The European Commission on February 3 opened a state aid investigation into the private ruling practices of the Belgian tax administration.
The rulings allow multinational entities in Belgium to reduce their corporate tax liability by “excess profits” that allegedly result from the advantage of being part of a multinational group. The Belgian tax authorities argue that each company of a multinational group should be taxed as if it was independent, and that any excess profits should not be taxed in Belgium and are thus exempt from corporate taxation.
Noting that the deductions granted through the excess profit ruling system usually amount to more than 50 percent and sometimes up to 90 percent of the profits covered by a tax ruling, the Commission said it has doubts about Belgium’s claim that its tax rulings are consistent with the arm’s length principle.
The Commission also noted that tax rulings were often granted to companies that have relocated activities to Belgium or that have made significant investments there.
“Tax rulings as such are not problematic. They may be a legitimate way to create legal certainty. But if they are used to establish tax havens or to give benefits to businesses in a selective way, this would not be permissible under EU state aid rules,” EU competition chief, Margrethe Vestager said in announcing the investigation.
The EU Commission in December said it was conducting state aid investigations into private tax ruling practices of all 28 European Union states. It previously announced state aid investigations into rulings granted to Apple in Ireland, Starbucks in the Netherlands, and Fiat and Amazon in Luxembourg.
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