The European Union ruled Monday that Belgium’s tax deals with several multinational corporations were illegal and ordered the country to recover approximately 700 million euros ($763 million) in back payments. In a statement, the EU’s Competition Commissioner Margrethe Vestager said that Belgium’s “excess profit” tax scheme, which allowed 35 companies operating cross-border to get deductions on half or even as much as 90 percent of profits, was in violation of the bloc’s state aid rules.
“It [Belgium’s tax scheme] distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing,” Vestager, whose office has, in recent months, cracked down on tax evasion by companies like Starbucks and Fiat Chrysler Automobiles in the Netherlands and Luxembourg, respectively, said in the statement.
“There are many legal ways for EU countries to subsidize investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in the EU, ultimately at the expense of EU citizens,” Vestager added, in the statement.
Commission conclude that Belgian "excess profit" #tax scheme is illegal. 700 mio euro to be recovered from 35 companies, mostly European
— Margrethe Vestager (@vestager) January 11, 2016
According to the European Commission — the bloc’s top antitrust regulator — under the scheme, which was enacted in Belgium in 2005, the actual recorded profit of a multinational company was compared with the hypothetical profit a standalone company in a comparable situation would have made. This difference was then deemed to be “excess profit,” and the company’s tax base was reduced proportionately.
This scheme, the commission alleged, could not be justified by the argument made by Belgium that it was needed to prevent double taxation, as no other country had claimed taxes on the same profits.
“Since the Commission opened its investigation in February 2015 Belgium has put the ‘excess profit’ scheme on hold and has not granted any new tax rulings under the scheme. However, companies that had already received tax rulings under the scheme since it was first applied in 2005 have continued to benefit from it,” the European Commission said, in the statement. “Which companies have in fact benefited from the illegal tax scheme and the precise amounts of tax to be recovered from each company must now be determined by the Belgian tax authorities.”
The ruling comes at a time when the Belgium-based brewer Anheuser-Busch InBev is in the process of seeking regulatory approvals for its $108 billion takeover of the world’s second-largest brewer, SABMiller of London. It is not yet clear whether AB InBev is among those affected by the decision, as the commission did not name the companies that benefited from the scheme.