EU Court of Justice orders another judicial State aid review of Belgian Excess Profit Rulings
On 16 September 2021, the Court of Justice of the European Union issued its judgement on whether the Belgian excess profit rulings could qualify as State aid scheme or not. The Court of Justice sets aside the General Court’s judgement of 14 February 2019 that had dismissed the “scheme” qualification and accordingly had annulled the European Commission’s State aid decision of 11 January 2016. The case is now referred back to the General Court for a second review of the substance of the case, i.e., whether these rulings provided an unlawful selective (tax) advantage to their beneficiaries.
From 2004 to 2014, the Belgian Ruling Commission delivered excess profit rulings to a number of multinationals, allowing them to make downward adjustments to their taxable profits. The rationale was that the Belgian subsidiary or branch of the multinational group made profits that a hypothetical stand-alone company in a comparable situation would not have made.
As from 2013, the European Commission challenged the rulings on a collective basis, by earmarking them as an unlawful “State aid scheme”, ordering recovery of the aid by decision of 11 January 2016. Further to an appeal brought by Belgium and some enterprises, on 14 February 2019, the General Court (first instance court at EU level) sided with Belgium and annulled the decision of the Commission. The General Court concluded that the Commission had failed to prove that the rulings constituted an “aid scheme” according to Article 1(d) of Regulation 2015/1589, as opposed to individual aid measures. The General Court at the time did not further assess whether the rulings were State aid at all. For more information on the General Court’s decision, we refer to our article "EU General Court annuls State aid decision on Belgian excess profit rulings". The Commission lodged an appeal before the Court of Justice against the General Court’s judgement.
Judgement of the Court of Justice
In its judgment, the Court of Justice reminds that, for a state measure to be classified as an aid scheme, three cumulative conditions must be satisfied. First, aid may be granted individually to undertakings on the basis of an act. Secondly, no further implementing measure is required for that aid to be granted. Thirdly, undertakings to which individual aid may be granted must be defined ‘in a general and abstract manner’.
- According to the Court of Justice, the General Court had an excessively restrictive interpretation of the notion of “act”. An act should not only be construed as a law or other normative act, but can also consist in a “consistent administrative practice by tax authorities”.
- The Court of Justice also disagreed with the finding that the Belgian tax authorities had a certain margin of discretion and that the rulings constituted “implementing measures”. On the contrary, the Court of Justice observed that the exemption was always granted when the multinational group met the conditions, so that there was no real discretion.
- As regards the third condition, the General Court had ruled that the beneficiaries could not be identified on the sole basis of the tax provision in the law without further implementing measures. The Court of Justice disagreed, noting that the errors related to the assessment of the first two conditions also necessarily led to a wrong assessment of the third one.
The Court of Justice therefore concludes that the General Court made several errors of law in its judgement, which is therefore set aside. The Court of Justice, which rules on matters of law only, decided it was not in a position to judge on whether the excess profit rulings effectively provided unlawful State aid to the enterprises, in the absence of analysis made on this factual matter in first instance. Therefore, the Court of Justice referred the case back to the General Court to rule on the remaining pleas raised by Belgium and some multinationals on why the rulings do not constitute unlawful State aid.
The General Court will have to re-assess the case, which can take again several years.
The General Court’s judgement only related to the appeal against the Commission’s decision filed by Belgium, joined to the appeal of one of the multinationals (Magnetrol International). The Court decided to stay all other proceedings resulting from the appeals filed by other multinationals. These proceedings will not resume until a new decision is taken by the General Court.
In August 2020, the Commission decided to open 39 individual formal investigations into individual excess profit rulings. It is unclear at this stage whether the Commission will adopt a final decision on these individual cases pending a new judgement of the General Court.
The alleged unlawful State aid has been recovered in the meantime by the Belgian government.
Other pending tax State aid cases
As the Court of Justice did not address the selectivity and advantage criteria, no lesson may be drawn for the other pending cases concerning aid allegedly granted by Member States.
The Fiat case, in which Fiat seeks in a final appeal to overturn a finding that it received unlawful State aid from Luxembourg, is pending before the Court of Justice. The hearing took place on 10 May 2021, and the date of the judgement is not yet known. The Apple (Ireland), Amazon and ENGIE (Luxembourg) cases are also pending in appeal before the Court of Justice; the hearing has not yet taken place in these three cases.
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.
Natalie ReypensPartner Attorney at Law
Natalie Reypens, attorney at law, is a member of the Loyens & Loeff International Tax Services Practice Group and heads the Belgian Transfer Pricing Team. She is a partner in our Brussels office. She focuses on corporate and international tax law.T: +32 2 743 43 37 E: [email protected]
Caroline DoccloOf Counsel Attorney at Law
Caroline Docclo is Of Counsel to the Loyens & Loeff Brussels office. She is a member of the Loyens & Loeff International Tax Services Practice Group and of the Tax Controversy and Litigation Team. She has a broad practice in counselling and litigation in tax matters.T: +32 2 700 10 15 E: [email protected]
Pierre-Antoine KlethiSenior Associate Attorney at law / Avocat / Tax Adviser
Pierre-Antoine Klethi, senior associate, is a member of the Tax and Investment Management Practice Groups in our Luxembourg office, and jointly leads the Luxembourg Tax Controversy Team. He focuses on corporate taxation (including relevant international developments), fund structuring and EU State Aid investigations.T: +352 466 230 429 E: [email protected]