Between 2004 and 2014, Belgium granted EPRs to a few Belgian members of multinational groups, allowing them to make unilateral downward adjustments to their taxable basis by ignoring profits that should – from a Belgian perspective – be allocated to a foreign group member. The rationale was that the Belgian subsidiary or branch of the multinational group should not be taxed on profits that could not have been made in Belgium if such an entity were a stand-alone entity operating under similar circumstances. 

In 2016, the European Commission challenged the rulings on a collective basis by finding that the EPRs effectively resulted in a partial tax exemption amounting to an unlawful State aid scheme. The Commission ordered recovery of the identified aid. 
Upon a first appeal by Belgium and several beneficiaries of the rulings, the General Court found in February 2019 that the Commission had failed to prove that the rulings constituted a “scheme”, as opposed to individual aid measures and, on that ground, annulled the Commission’s decision. 

The Commission appealed this first judgment. In September 2021, the Court of Justice ruled that the Commission had correctly determined that there was a scheme and set aside the judgment of the General Court. 
The pending issue remained whether the identified scheme constituted an aid scheme and the Court of Justice referred the case back to the General Court. 

New judgments of the General Court

In the judgments of 20 September 2023, the General Court found that the Commission rightfully identified an aid scheme.

  • According to the General Court, the crucial issue is whether EPRs deviated from the ordinary Belgian corporate tax system.  The General Court considered that the Commission had demonstrated that the reference system in Belgium was the taxation of all profits actually recorded by undertakings subject to taxation in Belgium, to which the deductions provided for by law are to be applied and that the EPRs resulted in an exemption not provided by the reference system (defined as certain provisions of Belgian tax law).
  • As regards the criterion of selectivity, the General Court first observed that the Commission did use Belgian law as reference scheme for its analysis and properly interpreted such law (despite the explanations provided by the Belgian government). In particular, the General Court took the view that Belgian law would require a prior corresponding adjustment in the other jurisdiction in order to have a downward adjustment in Belgium. The administrative practice in these “excess profit rulings” was thus considered not in line with the “ordinary” Belgian tax system.
  • The General Court moreover dismissed claims that the Commission failed to assess the criterion of advantage (or in any case, separately from the criterion of selectivity). Given that the downward adjustments were, in the General Court’s view, not in line with Belgian tax law, the rulings granted an advantage to their beneficiaries by unduly reducing their tax base. The Commission did not have to quantify an advantage for each beneficiary.
  • The General Court also considered that the Commission correctly concluded that the scheme differentiated between operators who were in a comparable factual and legal situation: entities forming part of a multinational group which benefited from the excess profit exemption were treated more favourably. Other Belgian tax resident entities could not benefit from this unilateral downward transfer pricing adjustment.
  • The General Court also confirmed the Commission’s findings that the scheme at issue was selective because it was not open (i) to companies that had decided not to make new investments, centralize activities or create employment in Belgium and (ii) to undertakings that were part of a small group (Belgium did not provide any ruling granted to a small group). 

The General Court therefore concluded that the scheme satisfied all of the criteria to qualify as State aid and, in the absence of valid arguments why the aid would be compatible with the internal market, sided with the Commission that the scheme was unlawful aid.

Next steps & other pending cases

Belgium, the individual companies who had also appealed the Commission’s decision, and Ireland as intervening party may appeal before the Court of Justice within two months and ten days of the notification of the judgment. 

Given the specificities of the case – which is a scheme and where the Commission seems this time to have convincingly referred to Belgian law rather than an external or abstract arm’s length principle – it is difficult to draw lessons for the other cases pending, especially those already pending in front the Court of Justice.

The Apple (Ireland), Amazon (Luxembourg) and ENGIE (Luxembourg) cases are pending in appeal before the Court of Justice. In addition, several cases are still in the phase of formal State aid investigation by the European Commission, notably Huhtamäki (Luxembourg), Inter Ikea (the Netherlands) and Nike (the Netherlands).

We will keep you informed about further developments. Should you have any question, please contact a member of our EU State aid team or your trusted Loyens & Loeff adviser.