The EU Commission on Monday announced that it has concluded that Belgium’s excess profits tax regime is illegal under EU State aid rules.
“Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules. It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing,” EU Competition Commissioner Margrethe Vestager said.
Vestager said that since the Commission found Belgium’s entire tax scheme violated EU law, all rulings issued pursuant to the scheme are automatically illegal. She said that at least 35 multinationals benefited from tax rulings under the Belgian scheme, and that unpaid taxes totaled about €700 million.
“It is now for the Belgian authorities to confirm which companies actually benefited from the scheme and [to] implement recovery,” she said.
Belgium’s excess profits tax regime, in force since 2005, allowed multinational groups to obtain tax rulings that sanctioned a reduction in the Belgian tax base by more than 50 percent, Vestager said. In some cases, the reduction was as high as 90 percent.
“The result is double non-taxation, as this excess profit is actual recorded profit, which ends up not taxed anywhere,” Vestager said.
To remove the “excess profits” allegedly resulting from being part of a multinational group from a multinational’s tax base, the rulings permitted a deduction equal to a fixed percentage of either earnings before interest and taxes or profits before taxes.
The percentage was arrived at based on multiyear financial projections supplied by the taxpayer. The taxpayer would project accounting profit for the period and would also project profit calculated by the transactional net margin method for transfer pricing. The difference between the two projections was averaged over the time period and used as the percentage for the deduction.
Vestager also said the Commission would not release the names of any companies involved, though some reports have identified AB InBev as part of the group.
Vestager did note, though, that most of the companies were European, and that European companies, as a group, avoided the most tax — about €500 million of the €700 million total. She suggested that this fact counters criticism, launched by the US, that the EU has been singling out American companies in its State aid investigations.
“We do not target companies [based on] nationality or ownership,” she asserted.
The Commission first announced a formal investigation into Belgium’s excess profits tax regime in February 2015. Four months later, the Commission announced it’s preliminary view that the regime violated EU law.
The Commission has been investigating the tax rulings of all EU States for State aid violations since December 17, 2014.
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