Belgian “excess profit” tax scheme in violation of EU competition law

The European Commission has ruled that the Belgian “excess profit” tax scheme is in violation of EU competition law. This may have serious ramifications for tax regimes in Luxembourg, Ireland, Cyprus and other ‘competitive’ tax jurisdictions.

Most European media outlets, such as, Le Soir, The Times and Les Echos, report that Belgium has been found guilty of offering multinationals that invest in the country an abnormally advantageous taxation system. This has been going on since 2005. The European Commission’s services detected the ”sleight of hand” that allowed multinationals to benefit from a “carte-blanche of double non-imposition,” as the Competition Commissioner Margrethe Vestager put it.

In total, the European Commission believes at this point that 35 companies have taken advantage of the mechanism, although that number could increase, and said that they will have to repay about €700 million. “National tax authorities cannot give any company, however large, however powerful, an unfair competitive advantage”, Commissioner Vestager stated, as quoted in Delo and The Times, adding that “it distorts competition by putting smaller competitors who are not multinational on an unequal footing”.

Romania’s Digi 24 notes that the EC’s investigation began in February last year and is part of a more extensive effort aimed at combatting tax evasion. Les Echos adds that, for the moment, Brussels refuses to name the companies involved, but one source close to the matter said that Celio, BP, AB Inbev, BASF and Belgacom were among the major names involved. Furthermore, it is said in Brussels that the majority of the companies in question are European, something which will reassure Washington, where it has been suggested that a lot of US multinationals have been targeted by the Commission in recent years.

Along the same lines, Kathimerini points out that the Belgian issue is quite important, as Americans call on Commissioner Vestager to show that she exercises the same pressure on European and US companies. Danish media add that Commissioner Vestager says that the EC will present a range of proposals later in January that will ensure a coordinated and efficient implementation of company taxation throughout the EU. Among today’s commentaries focused on Brussels’s policy, Les Echos’ Alain Narinx writes, in a critical tone, that the EC is unveiling an open secret by judging the excess profit ruling illegal. According to him, Belgium has, like other EU Member States, played with complex mechanisms to compete with others in order to ensure inward investments from multinationals. In the end, more than the questionable actions of the states and companies, it is the lack of a European fiscal policy that is underlined, he adds.

Sharing this point of view, Le Soir’s François Mathieu believes that the real question is whether Europe really wants to put an end to aggressive tax policies. “Today, if the crusade for fiscal transparency in Europe wants to be credible, it needs to be supported by the EU Member States, not only the EC,” Mr Mathieu further stresses. In reaction to the move by Brussels, the Belgian Government argued the scheme had been implemented to prevent double taxation, a claim that the Competition Commissioner rejects, notes FAZ’s Werner Mussler. Belgian Finance Minister Johan Van Overtveldt intends to renegotiate with the European Commission but, according to Mr Mussler, the room for negotiation is rather limited.

However, it is however reported in Belgium’s De Tijd that Minister Van Overtveldt is not surprised by the EC’s decision. Quoted in Le Soir, he explains that “if Europe should ask for the recovery of this amount, the consequences for the companies concerned would be very important.” He further stresses that he will do everything in his power to limit the impact of this decision. Corriere della Serra reports that Belgium said it is considering whether or not to appeal the decision to the European Court of Justice.