The European Commission this week launched an in-depth investigation into a provision in the Belgian tax regime that gives major tax breaks to multinational corporations.

It was not the tax regime in Belgium but Luxembourg that caused an uproar this fall, with critics crying foul over sweetheart tax deals for major corporates in what become known as the LuxLeaks scandal. The International Consortium of Investigative Journalists examined thousands of leaked documents that detailed advanced tax agreements for hundreds of large corporations negotiated by PwC with Luxembourg. It also led to a political firestorm for newly installed European Commission President Jean-Claude Juncker, who served as Luxembourg’s prime minister when many of the deals occurred.

However, it’s Belgium’s tax treatment of multinationals that is now the subject of a formal investigation by the commission. At issue is a tax provision in Belgium allowing group companies to reduce their corporate tax liability by “excess profits” resulting from the advantage of being a part of a multinational group, according to the European Commission. Under the provision, the companies involved can deduct items such as intra-group synergies or economies of scale, which the commission said it fears are often overestimated. Deductions under the excess profit rule are typically more than 50 percent of the tax profits covered, and sometimes as much as 90 percent of the profits, the commission said.

“The Belgian ‘excess profit’ tax system appears to grant substantial tax reductions only to certain multinational companies that would not be available to stand-alone companies,” Margrethe Vestager, the commissioner in charge of competition policy, said in a statement. “If our concerns are confirmed, this generalized scheme would be a serious distortion of competition, unduly benefitting a selected number of multinationals. As part of our efforts to ensure that all companies pay their fair share of tax, we have to investigate this further.”

In order to qualify for the excess profit ruling, a company must be pre-approved by Belgian tax authorities, and apparently only applies to multinational corporations rather than companies operating solely within the country, the commission said.

Belgian authorities reportedly told the commission that the provision is based on the OECD’s “arm’s length” principle and an attempt to avoid double taxation on companies. However, the commission said it doubts Belgium’s interpretation of the OECD principle is valid and pointed out that the profits in question are not subject to taxation claims from other countries. The commission also noted that an initial review of past practices showed that the excess profit tax rulings often have been given to companies either relocating a major part of their activities to Belgium or making a significant investment in the country.

“At this stage, the commission has doubts if the tax provision complies with EU state aid rules, which prohibit the granting to certain companies of selective advantages that distort competition in the Single Market,” the commission said.

However, the commission said it would not prejudge the outcome of the investigation. The commission, which has been investigating the tax ruling practice of member states under state aid rules, said “a number of member states” seem to be allowing multinationals to take advantage of tax systems in order to reduce their tax burden.

While the commission’s ongoing efforts include all member states, the probe into Belgium’s excess profit rule marks the fourth formal probe into tax regimes since 2014. In June of last year, the commission opened an investigation into tax dealings concerning Apple in Ireland, Starbucks in the Netherlands, and Fiat Finance & Trade in Luxembourg. This past October, the commission also launched an investigation regarding Amazon in Luxembourg. The commission said rulings in those cases will be made available on its competition website once confidentiality issues are resolved.

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