(February 3, 2015)
On February 3, 2015 the European Commission issued a press release announcing that it has opened an in-depth investigation into a Belgian tax provision, which allows group companies to substantially reduce their corporation tax liability in Belgium on the basis of so-called "excess profit" tax rulings.
According to the press release in essence, the rulings allow multinational entities in Belgium to reduce their corporate tax liability by "excess profits" that allegedly result from the advantage of being part of a multinational group. The press release furthermore states that 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. Furthermore the press release states that the opening of an in-depth investigation gives interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.
The press release describes the Belgian excess profit system as follows:
“According to the Belgian tax provision under investigation (Article 185§2, b) Code des Impôts sur les Revenus / Wetboek Inkomstenbelastingen), a company's tax can be reduced by so-called "excess profits". These are profits registered in the accounts of the Belgian entity that allegedly result from the advantage of being part of a multinational group. In order for the deductions to apply, a company needs prior confirmation by the Belgian tax administration through a tax ruling. This scheme appears to only benefit multinational groups, whilst Belgian companies only active in Belgium cannot claim similar benefits.”
The press release furthermore states that according to the Belgian authorities, this tax provision only implements the general OECD "arm's length" principle. However, at this stage the Commission has doubts that this interpretation of the OECD principle is valid.
The Commission states that it has concerns that the "excess profit" alleged under the tax rulings, i.e. the deductions that a company can claim for e.g. intra-group synergies or economies of scale, significantly overestimate the actual benefits of being in a multinational group.
Moreover, the Commission's assessment so far concludes that the Belgian "excess profit" tax system cannot be justified by the objective to prevent double taxation. This is because the deductions in Belgium do not correspond to a claim from another country to tax the same profits.
Having examined past administrative practice, the Commission notes that these tax rulings are often granted to companies that have relocated a substantial part of their activities to Belgium or that have made significant investments in Belgium.
The Commission will now investigate further to conclude if its doubts are justified.
Click here to be forwarded to the full text op the press release as published on the website of the European Commission, which will open in a new window.
Click here to be forwarded to a statement made by Commissioner Vestager regarding the opening of an in-depth investigation into the Belgian excess profit ruling system.
Copyright – Internationaltaxplaza.info
Stay informed: Subscribe to International Tax Plaza’s Newsletter!
