14 January 2016

Commission finds that Belgian tax rules were illegal state aid and Luxembourg requests the General Court to accelerate case timetables

In two separate developments in the European Commission's crackdown on tax perks offered by several Member States, the Commission has ruled that selective advantages in Belgian's tax regime constituted illegal state aid and the government of Luxembourg has requested that the General Court uses its expedited procedure in hearing Luxembourg’s appeal against a previous Commission tax ruling.

Belgian tax scheme

Under the Belgian tax regime, multinational companies were entitled to obtain a ruling from the tax authorities that a certain proportion of their profits could be regarded as "excess profits", i.e. profit over-and-above the level of profit that a company would hypothetically have been expected to make had it been a stand-alone company and not a multinational. The company’s tax base would then be reduced in proportion to its excess profits. The Belgian government marketed the scheme with the strapline "Only in Belgium".

The Commission found, on 11 January 2016, that the tax scheme gave such companies preferential tax treatment in breach of the state aid rules in Article 107(1) of the Treaty on the Functioning of the European Union. This is because the exemption relied on specific rulings from the Belgian tax authorities which would only benefit certain multinationals (and were not available to companies only active in Belgium). Belgium argued that the provision was intended to avoid double-taxation, but the Commission rejected this argument as the tax rulings did not correspond to any request from other countries to tax the same profits and therefore often resulted in double non-taxation.

The Commission’s decision does not identify particular beneficiaries of the tax scheme. Instead, it is left to the Belgian government to determine which companies are in receipt of illegal state aid which must be paid back with interest. Belgium has suspended the scheme.

Luxembourg request for expedited procedure

As we have previously reported, in October 2015 the Commission ordered that tax sweeteners afforded by the Luxembourg tax authorities to Fiat must be repaid. Both the government of Luxembourg and Fiat have filed (separate) appeals to the General Court against the Commission's decision. Luxembourg has now requested that its case be handled using the court's expedited procedure, which could shorten the length of the case from three years to 10 months.

Although Luxembourg's request is not publicly available, one potential justification for using the expedited procedure would be the legal certainty which would be given to the hundreds of other similar tax rulings which the Luxembourg (and other Member State) tax authorities have made on similar matters. However, the expedited procedure may only be used in exceptional circumstances and it remains to be seen whether the court will accept the request.

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