Belgium: “Excess profit” tax advantages to be recovered from multinationals

Excess profit tax advantages in Belgium

The European Commission today announced it has concluded that selective tax advantages granted by Belgium under its "excess profit" tax regime are illegal under EU state aid rules. The EC's investigation showed that the regime derogated from normal practice under Belgian company tax rules and the "arm's length principle."

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The Belgian "excess profit" tax regime has applied since 2005, and allowed certain multinational group companies to pay substantially less tax in Belgium on the basis of tax rulings.

According to today’s EC release, this selective tax advantage regime benefitted at least 35 multinational entities (mainly from the EU) that now must return unpaid taxes to Belgium. The EC estimated the total amount to be recovered from the companies to be approximately €700 million.

The "excess profit" tax regime only benefitted certain multinational groups that were granted a tax ruling while "stand-alone companies" (i.e., companies that are not part of groups) only active in Belgium could not claim similar benefits.

The EC found the regime was “a very serious distortion of competition” within the EU's single market, affecting a broad range of economic sectors. Belgium now must recover the full unpaid tax from the multinational companies that have benefitted from the regime. The Belgian tax authorities must determine which companies have benefitted from the regime and the amounts of tax to be recovered from each company.

Background

Belgian company tax rules require companies to be taxed on the basis of profit actually recorded from activities in Belgium. However, the "excess profit" regime (based on Article 185§2, b) of the Code des Impôts sur les Revenus / Wetboek Inkomstenbelastingen) allowed multinational companies to reduce their tax base for alleged "excess profit" on the basis of a binding tax ruling. These rulings were typically valid for four years and could be renewed.

Under the tax rulings, the actual recorded profit of a multinational would be compared with the hypothetical average profit of a stand-alone company in a comparable situation. The difference in profit would be deemed to be "excess profit" by the Belgian tax authorities, and the multinational entity's tax base would be reduced proportionately. This treatment was based on a premise that multinational companies made "excess profit" as a result of being part of a multinational group, e.g., due to synergies, economies of scale, reputation, client and supplier networks, access to new markets.

In practice, the actual recorded profit of companies concerned was usually reduced by more than 50% and in some cases up to 90%.

 

Read a January 2016 report [PDF 261 KB] prepared by KPMG's EU Tax Centre

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