European Union: General Court Annuls The Decision Of The EU Commission On The Belgian Excess Profit Regime

Last Updated: 5 March 2019
Article by Oliver R. Hoor and Marie Bentley

 Since June 2013, the EU Commission has been investigating the tax ruling practices of several EU Member States with a view to detect potential State aid concerns. Apart from the investigation in the McDonalds case, the EU Commission consistently concluded that illegal State aid was present. In all these cases, the EU Member States (and many of the taxpayers) concerned appealed against the decisions of the EU Commission.

On 14 February 2019, the General Court of the Court of Justice of the European Union ("CJEU") decided that the Belgian "excess profit regime" (case T-131/16) is not a State aid scheme. This judgment is the first judgment in the series of pending tax aid appeals against the EU Commission's recovery decisions. According to the General Court, the EU Commission had failed to demonstrate the existence of an aid scheme. Therefore, the decision of the EU Commission was annulled in its entirety.

Belgium's excess profit regime

Since 2005, Belgian tax law has provided for the possibility of advance rulings allowing a company that is a member of a multinational group to perform, in accordance with the arm's length principle, unilateral downward adjustments to its tax base for "excess profits" generated because of the taxpayer's membership of a group.

This excess profit was considered to be the profit that exceeds the profit which a comparable standalone entity operating in similar circumstances would have generated. Thus, the excess profit resulted from synergies or economies of scale arising from membership of a corporate group that could not be attributed, from a transfer pricing perspective, to the Belgian company.

In 2016, the EU Commission found that the excess profit exemptions granted, by means of advance rulings, constituted a State aid scheme that was incompatible with the internal market. Belgium and several beneficiaries of the exemption appealed against the EU Commission's decision.

Decision of the General Court

According to the General Court, the EU Commission erroneously considered that the Belgian excess profit exemption regime constituted a State aid scheme. In this regard, the General Court made the following observations:

  • The essential elements of the aid scheme at issue: If individual aid awards are made, the essential elements of the aid scheme in question must necessarily emerge from the provisions identified as the basis for the scheme. However, the implementation of those provisions and therefore the grant of the alleged aid necessarily depended on the adoption of further implementing measures (including a case-by-case analysis by the Belgian tax authorities) which precludes the existence of an aid scheme.
  • The margin of discretion of the Belgian tax authorities: Where the national authorities apply the provisions that allegedly constitute the prohibited State aid scheme, the national authorities cannot have any margin of discretion as regards the determination of the essential elements of the aid in question and whether it should be awarded. The power of the authorities should be limited to the technical application of the aid scheme, if necessary after verifying that the applicants meet the pre-conditions for benefiting from that scheme. However, the Belgian tax authorities examined each request on a case-by-case basis and had a margin of discretion that went well beyond a mere technical application of the provisions identified. This also precludes the existence of an aid scheme.
  • Definition of the beneficiaries: For State aid to exist, the beneficiaries of the aid scheme must be defined in a general and abstract manner by the acts on which the EU Commission found the scheme was based. At first sight, the excess profit regime applies to Belgian companies that are part of a multinational group (as regards their cross-border relationships with other group companies). However, the beneficiaries of the scheme, as referred to in the contested decision, cannot be identified on the sole basis of that provision, without further implementing measures.
  • The existence of a systematic approach: The General Court stated that the EU Commission did not prove that a systematic approach (followed in all of the advance rulings concerned) was taken by the Belgian tax authorities and that the alleged scheme granted the beneficiaries a selective advantage. Notably, the advance rulings examined by the EU Commission were issued in different situations, such as the merger or restructuring of production activities, the construction of new facilities, and the increase of the production capacity of existing facilities or the internalization of supply activities.

Conclusion and outlook

With the current State aid investigations, the EU Commission has created a lack of predictability in tax matters, in particular since these investigations may have a time horizon of up to 10 years in the past.

In addition, the more recent decisions of the EU Commission seem to depart from established CJEU case law and EU State aid law. Although the concepts of "advantage" and "selectivity" are distinct requirements under State aid law, the EU Commission appears to have collapsed both concepts, as it merely examines whether the measures under investigation entailed a "selective advantage" rather than analyzing both requirements separately. Furthermore, in previous State aid investigations, the EU Commission never challenged how a Member State applied its own transfer pricing rules in granting a specific advance pricing agreement.

In all the cases in which the EU Commission decided that illegal State aid was present, the EU Member States concerned (side by side with the taxpayers involved) appealed against the decision before the CJEU. It is now for the CJEU to decide whether the EU Commission's new way of applying the State aid concept in the field of taxation is consistent with EU Law. In the first of these cases, the General Court decided that the EU Commission erroneously considered that the excess profit regime constituted a State aid scheme.

Given that the Court did not address the EU Commission's new theory of selectivity relating to tax rulings, this judgement has unfortunately limited predictive value for the other pending State aid cases which are not about aid schemes in general but about aid granted to individual taxpayers. The EU Commission may appeal against the decision within two months of the notification of the decision by the General Court. However, even if the EU Commission accepts the judgement, the EU Commission may still continue investigating individual cases where the excess profit regime has been applied. Therefore, the legal uncertainty surrounding the EU Commission's State aid investigations will continue to exist for quite a while.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions