EU to investigate 39 multinationals over profit shifting tax deals

The European Commission has launched in-depth investigations into dozens of multinationals which had negotiated special tax deals with Belgian authorities to slash their tax bills

The investigations will assess whether ‘excess profit’ tax rulings granted by Belgium to 39 multinational companies gave those companies an unfair advantage over their competitors, in breach of EU state aid rules.

The majority of the multinationals in the firing line are registered in the Netherlands and Benelux countries, and many are listed on the Dutch Stock Exchange, including BASF Antwerpen NV, Bridgestone Europe NV, Ansell Healthcare Europe NV, Pfizer Animal Health SA,  Zoetis Belgium SA, Atlas Copco Airpower NV, BP Aromatics Ltd NV and the Benelux arm of British American Tobacco Coordination Center VOF.                                                                                                                              

The decision follows the General Court's February 2019 annulment of the Commission's January 2016 decision concluding that the same tax rulings formed part of a Belgian aid scheme that was illegal under EU state aid rules.

The Court did not take a position on whether or not the ‘excess profit’ tax exemptions gave rise to illegal state aid but found that the Commission had failed to establish the existence of a scheme. This means that, according to the General Court, the compatibility of the tax rulings with EU state aid rules needs to be assessed individually, which is why the Commission has now opened separate in-depth investigations into the individual tax rulings.

In January 2016 the European Commission ordered Belgium to recover €700m (£525m) in unpaid taxes from 35 multinational companies who benefited from another ‘excess profit’ tax scheme, marketed by the Belgian tax authority as Only in Belgium, which has subsequently judged illegal under EU state aid rules. This was then revoked and the current investigation relates to the same scheme. 

At the same time, the Commission has appealed the judgment of the General Court to the European Court of Justice to seek further clarity on the existence of an aid scheme. These proceedings are ongoing.

The in-depth investigations concern individual ‘excess profit’ tax rulings issued by Belgium between 2005 and 2014 in favour of 39 Belgian companies belonging to multinational groups. Most of these multinational groups are headquartered in Europe.

Commissioner Margrethe Vestager, who is in charge of competition policy for the EU, said: ‘All companies must pay their fair share of tax. We are concerned that the Belgian "excess profit" tax system granted substantial tax reductions only to certain multinational companies that would not be available to companies in a comparable situation.’

Belgian company tax rules require companies, as a starting point, to be taxed based on profit actually recorded from activities in Belgium. However, the Belgian ‘excess profit’ tax rulings, relying on the Belgian income tax code (Article 185 §2, b, Code des Impôts sur les Revenus/Wetboek Inkomstenbelastingen), allowed multinational entities in Belgium to reduce their corporate tax liability by so-called ‘excess profits’ that allegedly result from the advantage of being part of a multinational group.

In practice, the rulings usually resulted in more than 50% and in some cases up to 90% of those companies' accounting profit being exempt from taxation, according to the European Commission, and that ‘the tax rulings under investigation selectively misapplied the Belgian income tax code’.

In particular, the Commission has concerns that the rulings endorsed unilateral downward adjustments of the beneficiaries' tax base, although the legal conditions were not fulfilled. Furthermore, the Commission has concerns that the Belgian practice of issuing “excess profit” rulings in favour of certain companies may have discriminated against certain other Belgian companies, which did not, or could not, receive such a ruling.

The record state aid case involved US tech giant Apple. Following a Commission ruling, Ireland’s finance ministry was told to collectin €13bn (£11.4bn) in back taxes from Apple, which it had previously held off from doing following a hotly disputed European Commission ruling relating to the use of illegal state aid. This case is still going through the appeal courts.      

The Commission also has two ongoing in-depth investigations concerning tax rulings issued by the Netherlands with Inter IKEA and Nike, and an investigation concerning tax rulings issued by Luxembourg to Finnish food packaging company, Huhtamäki.                   

Sara White

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