In June 2013, the Commission stated investigating the tax ruling practices of certain member states. This was amid concerns that those member states provided an anti-competitive advantage to multinationals who could take advantage of the rulings systems. These investigations were carried out by DG Competition. They were applying the state aid rules in the EU Treaty which are a part of the overall suite of measures intended to prevent anti-competitive practices or practices which distort competition, even when facilitated by national governments.

The initial investigations concentrated on Apple, Amazon and Fiat Finance (all in Luxembourg) and Starbucks (in the Netherlands). In December 2014, the Commission announced it would widen its enquiries to cover all member states.

Belgian Excess Profit Scheme

As part of the wider investigation, in February 2015 the Commission asked Belgium to provide information in relation to its “excess profits” tax scheme.

Belgian law requires companies to pay tax on the profits they actually record in Belgium, but the “excess profit” scheme allowed special treatment for some companies. Introduced in 2005, the “excess profit” scheme assumes that a multinational makes additional profit that a hypothetical stand-alone company in a comparable situation would not have made. This “excess profit” is deemed to result from being part of a multinational group, for example as a result of synergies, economies of scale, access to markets, etc.

A multinational company could only take advantage of the scheme if it obtained a tax ruling from the Belgian tax authority.

The result was that since 2005, tax of approximately €700m has been avoided by at least 35 (mainly European) companies. In some cases these companies had their Belgian tax bill reduced by up to 90% of their actual profits.

The Belgian government argued that the scheme was necessary to prevent double taxation of these profits.


Following its investigation, the Commission ruled that the scheme was in violation of EU state aid rules for two reasons:

  1. It provided a selective subsidy to those companies that were able to access the scheme compared to those companies that could not and this was a deviation from the normal practice under Belgian tax rules.
  2. The scheme disregarded the economic reality of the situation. Even if “excess profit” actually existed, it should be allocated between group companies based on the arm’s length principle, not simply deducted unilaterally from the tax base of a single entity.

The Commission also rejected the Belgian government’s claims that the scheme was required to prevent double taxation of the profits. In fact, in her statement, Competition Commissioner Margrethe Vestager, commented that the scheme did not require companies to demonstrate any evidence, or even risk, of double taxation, going on to say that ‘in reality, the scheme gives a carte blanche to double non-taxation’.


When the Commission started its investigation, it required Belgium to stop offering the benefit of the “excess profit” scheme to companies from that date. However, companies that were already within the scheme could continue to benefit from it.

Perhaps the most painful result of the whole investigation is that Belgium is now required to remove the unfair advantage that the beneficiaries of the scheme have enjoyed and to restore fair competition. This requires the Belgian authorities to make the companies who had their profits (and so their Belgian tax bill) reduced pay the tax that they would have paid had the scheme never existed.

The Belgian government is therefore required to confirm which companies actually benefited from the scheme and recover from them an appropriate amount of tax.

In context

Tax avoidance has been under increasing scrutiny for some considerable time now and the debate has extended to so-called ‘harmful’ tax practices as part of the OECD’s work on the Base Erosion and Profit Shifting (BEPS) project.

It has long been the case that jurisdictions such as Luxembourg and the Netherlands have had effective tax ruling procedures in place which give the taxpayers involved certainty over the tax treatment of transactions. What is slightly different in the Belgian case is that the Commission has ruled that the scheme as a whole was illegal, rather than specific rulings given to selected companies.

Commissioner Vestager commented that ‘to root out unfair tax competition in the EU, we need an effective combination of both legislative action and enforcement of state aid rules’. Following that, in February 2016, the Commission published a draft directive aimed at combating tax avoidance and evasion in Member States.

While the state aid rules have a big part to play in domestic tax rules (there are a number of current UK tax reliefs that have needed state aid approval before being introduced), challenges to tax regimes have historically been based on the fundamental freedoms. These Commission decisions demonstrate that there is a clear, and perhaps increased, willingness to use the state aid rules to combat anti-competitive tax advantages.

This is just the beginning of the Commission’s investigation which extends into tax ruling practices in all EU Member States. More decisions like this can be expected and are likely to lead to repayment obligations for companies that benefited from favourable regimes, even if the approach was blessed by the appropriate national authorities at the time.