The General Court annuls the Commission’s 2016 decision on the Belgian excess profit tax rulings

• Luxembourg
• United Kingdom

• Competition, EU and Trade
• Tax planning and consultancy

14-02-2019

The General Court of the European Union annulled on 14 February the European Commission’s decision of 11 January 2016 (Decision (EU) 2016/1699), in which it had found that Belgium’s excess profit exemption scheme was incompatible with EU State aid rules (joined cases T-131/6 and T-263/16). Under that scheme, Belgian tax authorities granted tax rulings to Belgian entities of multinational corporate groups, authorising them to exempt part of their profit from corporate income taxation. In its decision, the Commission had concluded that the arrangement constituted an “aid scheme” which was incompatible with EU State aid rules and ordered the recovery of the “aid” granted in this way to a number of multinational corporate groups.

In its judgment, the General Court concluded that while the Commission had the competence to consider whether the tax arrangements in question where consistent with EU State aid rules, it had erred when it concluded that the arrangements constituted an “aid scheme”, within the definition of related EU State aid legislation.

Council Regulation (EU) 2015/1589 of 13 July 2015, defines an “aid scheme” as involving an act on the basis of which, without further implementing measures being required, State aid may be granted to individual businesses defined within that act in a general and abstract manner. However, the General Court found, among other things, that, the Belgian tax system in question did not set out all the essential elements of that scheme, so that its implementation and the grant of the alleged aid, depended on the adoption of additional implementing measures, the advance tax rulings. Separately, the tax authorities had a margin l of discretion when granting or rejecting requests relating to excess profit, which they exercised on a case by case basis..

In practice, therefore, the General Court annulled the Commission’s decision on a technicality without the Court having to address and clarify a key issue in outstanding appeals against tax-related State aid Commission decisions, namely the question of whether the Commission was correct in concluding that the various tax measures at issue amount to the grant of a selective advantage to alleged beneficiary multinational groups. At the same time, the case is clear in dismissing the argument that the Commission exceeded its powers in relation to State aid by encroaching on the exclusive tax jurisdiction of Belgium in the field of direct taxation. By reference to well-established jurisprudence, the Court concludes that since the Commission has competence to ensure compliance with EU State rules, it cannot be accused of having exceeded its powers by examining the measures comprising the alleged scheme at issue in order to determine whether they constituted State aid and, if they did, whether they were compatible with the internal market. 

The claim that the Commission has exceeded its powers with its State aid decisions on tax rulings and other tax arrangements involving the tax authorities of various EU Member States, is one which has been advanced in virtually all other appeals currently awaiting judgment by the General Court. Indeed, it is notable that Ireland, which itself has appealed the Commission’s decision that it had granted illegal State aid to Apple by means of two tax rulings, intervened in this case, in support of this claim.