21 October 2021

Vestager wins first leg of Belgian tax case at EU court

Belgium | The EU’s competition chief Margrethe Vestager has had mixed fortunes getting European courts to side with her in her eight-year crusade against allegedly unfair tax deals, which countries like Belgium, Luxembourg, the Republic of Ireland and the Netherlands doled out to some of the world’s biggest multinationals. But she prevailed in a case against Belgium.

Between 2005 and 2014, the Belgian tax authorities granted partial tax exemptions to dozens of multinationals, including AB InBev, in order to attract them to the country or to keep them here. Per Belgium’s so-called “excess profit rules”, those companies did not have to pay taxes on the excess profit, which is the international part of their profit. They were only taxed on the profit from Belgian activities, which allowed them to reduce their corporate tax base by sometimes up to 90 percent.

Government support distorts competition

Ms Vestager disapproves of the arrangement. She considers this a form of illegal government support for multinationals. Moreover, in her view, the scheme distorts competition as it discriminates against companies that work exclusively in Belgium and therefore cannot benefit from that tax advantage. In 2016, therefore, Ms Vestager ordered Belgium to claw back about EUR 700 million (USD 765 million) from 35 companies, which had been granted such sweetheart deals.

Alas, the EU General Court, the second-highest court in the union, in 2019, annulled the commission’s claim that Belgium’s practice amounted to a “systemic approach” or a “scheme”.

However, on 18 September 2021, the Luxembourg based EU Court of Justice (CJEU) ruled that Ms Vestager was correct in calling it an aid scheme.

The case will drag on

The Belgian case must now go back to the General Court, which still has to rule on the more significant issue of whether the country gave the companies a “select advantage”.

It is not yet entirely clear whether Belgium must reclaim the tax benefits. That money has been kept in an escrow account for several years pending a final decision.

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