Brussels, 04/02/2004 (Agence Europe) - The European Commission has called upon Belgium to end the regime of tax breaks enjoyed by American companies selling abroad- known as "Foreign Sales Corporations" or FSCs- establihsed within its territory. It has, however, decided not to demand the return of what turns out to be illegal State aid, in conclusion of the inquiry procedure launched in Spring 2002.
This procedure, based on article 88 (2) of the traty, confirmed that the "ruling" tax regime, which is reserved solely for FSCs' commercial activities in Belgium, is indeed illegal State aid, which was not notified to the Commission prior to its entry into force in 1984, and which is covered by none of the exemptions to the ban on coalition-type agreements. The Commission, which rejected the arguments advanced by Belgium one by one, considered that: the regime gave FSCs, be they branches or subsidiaries, an advantage in the form of a reduction of the assessment intended by Belgian company texation, by moving away significantly (notably reduced basis for calculation by excluding considerable expenditure) from the means of determining the taxable profit of other comparable tax-payers carrying out simliar cross-border operations; -far from having help to increase Belgium's tax revenue, these tax breaks are a loss to the Treasury, as they are in effect a "consumption of State resources in the form of tax expenditure"; -this regime affects competition and trade between Member States, as by its nature it strengthens the position of beneficiaries to the detriment of their competitors; -it is indeed operating aid, in that this provision, which corresponds to none of the exceptional conditions provided by the Treaty, "simply lowers costs which would normally be borne by the companies concnered as part of their activities".
However, the Commission has decided not to demand that the illegal aid be returned, taking account of the exceoptional circumstances surrounding the case, and especially the confidence which the beneficiaries may legitimately have had in the text regime and its legality. Before the Commission published its decision, Belgium had already announced that it would stop this regime once the United States had definitively come into line with the World Trade Organisation (WTO) ruling on FSCs.