On 20 September 2023, the General Court adopted its new decision in the Belgian excess profit saga. In its judgment, the General Court confirmed the Commission’s decision finding that the Belgian tax scheme constituted an unlawful state aid, which is not compatible with EU law (T-131/16 RENV).
The Belgian tax scheme at hand allowed for a tax exemption for certain ‘excess’ profits of Belgian entities which were part of larger, multinational corporate groups. Under that tax scheme, those Belgian entities could obtain, on a case-by-case basis, an advance ruling (“tax ruling”) from the Belgian tax administration exempting their excess profit from corporate income tax, in particular if the said entities centralised activities, created employment or made investments in Belgium. ‘Excess’ profits were defined as profits exceeding the profit that would have been made by comparable standalone entities operating in similar circumstances.
Reminder of the proceedings…
… with the Commission
The European Commission (“Commission”) opened a formal investigation into the tax scheme in 2015 and, in 2016, it adopted a negative decision with recovery. The decision established that the Belgian tax exemption system constituted a state aid scheme that was unlawful and incompatible with the internal market. It identified 55 beneficiaries of such aid and ordered Belgium to recover 700 million euros in unpaid taxes from these beneficiaries.
… with the General Court
Belgium (as well as 29 companies) brought an application for annulment against that decision to the General Court (“GC”). This application was successful as, on 14 February 2019, the GC annulled the Commission’s decision, finding that it had erroneously considered that the tax system at hand constituted an aid scheme. According to the GC, the Belgian tax provisions identified by the Commission required implementing measures, which left room for an important margin of discretion of the tax authorities. As such, the system could not be considered to be a generally applicable scheme.
… with the Court of justice
On appeal however, that GC 2019 judgment was set aside by the Court of justice (“Court”), on the basis of the finding that the Commission had correctly determined that there was an aid scheme. In this judgment, the Court recalled the three necessary conditions for a state measure to constitute an aid scheme:
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The existence of an act on the basis of which aid may individually be granted to companies;
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The non-necessity of further implementing measures for the aid to be granted;
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The general and abstract definition of the potential beneficiaries.
As regards the first criterium, the Court clarified that an ‘act’ may also be a consistent administrative practice by the authorities, where that practice reveals a ‘systematic approach’. In the case at hand, the Commission had identified a provision in the national tax code as well as a systematic approach on the part of the Belgian tax authorities in applying this provision. The Court therefore considered that there was an ‘act’ in the sense of the first condition listed above.
As regards the second and third criteria, the Court considered that these are intrinsically linked to the first one. It showed that, in practice, the Belgian tax authorities automatically granted the tax exemption when the conditions defined in the provision were satisfied. There was therefore no real implementing measure.
The Court thus annulled the GC 2019 decision and referred the case back to the GC for it to rule on the classification of that scheme as a state aid. Indeed, in 2019, the GC had annulled the Commission’s decision on basis of the first plea (absence of an aid scheme). Hence, the merits of the other pleas raised by Belgium had not been assessed then. Following the annulment by the Court of the GC 2019 decision, it was thus necessary for the GC to rule on these other pleas.
It is in that context that the GC ruled for the second time in this case, on 20 September 2023.
Final judgment of 20 September 2023
In this judgment, the GC rejected all arguments put forward by Belgium, including the ones concerning the alleged absence of State resources and the alleged non-selective nature of the advantage granted.
Regarding the use of State resources, Belgium had attempted to argue that the excess profit at issue corresponded to profit generated by corporate groups and not by their Belgian entities. As such, it allegedly did not fall within Belgium’s tax jurisdiction. That argument was rejected by the GC which considered that the Commission had sufficiently established that, on basis of the applicable Belgian tax legislation, that profit would normally have been subjected to taxes in Belgium. Therefore, as this taxable profit had not been taxed, it resulted in a loss of resources that belonged to the State.
Regarding the selective nature of the advantage granted, according to the GC, the Commission correctly demonstrated that the scheme at issue fulfilled that condition as:
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it differentiated between operators who were in a comparable factual and legal situation (i.e., the entities forming part of a multinational group which benefited from the excess profit exemption were treated differently from other entities subject to Belgian corporate income tax that did not benefit from it);
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it was not open to companies that had decided not to make investments, centralise activities or create employment in Belgium;
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it was not open to undertakings that were part of a small group of companies.
The GC concluded that the applicant’s action should be dismissed in its entirety, which means that the Commission’s decision is now confirmed.
This judicial saga therefore seems to be over… Or not? Belgium may still appeal the new GC’s judgment to the Court of justice.
For further information about this case and/or for general legal advice relating to European and Belgian competition law, please contact Pierre de Bandt or Tatiana Ghysels.