Belgium’s excess profits tax scheme is not State aid, EU court concludes

By Dr. Patricia Lampreave, EU tax and state aid expert; Professor, Instituto de Estudios Bursátiles, Madrid

The European General Court (EGC) has annulled today an EU Commission decision concerning tax exemptions granted by Belgium by means of tax rulings, finding that the Commission wrongly concluded that the Belgian tax system relating to the excess profit of multinational companies constituted an aid scheme.

This judgment could provide clues to other state aid cases (i.e., Starbucks, Fiat, or Apple) and with regard to the room for maneuverer left to Member States to autonomously apply transfer pricing rules and methods. The decision makes it clear that, to be successful, the Commission will need to prove all elements of an aid scheme.

Belgium’s excess profit tax scheme

The dispute concerns Commission Decision C(2015) 9887 of 11 January 2016 on the excess profit State aid scheme SA.37667 (2015/C) (ex 2015/NN), implemented by Belgium, called the “Belgium excess profit” scheme.

The scheme had benefitted at least 55 multinationals mainly from the EU, who were required to return unpaid taxes to Belgium. The estimated aid was around EUR 700 million.

Article 1(d) of Council Regulation (EU) 2015/1589 of 13 July 2015 establishes that an “aid scheme” means:


“[A]ny act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time and/or for an indefinite amount”.

The Commission determined that Belgium’s excess profit tax scheme, applied since 2005, allowed Belgian tax resident companies that were part of a multinational group to pay substantially less tax in Belgium on the basis of tax rulings. The excess profit tax scheme was marketed by the tax authority under the logo “Only in Belgium”.

The scheme reduced the corporate tax base of the companies by between 50% and 90% to discount for so-called “excess profits” that allegedly result from being part of a multinational group.

The excess profit is determined in two steps. First, the hypothetical average profit that a standalone company carrying out comparable activities is estimated on the basis of a transfer pricing methodology.

Second, that amount is subtracted from the profit actually recorded by the Belgian group entity. This is based on the premise that multinational companies make “excess profit” as a result of being part of a multinational group, e.g., due to synergies, economies of scale, reputation, client and supplier networks, access to new markets.

An advance ruling from a special ruling commission was required in to benefit from the scheme.

The Commission’s in-depth investigation, opened in February 2015, concluded that the scheme derogates from the general rule under Belgian tax law according to which companies resident or operating through a permanent establishment in Belgium are taxed on their total taxable profit, calculated as a starting point on the basis of their profit actually recorded.

Under the scheme, a proportion of the profit recorded by Belgian entities within multinational groups is exempted from Belgian corporate income tax, which gives rise to unequal treatment of companies that are factually and legally in a similar situation in the light of the objective pursued by the aforementioned general rule, which is to tax the profit of all companies subject to tax in Belgium, the Commission observed.

Arm’s length principle v. transactional net margin method (TNMM)

The Commission’s investigation also found that the scheme derogates from the “arm’s length principle” under EU state aid rules. Even assuming a multinational generates such “excess profits” under the arm’s length principle, the profits would be shared between group companies in a way that reflects economic reality, and then taxed where they arise.

However, under the Belgian excess profit scheme, such profits are simply discounted unilaterally from the tax base of a single group company.

According to the explanatory memorandum to the draft law presented by the Government of the Kingdom of Belgium before the Chambre des députés (the Belgian Chamber of Deputies), the Law of 21 June 2004 introduced new fiscal rules concerning cross-border transactions of affiliated entities which are part of a multinational group, providing in particular for an adjustment of the profit subject to taxation, known as a ‘correlative adjustment’.

That law was intended to amend the Income Tax Code 1992 (named as ‘the CIR 92”) to include explicitly the internationally accepted ‘arm’s length principle’.

The arm’s length principle was introduced into Belgian tax legislation by the addition of a second paragraph to Article 185 of the CIR 92, based on the text of Article 9 of the OECD Model Tax Convention.

The purpose of Article 185(2) of the CIR 92 is to ensure that the tax base of companies subject to taxation in Belgium may be modified by adjustments to the profit resulting from intra-group cross-border transactions where the transfer prices applied do not reflect market mechanisms and the arm’s length principle.

In addition, the concept of an ‘appropriate adjustment’ introduced by Article 185(2)(b) of the CIR 92 is justified as a means of avoiding or undoing (potential) double taxation.

It is also stated that that adjustment must be carried out on a case-by-case basis in the light of the available information provided, in particular, by the taxpayer and that a correlative adjustment should be made only if the tax administration considers both the principle and the amount of the primary adjustment made in another State to be justified.

The European Commission decision was challenged by the Belgian government and Magnetrol International (one of the beneficiaries) in 18 of July of 2016 in the EGC.

They alleged, inter alia, that the Commission: (1) encroached upon Belgium’s exclusive tax jurisdiction in the field of direct taxation and (2) erred in finding an aid scheme in the present case.


With regard to the first allegation, the EGC rejected the arguments of the complainers, agreeing with the Commission.

The court notes that while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law, including state aid regulation.

With regard the second allegation related to whether the excess profit tax scheme was an aid scheme within the meaning of the abovementioned Council Regulation (EU) 2015/1589, the  ECG determined that the Commission did not succeed in demonstrating, in its decision, that the approach that it had identified met the requirements set out in the mentioned regulation.

Considering the definition of “aid scheme” provided by article 1(d) Council Regulation (EU) 2015/1589, the court observed that Belgium provision (Article 185(2)(b) of the CIR 92), identified by the Commission as the basis of the alleged aid scheme, did not set out all the essential elements of that scheme.

Accordingly, the implementation of those provisions and thus the grant of the alleged aid necessarily depended on the adoption of further implementing measures, which precluded the existence of an aid scheme.

The Commission determined that a systematic approach may constitute the very basis of the aid scheme, but the court ruled that the Commission was unable to demonstrate to the requisite legal standard the existence of such a systematic approach from the sample of advance rulings that it examined (22 of the 66 advance rulings concerned).

The court found that the Belgian tax authorities examined each request on a case-by-case basis and had a margin of discretion that went well beyond a mere technical application of the provisions of the Belgium corporate income tax.

The authorities had a margin of discretion over all of the essential elements of the exemption system in question, allowing them to influence the amount and the characteristics of the exemption and the conditions under which it was granted, which also precludes the existence of an aid scheme.

The court also held that it could not be concluded that the advance rulings examined by the Commission do not all concern situations in which the Belgian entity concerned operated as a ‘central entrepreneur’. The information provided concerning the 22 rulings shows that those rulings were issued in different situations.

In addition, the two-step approach for calculating the excess profit – identified by the Commission as one of the essential elements of the alleged aid scheme – involving inter alia the use of transfer pricing reports and the transactional net margin method – was not followed systematically.


The EGC thus concluded that the Commission erroneously determined that the Belgian excess profit system constituted an aid scheme; therefore, it´s mainly a procedural error of the Commission.

In the case of an aid scheme, the Commission is not required to carry out an analysis of the aid granted in individual cases under the scheme. It is only at the stage of recovery of the aid that it is necessary to look at the individual situation of each undertaking concerned.

For individual cases, the Commission should demonstrate the selectivity advantage granted in favour of a company with regard to others in a factual and legal similar situation, the court said.

This conclusion would affect other aid schemes pending either in the EU Courts, both EGC and European Court of Justice (EUCJ), and new aid scheme decisions of the Commission.

In addition, other elements have been examined and this judgment could provide clues about other state aid cases (i.e. Starbucks, Fiat or Apple) with regard the room for maneuver left to Member States to autonomously apply transfer pricing rules and methods.

It´s not a final decision and the EC will appeal to the EUCJ, which will have the last word on all issues. 

Patricia Lampreave

Patricia Lampreave

Independent EU and fiscal state aid expert, tax professor at Patrecia Lampreave

Dr. Patricia Lampreave is a tax lawyer and accredited Tax Professor by the Spanish ministry of education with over 20 years of experience in International taxation as Tax Director of MNEs (Cepsa, Ferrovial, Vodafone).

She started her career as a policy advisor at the European Commission in TAXUD and in 2014 returned at the European Commission as an International Tax Expert in DG Competition (fiscal state aid). She currently teaches Tax and Financial Law (I.E.B, Madrid) and provides advice to the private sector as an independent EU and Fiscal state aid. She is also the economic Director of a Spanish think-tank (FIDE).

Patricia holds a law degree from ICADE University, a Maîtrise in International and European Law by Université de Lovain-la Neuve, and a Ph.D. in International Tax Law (cum laude) from the Universidad Complutense de Madrid. She has been a visiting professor at Harvard, the Université Libre de Bruxelles, Georgia State University, Hong-Kong University, Shanghai University, and University College London, among others.. She regularly publishes in Spanish and international tax reviews and collaborates with the economic media.

Patricia Lampreave
Patricia Lampreave

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