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Selective tax advantages granted by Belgium under its "excess profit" tax scheme are illegal under EU state aid rules

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The European Commission on January 11 concluded that "selective tax advantages" granted by Belgium under its "excess profit" tax scheme are illegal under EU state aid rules.

The European Commission on January 11 concluded that "selective tax advantages" granted by Belgium under its "excess profit" tax scheme are illegal under EU state aid rules.

Announcing its decision, the Commission said: "The Belgian 'excess profit' tax scheme, applicable since 2005, allowed certain multinational group companies to pay substantially less tax in Belgium on the basis of tax rulings. The scheme reduced the corporate tax base of the companies by between 50 percent and 90 percent to discount for so-called 'excess profits' that allegedly result from being part of a multinational group."

"The Commission's in-depth investigation, opened in February 2015, showed that the scheme derogated from normal practice under Belgian company tax rules and the so-called 'arm's length principle.' This is illegal under EU state aid rules."

The Commission said that the scheme has benefited at least 35 multinationals, mainly from the EU, who must now return unpaid taxes, said to be EUR700m, to Belgium.

The Commission said: "The 'excess profit' tax scheme was marketed by the tax authority under the logo 'Only in Belgium.' It only benefited certain multinational groups who were granted a tax ruling on the basis of the scheme, whilst stand-alone companies (that is, companies that are not part of groups) only active in Belgium could not claim similar benefits. The scheme represents a very serious distortion of competition within the EU's Single Market affecting a wide variety of economic sectors."

Since the Commission opened its investigation in February 2015, Belgium has put the "excess profit" scheme on hold and has not granted any new tax rulings under the scheme. However, companies that had already received tax rulings under the scheme since it was first applied in 2005 have continued to benefit from it. The Commission's decision requires Belgium to stop applying the "excess profit" scheme also in the future.

EU Competition Commissioner Margrethe Vestager commented: "Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules. It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing. There are many legal ways for EU countries to subsidize investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in the EU, ultimately at the expense of EU citizens."