The European Commission announced Monday it has opened separate investigations into whether “excess profit” tax rulings granted by Belgium to 39 multinational companies gave them an unfair advantage over their competitors, in breach of EU state aid rules.

The decision to open the investigations follows the General Court’s February 2019 annulment of the Commission’s January 2016 decision, which had concluded the same tax rulings formed part of a Belgian aid scheme that was illegal under EU state aid rules.

“We are concerned that the Belgian ‘excess profit’ tax system granted substantial tax reductions only to certain multinational companies that would not be available to companies in a comparable situation,” said Commissioner Margrethe Vestager in charge of competition policy in a statement.

In its February 2019 decision, the Court did not take a position on whether the “excess profit” tax exemptions gave rise to illegal state aid, but it found the Commission had failed to establish the existence of a scheme. This means, according to the General Court, the compatibility of the tax rulings with EU state aid rules needs to be assessed individually, which is why the Commission has now opened separate in-depth investigations into the individual tax rulings.

The Commission has appealed the judgment of the General Court to the European Court of Justice to seek further clarity on the existence of an aid scheme. These proceedings are ongoing.

The investigations concern individual “excess profit” tax rulings issued by Belgium between 2005 and 2014 in favor of 39 Belgian multinational companies, most of which are headquartered in Europe. Belgian company tax rules require companies, as a starting point, to be taxed based on profit recorded from activities in Belgium.

The Belgian tax rulings, however, allowed multinational entities in Belgium to reduce their corporate tax liability by so-called “excess profits” that allegedly result from the advantage of being part of a multinational group. Such advantages included, for example, synergies, economies of scale, reputation, client and supplier networks, or access to new markets. In practice, the rulings usually resulted in more than 50 percent, and in some cases up to 90 percent, of those companies’ accounting profit being exempt from taxation.

The Commission said its preliminary view is that by discounting excess profit from the beneficiaries’ tax base, the tax rulings under investigation selectively misapplied the Belgian income tax code.

The opening of the investigations gives Belgium and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

Similar probes

The following investigations concerning tax rulings have already been concluded by the Commission:

  • In October 2015, the Commission concluded Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. As a result of these decisions, Luxembourg recovered €23.1 million (U.S. $25.4 million) from Fiat and the Netherlands recovered €25.7 million (U.S. $28.3 million) from Starbucks.
  • In August 2016, the Commission concluded Ireland granted undue tax benefits to Apple, which led to a recovery by Ireland of €14.3 billion (U.S. $15.7 billion).
  • In October 2017, the Commission concluded Luxembourg granted undue tax benefits to Amazon, which led to a recovery by Luxembourg of €282.7 million (U.S. $311 million).
  • In June 2018, the Commission concluded Luxembourg granted undue tax benefits to Engie, which led to a recovery by Luxembourg of €123 million (U.S. $135.3 million).
  • In September 2018, the Commission found the non-taxation of certain McDonald’s profits in Luxembourg did not lead to illegal state aid, as it is in line with national tax laws and the Luxembourg-US Double Taxation Treaty.
  • In December 2018, the Commission concluded Gibraltar granted undue tax benefits of around €100 million (U.S. $110 million) to several multinational companies through a corporate tax exemption scheme and through five tax rulings. The recovery procedure is ongoing.
  • In April 2019, the Commission concluded the United Kingdom granted undue tax benefits to several multinational companies by allowing certain artificially diverted group financing income to remain outside the scope of the United Kingdom’s anti-tax avoidance provisions. The recovery procedure is ongoing.

The Commission said it also has two ongoing investigations concerning tax rulings issued by the Netherlands against Inter IKEA and Nike and an investigation concerning tax rulings issued by Luxembourg against Huhtamäki.