EU probes into excess profit ruling system in Belgium

The European Union (EU) began an in-depth investigation into a Belgian tax provision that allows multinational companies to substantially reduce their corporate tax liability in Belgium, the European Commission (EC) announced on Tuesday.

The tax provision, which enables multinational companies to claim "excess profits" that allegedly result from being part of a multinational group, raised questions about whether this measure complied with EU state aid rules, which prohibit granting selective advantages to certain companies as this distorts competition in the European single market.

The EC's concerns were that the deductions a company can claim for intra-group synergies or economies of scale significantly overestimate the actual benefits of being in a multinational group.

Moreover, the EC's assessment so far found the Belgian "excess profit" tax system cannot be justified based on the objective of preventing double taxation, as the deductions in Belgium do not correspond with a claim from another country to tax the same profits.

Having examined past administrative practice, the EC noted that these tax rulings are often granted to companies which have relocated a substantial part of their business activities to Belgium or which have made significant investments in Belgium.

"If our concerns are confirmed, this generalized scheme would be a serious distortion of competition unduly benefiting a selected number of multinationals," said Margrethe Vestager, the EC commissioner in charge of competition policy. Endit