The European Commission has published its decision to open a formal state aid procedure regarding the Belgian Excess profit tax ruling system (State aid SA.37667, 2015/C ex 2015/NN, dated February 3, 2015). This decision is the fifth by the European Commission on alleged State Aid granted by Member States through tax rulings. The most important items identified in the Commission decision and our observations are given below.

Belgian excess profit tax ruling system article 185, par. 2, sub b CIR92

Article 185, par. 2, sub b CIR92 provides for an exemption of profits for Belgian corporate income tax purposes for profits to which the Belgian company would not have been entitled if an arm’s length price had been agreed.

Article 185, par. 2, sub b CIR92 applies to resident companies and permanent establishments of non-resident companies that are part of a multinational group, and can only be applied following prior authorization by the Belgian ruling committee.

Commission decision

Having reviewed the information provided by the Belgian authorities, the Commission’s provisional conclusion is that the Belgian excess profit tax ruling system constitutes State Aid as defined in article 107, par 1 TFEU and it has decided to initiate the formal investigation procedure as laid down in article 108, par. 2 TFEU. The key preliminary findings of the Commission are addressed below.

The excess profit ruling system is a scheme

The first observation of the Commission is that article 185, par 2, sub b CIR92 constitutes a scheme. This is an important observation as this implies that all rulings granted under this regime would be affected if a positive decision by the Commission (the measure constitutes state aid) is upheld before the Court of Justice of the European Union (CJEU). This is an important difference compared to the other pending state aid cases, which concerned individual tax rulings that have to be decided upon their own merits on a case-by-case basis. According to the Commission, Belgium has granted 54 rulings to 47 companies since the introduction of the scheme in 2004.

Article 185, par 2, sub b CIR92 is a derogation from the generally applicable system

The Commission argues that the exemption provided for under the excess profit ruling system does not apply equally to all undertakings subject to Belgium corporate income tax and should therefore be considered a derogation from the system of reference.

Such a derogation can be justified by the nature and general scheme of the tax system, for example to avoid abuse or double taxation. However, the Commission considers that the transfer pricing guidelines and double tax treaties already provide a sufficient basis to avoid double taxation. Hence, according to the Commission, the excessive profit regime is not necessary to achieve the desired goal. Moreover, the Commission considers the regime to be disproportionate because it does not require the applicants to demonstrate that the profit to be exempt in Belgium is indeed already taxed in another country.

Furthermore, the Commission points to the fact that taxpayers apparently have to make substantial investments or to create employment in Belgium in order to be granted a Belgian excess profit tax ruling .

Belgium does not apply the arm’s length principle properly

As regards the advantage allegedly granted under the regime, the Commission does not agree with the Belgium position that it merely eliminates profits on which it would not be entitled to levy tax as they stem from synergies and economies of scale which would not have arisen between unrelated parties.

According to the Commission, the OECD Transfer Pricing Guidelines do not support the position of Belgium that these type of profits are not taxable in Belgium, but merely that these are difficult to allocate. In addition, the Commission notes that Belgium does not require the synergies and economies of scale to be clearly identified or that the amount of the benefit is estimated. Instead, the reductions take place in the form of percentages of earnings before interest and tax (EBIT) or profit before tax (PBT) on the basis of hypothetical savings or synergies created without testing whether these have indeed materialized.


The Commission refers to article 14 of Council Regulation (EC) No 659/1999 providing for a legal basis for recovery of the aid granted under this excess profit ruling scheme for a period of 10 years. In this case, the recovery could affect all rulings granted under this scheme.

Our observations

The decision to open a formal state aid procedure is another indication that the Commission is continuing to challenge the transfer pricing tax practices of the EU Member States. Given the fact that there is, to date, very little case law from the CJEU providing clear guidelines on transfer pricing, the uncertainty for multinational companies is set to continue, especially since all Member States concerned have already indicated that they will appeal before the CJEU if the Commission concludes that the pending cases constitute State aid.

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