Belgian "Excess Profit" tax scheme - Statement by Commissioner Margrethe Vestager
Brussels, 11 January 2016
Belgian "Excess Profit" tax scheme
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The European Commission has concluded today that the Belgian "excess profit" tax scheme is illegal under EU state aid rules.
It gave tax reductions of around 700 million euros to at least 35, mainly European companies. Belgium now has to recover the unpaid tax from the companies concerned.
In essence, the scheme allowed companies to pay substantially less tax, simply because they are multinational and could benefit from alleged synergies.
On the basis of tax rulings, the scheme exempted this so-called "excess profit" of a company from taxation in Belgium. The result is double non-taxation, as this "excess profit" is actual recorded profit, which ends up not taxed anywhere.
Today's decision shows this scheme goes against EU state aid rules.
There are many ways for EU countries to subsidise investment in line with EU state aid rules. Governments can and should try to create jobs and economic growth.
However, national tax authorities cannot give any company, however large or powerful, an unfair competitive advantage compared to others. This means that national tax authorities cannot establish tax schemes that only benefit a select group of companies, in this case, multinationals.
Such schemes put smaller competitors at an unfair disadvantage. They are active in the same markets and have to pay their taxes fair and square, according to normal tax laws.
Even if there are efficiencies gained from being in a multinational group, these should be duly reflected in the actual recorded profits of the various group companies, rather than simply discounted from the tax base of one group company.
The "excess profit" scheme has been in place in Belgium since 2005 and has benefitted companies from a wide range of sectors. Most of the companies benefitting are European. And it is also European companies that avoided the majority of the taxes under the scheme, which they now have to pay back – around €500 million out of the estimated €700 million in total.
How exactly did the scheme work?
Belgian law requires both stand-alone companies, and companies that are part of a group, to pay taxes on the profits they actually record in Belgium.
But the "excess profit" scheme allows special treatment of selected companies. It enabled the Belgian tax authorities to issue tax rulings to specific multinationals. These rulings artificially lowered the companies' tax base by deducting so-called "excess profit".
The scheme assumes that the multinational makes profit that a hypothetical stand-alone company in a comparable situation would not have made. This so-called "excess profit" allegedly results from the advantage of being part of a multinational group, such as synergies and economies of scale.
Under the scheme, this "excess profit" should not be taxed in Belgium, and the company's tax liability is reduced accordingly.
In practice, it usually meant that the companies concerned did not pay taxes on more than 50% of their actual profits, and in some cases up to 90%.
This is against EU state aid rules for two reasons.
First of all, it deviates from the normal practice under Belgian company tax rules. It gives those multinationals able to obtain such a tax ruling a preferential, selective subsidy compared with their competitors liable to pay taxes in Belgium under the normal Belgian company tax rules.
Secondly, even if one assumes that being a multinational generates an "excess profit", it should be shared between its group companies in a way that reflects economic reality. This follows from what we call the "arm's length principle" on allocating profits between a group of companies at market terms. However, under the Belgian scheme, alleged "excess profit" is simply discounted unilaterally from the tax base of a single group company.
Finally, contrary to what Belgium claims, the scheme can also not be justified by the need to prevent double taxation. The discounted profits are not taxed elsewhere. The scheme does not even require companies to demonstrate any evidence or even risk of double taxation. Instead of preventing double taxation, in reality the scheme gives a 'carte blanche' to double non-taxation.
According to the information Belgium submitted, at least 35 multinationals benefitted from the scheme. We cannot name the companies at this stage because the Commission assessed and found the scheme itself illegal.
We did not have to investigate the specific tax rulings to each company that are based on the scheme. They are automatically illegal. It is now for the Belgian authorities to confirm which companies actually benefitted from the scheme and implement recovery.
So, there are some procedural differences in today's case to our decisions in October finding illegal state aid to Fiat in Luxembourg and Starbucks in the Netherlands. But we apply the same underlying principles regardless of whether illegal tax advantages are given as part of a scheme or not.
We also continue our inquiries into tax rulings practices in all EU Member States to identify and address such distortions of competition, as well as our in-depth investigations into tax rulings in Ireland and Luxembourg. We will take our decisions if and when they are ready.
But to root out unfair tax competition in the EU, we need an effective combination of both legislative action and enforcement of state aid rules.
Therefore, the Commission is also pushing ahead with its Action Plan for fair, transparent and efficient corporate taxation.
Later this month, the Commission will present a package of proposals which aims for a coordinated and efficient implementation of international tax good governance standards in the EU. The package is based on a very simple principle: that companies should pay taxes where they make profits. For successful adoption we call on all Member States to play their part.
I hope the decision we have taken today helps to keep up the momentum to tackle tax avoidance in Europe and globally.