On 14 February 2019, the General Court of the European Union’s decision put a brake on the European Commission by annulling its decision on the Belgian excess profit exemption.

The Belgian excess tax profit ruling system allows a Belgian company member of a multinational group to adjust its taxable basis when its profit exceeds an arm’s length profit.

The contested decision dates back to 11 January 2016 when the Commission found that the Belgian exemption constituted an illegal state aid scheme and asked the Kingdom of Belgium to recover the aid granted to more than 50 beneficiaries.

Where some were expecting the General Court to give more details on the implementation of state aid criteria (i.e. selectivity and advantage) on advance rulings, the General Court has however annulled the Commission’s decision on a different ground. According to the General Court, the Commission was unable to demonstrate that a systematic approach was taken by the Belgium authorities in providing clearance for the excess profit regime and its decision had to be annulled “as it is based on the erroneous conclusion concerning the existence of such a scheme”.

In its decision, the General Court recalled that even if EU Member States have an exclusive competence in the field of direct taxation, they must nevertheless exercise this competence consistently with respect to EU laws.

The suspense remains on several points: will the Commission appeal against this decision? Will the General Court address state aid criteria in the pending cases? Will this decision have consequences for the Commission’s other investigations? While the breaks may be on, the Commission will want to remain in the driving seat to clamp down on illegal state aid in the tax system.

Annuls Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium