• European Commission Concludes Belgian Excess Profit Scheme Illegal
  • February 15, 2016 | Authors: Nicolas Andre; Siamak Mostafavi; Alexios Theologitis
  • Law Firm: Jones Day - Paris Office
  • Since 2005, the Belgian so-called excess profit tax scheme ("EPS") is a tax regime allowing certain international groups to pay substantially less corporate taxes in Belgium. In practice, the Belgian tax authorities issue a ruling allowing the relevant Belgian corporate taxpayer to reduce its corporate tax base by 50 to 90 percent, to discount for the deemed excess profits resulting from being part of an international group. According to the European Commission ("EU Comm"), the rulings were typically valid for four years and could be renewed.

    In February 2015, the EU Comm launched an investigation on the basis that the EPS derogated from standard Belgian corporate tax rules and could thus constitute illegal state aid under EU law. Following this investigation, Belgium has put the EPS on hold. Belgian corporate taxpayers benefitting from an EPS ruling have however continued to benefit from it.

    On January 11, 2016, the EU Comm published a press release indicating that its conclusion is that the EPS is illegal under EU state aid rules as it provides the relevant Belgian corporate taxpayers with a preferential tax treatment derogating from both (i) standard Belgian corporate tax rules and (ii) the arm’s length principle (without being justified by the fact the corporate tax base reduction was necessary to prevent double taxation, as claimed by Belgium).

    Interestingly, the EU Comm has inter alia highlighted the facts that the EPS (i) was heavily "marketed" by the Belgian authorities under an "Only in Belgium" logo, (ii) only benefitted certain international groups whilst stand-alone companies could not obtain similar benefits, and (iii) was always granted within the frame of a ruling procedure.

    The EU Comm thus requires that Belgium (i) stops applying the EPS, and (ii) recovers the tax savings obtained by the relevant Belgian corporate taxpayers from them, and estimates the total amount to be around EUR 700m. The Belgian tax authorities now have to determine which companies have benefitted from the EPS, the amount of the corresponding tax savings, and the procedure under which the corresponding amounts may be recovered.