The European Court of Justice in Luxembourg has struck down a ruling by its own Commission that would have forced the Belgian government to recoup some 700 million euros in tax breaks granted to multinational companies. At issue is the so-called excess profit ruling, which allowed multinational companies to argue that part of their income in Belgium derives from the international character of the business. In agreement with the tax authorities, the companies were allowed to export a portion of their taxable profit offshore, thus paying less tax in Belgium that might be due.
The system angered local companies, who pay tax on all profits and cannot export a share, meaning they pay a greater share than international companies.
It also led the EU Commission to rule in January 2016 that the system was a form of illegal state aid, in breach of rules on fair competition. The ruling was announced by competition commissioner Margrethe Vestager (pictured).
The multinationals, on the other hand, argued that the generous tax regime they enjoyed was one of the reasons that led them to decide to invest in Belgium.
Thanks to the Commission ruling, the government was forced to recoup the tax unpaid by the multinationals under the excess profit system – estimated at around 700 million euros. The decision affected companies like brewer AB InBev, cinema operator Kinepolis, toolmaker Atlas Copco and soft drinks giant Coca-Cola. The Belgian government filed an appeal to the ECJ in March 2016.
Now the Court of Justice has overruled the Commission, stating that the excess profits system is not a state aid to business. According to finance minister Alexander De Croo, the money reclaimed from companies is blocked for the time being, while a ruling from the Court of Justice was awaited.
The Commission said it would be studying the court’s ruling carefully before deciding its next step. One option would be to appeal the court’s decision. Another would be to take legal action against the companies themselves.
In the opinion of Johan Van Overtveldt, who was finance minister at the time of the Commission’s contested ruling, the court’s decision does not mean the system of excess profits rulings will be restored. “That won’t be necessary, because of the lowering of corporation tax that has been introduced in the meantime,” he told Belga news agency.