On 11 January 2016, the European Commission (Commission) announced its final decision in the formal state aid investigation into the Belgian excess profit rulings. It concludes that the excess profit rulings constitute illegal state aid. The Commission estimates that Belgium needs to recover around €700 million in total from at least 35 multinationals. Belgium has the opportunity to appeal against this decision.

According to the Commission, the scheme only benefits multinational groups whilst stand-alone Belgian companies only active in Belgium could not claim similar benefits. The scheme represents a distortion of competition within the EU's Single Market affecting a wide variety of economic sectors.

Under the excess profit rulings, the actual recorded profit of a Belgian company part of a multinational group is compared with the hypothetical average profit a stand-alone company in a comparable situation would have made. The alleged difference in profit is deemed to be excess profit, and the multinational's Belgian tax base is reduced proportionately. The rulings are based on a premise that multinational companies make excess profit as a result of being part of a multinational group, e.g. due to synergies, economies of scale, reputation, client and supplier networks, access to new markets etc.

The Commission holds that the scheme derogates both from the normal practice under Belgian company tax rules and the arm's length principle under EU state aid rules. The scheme cannot be justified as necessary to avoid double taxation. The excess profits are discounted unilaterally, i.e. they do not correspond to a claim from another country to tax the same profits. It often results in double non-taxation.

Since the opening decision in February 2015 (please see our Tax Flash of 4 February 2015), Belgium has put the excess profit scheme on hold and has not granted any new tax rulings under the scheme. The Commission now requires Belgium to stop applying the excess profit scheme and to recover the full unpaid tax from the multinational companies that have benefitted from the scheme.

Which companies have in fact benefitted from the excess profit ruling regime and the precise amounts of tax to be recovered from each company must now be determined by the Belgian tax authorities. The Commission estimates that it amounts to around €700 million in total and that at least 35 multinationals are involved. Belgium has the opportunity to appeal against this decision.

The final decision can be challenged before the Court of Justice of the European Union under Article 263 of the TFEU, by the Member State involved, other Member States, beneficiaries and other parties who are directly and individually concerned.