The system of exception for the excess profit of Belgian entities that are part of multinational corporate groups does not constitute illegal state aid, contrary to the European Commission’s previous assessment, the EU’s top court ruled on Thursday (14 February).
From 2005, entities that were part of a multinational group benefited from a system in which “excessive” profits, derived from belonging to those corporations, were exempted from corporate income tax up to 90%.
This ‘excess profit’ tax scheme allowed companies to pay substantially less tax. However, companies only based in Belgium could not benefit from it.
In 2016, the Commission considered that the system constituted an illegal State aid scheme under EU law. Therefore, the EU executive ordered Belgium to recover around €700 million in aid granted to 35 multinational companies, including Magnetol International.
“The scheme represents a very serious distortion of competition within the EU’s Single Market affecting a wide variety of economic sectors,” the Commission said.
Magnetol International and the Belgian authorities brought the case to the European Court of Justice that has ruled now in favour of them.
No state aid
According to the EU legislation, as for state aid to constitute an ‘aid scheme’, it must be awarded without requiring “further implementing measures.”
According to the EU’s top court, “the Belgian tax authorities had a margin of discretion over all of the essential elements of the exemption system in question.”
Belgium could influence the amount and the conditions under which the exemption was granted, “which also precludes the existence of an aid scheme.”
Furthermore, the EU regulation also points out in an aid scheme, beneficiaries are defined “in a general and abstract manner” and the aid is awarded for an infinite period of time. The Court argued that this was not the case in the Belgian “excess profit” tax scheme.
“The Commission therefore wrongly considered that the Belgian system relating to the excess profit constituted an aid scheme,” European justice concluded.
Commission avoid comments on other cases
The EU executive took note of the European Court of Justice ruling and will now “carefully” look at the decision and will consider possible further steps. However, at the moment, “I can’t speculate on whether there will be an appeal or not,” Commission spokesperson for Competition Ricardo Cardoso.
EU’s top court is currently examining a few other controversial cases concerning tax rulings in the Netherlands, Luxembourg and Ireland.
Asked about how this might impact these files, the Commission avoided further comment.
“It’s highly concerning that the court has ruled in favour of Belgium’s dubious tax scheme,” said Tove Maria Ryding, a tax coordinator with the European Network on Debt and Development (Eurodad) following the Court’s decision.
“This case illustrates how some EU governments are giving special ’sweetheart’ tax deals, which allow multinational corporations to lower their tax payments with hundreds of millions of Euros,” Ryding stressed.
This “means that our governments have less funding for schools and hospitals and those small and medium enterprises have to pay higher tax rates than the multinational corporations they’re trying to compete with,” she recalled.