Brussels, 11/01/2016 (Agence Europe) - On Monday 11 January, the European Commission ordered the recovery of around €700 million' worth of illegal State aid granted to 35 multinational companies by Belgium under its excess profit exoneration scheme. €500 million of the total is to be recovered from European businesses.
For a little under a year, the Commission has been examining 66 tax rulings granted to around 35 multinational companies since 2005. In this case, an entire system is under the microscope, rather than individual rulings as in the cases of Fiat in Luxembourg or Starbucks in the Netherlands.
The tax base of the companies in question was cut by 50% to 90% in order to deduct so-called 'excess' profits allegedly resulting from belonging to a multinational group, the Commission explained.
In these tax rulings, the profit actually recorded by a multinational is compared to the hypothetical average profit which would have been recorded by an independent company in a comparable situation. The theoretical difference in profit is treated as excess profit and the tax base of the company is reduced in proportion to this.
Above all, the Commission criticises the selective nature of the system, which benefited only certain multinational groups which obtained a tax reduction on the basis of this scheme, whilst independent companies present only in Belgium were unable to benefit from similar advantages. However, the Commission also takes the view that the system breached the principle of full competition ('arm's length'). The Commission finds that even assuming that a multinational does make these excess profits, these would, under the arm's length principle, be divided between the companies' group in a way which reflects the economic reality, and then taxed where they were generated. However, the Belgian scheme allows these profits to be simply and unilaterally deducted from the tax base of a company which is part of a single group.
The Commission rejects Belgium's argument that the reductions are necessary to avoid double taxation. The Commission explains that these adjustments were made unilaterally by Belgium. The scheme did not oblige companies to prove that they were actually being taxed twice, or even that the risk of double taxation existed. As the Commissioner responsible for the dossier, Margrethe Vestager, pointed out, the net result was, in fact, double non-taxation.
Belgium now has two months to present its recovery plan. If it chooses to appeal against the decision, it also has two months in which to do so.
The Belgian finance minister, Johan Van Overtveldt, has not ruled out this possibility.
“If Europe should decide that a reimbursement needs to be made, the consequences for the companies concerned will be considerable and the reimbursement itself would be particularly complex. I will therefore do all in my power to limit the impact as much as possible, in the interests of legal security and our economic fabric. The course of these negotiations will determine our stance in this matter. At this point we do not exclude any option. This also applies to the possibility of an appeal against the decision”, he said in a press release, in which he also stressed that the system in question was put on hold as soon as the Commission announced the opening of its in-depth investigation in February 2015. “We now await the outcome of further negotiations with Europe regarding the possible reimbursements”, he explained. When asked if there was any margin for negotiation, a European source went no further than to point out that the Commission had concluded the existence of an illegal tax reduction, which now needs to be recovered.
When asked whether tax havens still existed within the EU, the Commissioner replied that in her view, a tax haven was a place where everybody paid their fair share. “We're not there yet”, she concluded. Later the same day, the Commissioner for Taxation, Pierre Moscovici, was to appear before the special TAXE II committee of the EP, where he was expected to announce plans to present a package to fight tax avoidance on 27 January. (Original version in French by Elodie Lamer)