Tax Alert - EPR judgment on State aid and excess profit

Published on 20th Feb 2019

On 14 February 2019, the General Court annulled the decision of the European Commission (EC) on the Belgian excess profit ruling practice.[1] This is the first of a series of judgments that the General Court is expected to issue over the course of this year dealing with the legality of several State aid decisions of the EC on the tax ruling practices of various Member States.


From 2005 through 2014, the Belgian tax authorities issued 66 excess profit rulings stating that so-called “excess profits” had to be eliminated from the companies’ taxable income based on the arm’s length principle of Article 185, §2 of the Belgian Income Tax Code 1992. Excess profits were typically profits that were recorded in the accounts of a Belgian entity, but allegedly resulted from the advantage of being part of a multinational group. In order for the deductions to apply, companies needed prior confirmation from the Belgian tax authorities through a tax ruling.

A first judgment in a series of cases against EC State aid decisions

The actions for annulment brought by the Belgian State and a number of taxpayers challenged the EC’s decision on various grounds, including selectivity and the EC’s allegedly flawed interpretation of the arm’s length principle. In other actions for annulment brought by Ireland, Luxembourg and the Netherlands and various taxpayers against State aid decisions relating to those Member States, similar arguments have been raised. However, a specific (preliminary) issue in the Belgian excess profit case was the classification of the excess profit rulings as one ‘scheme’ (rather than 66 individual measures). The General Court annulled the EC’s decision only on this point.

Although the various excess profit rulings (or at least many of them) clearly had certain common features, these were insufficient for classifying them as one ‘scheme’. The main reason was, according to the General Court, that the Belgian tax authorities, on a case-by-case basis, had a margin of discretion on all of the essential elements of the excess profit rulings, allowing them to influence the amount and the characteristics of the tax exemption and the conditions under which the exemption was granted. Moreover, the excess profit exemptions did not follow automatically from Belgian tax law, but necessarily depended on the adoption of further implementing measures (i.e. tax rulings) by the Belgian tax authorities. Finally, the General Court notes that there was not a systematic approach on the part of the Belgian tax authorities and that the taxpayers eligible for an excess profit ruling were not defined in a general and abstract manner.

The EC now has to decide whether it will appeal the judgment to the Court of Justice of the European Union (CJEU), but the general expectation is that an appeal is likely. The EC also has to decide if it will launch a formal investigation into the individual excess profit rulings pending the (likely) appeal to the CJEU. In the meantime, the Belgian government already announced that in case of no appeal or confirmation of the judgment in appeal, the multinationals benefitting from the rulings would be reimbursed the amount of the alleged aid that the EC required Belgium to recover from the alleged beneficiaries.

Impact on other cases?

Although the General Court’s judgment does not seem directly relevant to the other recent tax rulings cases (in the absence of any statement by the General Court on substantive issues), it does represent a setback for the EC. Not only could it affect the prestige of the EC’s campaign against alleged tax avoidance, it could also limit the EC’s ability to challenge broader rulings regarding the practices of Member States by addressing a large number of individual tax rulings in one decision. It remains to be seen if and when the substantive aspects of the excess profit ruling practice will be dealt with by the General Court or the CJEU. Any such judgment could be relevant to other cases currently under appeal, but also to comparable tax rulings that (even though not under investigation by the EC) were traditionally issued by other Member States, such as the Netherlands (‘infokap’) and Luxembourg (‘apport caché’).

[1] Judgment of the General Court of 14 February 2019, Joined Cases T-131/16 Belgium v Commission and T-263/16 Magnetrol International v Commission.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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