferential and selective subsidy.

In addition, the Commission takes the view that, 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 they are generated in a way that reflects economic reality.

The Commission discarded the argument of the avoidance of double taxation since companies applying for tax rulings were granted unilateral tax reductions and did not actually have to demonstrate any double taxation issues.


Next steps

This decision establishing the illegality of the rulings granted under the excess profit tax regime puts an end to the formal investigation opened by the European Commission in February 2015.

The Commission orders Belgium to stop applying the excess profit tax regime, to identify the beneficiaries of the excess profit tax regime and the precise amounts to recover from them and finally to proceed with the recovery.


Judicial review

The Commission decision can be challenged before the General Court in Luxembourg. The action for annulment must be brought within two months of the publication of the decision in the Official Journal of the European Union, or of the notification to the applicant. It can be brought both by the Belgian State and by one or more of the companies concerned.


See here for more details regarding the consequences of negative decision ordering recovery of aid and the options available to recipients of tax rulings.