Setting aside the General Court’s 2019 decision, the Court of Justice of the European Union on September 16 concluded that the European Commission sufficiently demonstrated that Belgian “excess profits” tax exemptions granted to multinational companies constituted state aid in Commission v Belgium and Magnetrol International.
The exemptions in questions applied to the “excess profits” of Belgian entities that were part of multinational corporate groups. The Belgian tax authorities granted the exemption via tax rulings to entities demonstrating certain circumstances. Entities receiving such rulings were exempt from corporate income tax on the profits exceeding what a standalone entity in such circumstances would make.
In 2016, the European Commission determined that the excess profits scheme was illegal state aid. However, in 2019, the General Court annulled the Commission’s decision, finding a failure to demonstrate state aid. A year later, a 2020 Advocate General opinion advised overturning the General Court’s decision.
In setting aside the General Court’s judgment, the Court of Justice noted that three conditions must be satisfied to classify a measure as state aid:
First, it must be an act. Second, the individual aid must be granted without further implementing measures. Third, the undertakings to which the aid is granted must be defined in the act in a general and abstract manner. These conditions must be met cumulatively.
While the General Court concluded that none of these three conditions were met, the Commission argued that in so deciding the General Court misconstrued all three. The Court of Justice agreed.
The Court of Justice explained that an “act” under the first condition may be demonstrated by proof of a consistent administrative practice. Moreover, proof of such a consistent practice may be demonstrated by a representative sample. The Court of Justice stated that the General Court “erred in law by wrongly classifying the sample as not sufficiently representative to the requisite legal standard, and not sufficient to demonstrate a consistent administrative practice.”
Regarding the second condition, the Court of Justice similarly concluded that the General Court, “erred in law in finding that further implementing measures were necessary in this case.” Furthermore, with respect to the third condition, the General Court, “incorrectly classified the definition of beneficiaries in the act – in this case, the consistent administrative practice – as not being general and abstract.”
Accordingly, the Court of Justice stated that the “Commission sufficiently demonstrated that the Belgian practice of making downward adjustments of the profits of undertakings forming part of a multinational group constitutes an aid scheme.”
The Court of Justice referred the case back to the General Court to address remaining issues.
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