In its judgment of 14 February 2019 in joined cases T-131/16 and T-263/16, the General Court annulled the Commission’s decision concerning tax exemptions granted by Belgium to multinational companies by means of rulings. This is the first decision by a European court regarding the tax rulings cases pursued by the Commission. Unlike other cases brought before the General Court, such as the cases involving Apple/Ireland, Starbucks/The Netherlands or Fiat/Luxembourg, the state aid decision in the Belgian case is not related to individual aid granted to a specific company, but rather to a state aid scheme. In this regard, the judgment provides some clarifications about the conditions to be fulfilled to conclude that an aid scheme exists under the State aid rules.
In a decision of 2016, the Commission considered that Belgium’s tax scheme on “excess profit”, which is based on Article 185(2) of the Income Tax Code (CIR) and on a circular of 2006, was an aid consisting of exempting from corporate income tax a part of the profits (the “excess” profit) made by entities which formed part of multinational corporate groups. According to the Belgian authorities, the exemption was justified by the fact that the exempted profits exceeded the profits that would have been made by comparable standalone entities operating in similar circumstances. Such a downward adjustment of the profit subject to taxation, granted through the issuing of advance rulings by the Belgian authorities, was therefore said to result from the arm’s length principle and intended to avoid potential double taxation.
In its judgment, the General Court found that the Commission erroneously concluded that the measures referred to in the contested decision introduced an aid scheme in Belgian legislation.
Firstly, the General Court considered that Article 185(2) CIR, which, according to the contested decision, constitutes the basis for the alleged aid scheme, does not contain the essential elements of that scheme. It is underlined that those essential elements had in fact been identified on the basis of an analysis of a selection of advance rulings. In particular, the General Court noted that neither the methodology for calculating the excess profit nor the requirement of investments, the creation of jobs or the centralisation or increase of activities in Belgium, which constitute two essential elements of the alleged scheme identified by the Commission in its decision, follow even implicitly from the acts referred to in that decision. This means therefore that the implementation of those acts and thus the granting of the alleged aid entails an analysis on a case-by-case basis and necessarily depends on the adoption of further implementing measures, precluding as such the existence of an aid scheme within the meaning of Article 1(d) of Regulation 2015/1589.
Secondly, the General Court underlined that, when issuing advance rulings on excess profit, the Belgian tax authorities have a margin of discretion such that their power is not limited to the technical application of the provisions in question. They can, as such, influence the amount and the essential elements of the excess profit exemption and the conditions under which it is granted.
Thirdly, the General Court noted that the beneficiaries of the scheme, as referred to in the contested decision, cannot be identified on the sole basis of Article 185(2) CIR without further implementing measures. Specifically, these beneficiaries correspond to a much more specific category than that of companies forming part of a multinational group in the context of their reciprocal cross-border relationships, as mentioned in Article 185(2) CIR.
Finally, the General Court rejected the Commission’s argument alleging the existence of a systematic approach which could have been identified by examining a sample of 22 of the 66 existing advance rulings. It pointed out here that the sample to which the Commission referred in the contested decision cannot necessarily prove that such a systematic approach actually existed and that it was followed in all the advance rulings concerned.
The annulment of the Commission decision by the General Court might not be the final act in the Belgian tax rulings case. More precisely, besides bringing an appeal before the Court of Justice, the Commission could also decide to pursue the case on an individual basis by establishing that each of the dozens of companies, including Magnetrol, which were granted a tax exemption by the Belgian authorities, in fact benefited from individual state aid.
Please contact Pierre de Bandt or Jeroen Dewispelaere for further information on this case and/or for general advice on competition law.