Belgium’s tax break to multinational companies is ruled illegal

According to EC Commissioner Margrethe Vestager [official profile], the tax scheme disrupts healthy competition by placing smaller companies, which are not part of a multinational group, on an unequal footing.

The European Commission said Monday that the Belgian government would be required to recover the unpaid taxes from the companies involved, which the commission said it might identify at a later date.

The commission started an investigation in June of 2014 into the tax affairs of Apple in Ireland, along with Starbucks in the Netherlands and Fiat in Luxembourg.

The commission ruled that member states should not hand out tax breaks for assumed efficiency gains, if those gains could not also be shown in the companies’ profits.

“We do not target companies for whatever nationality or ownership they might have”.

Speaking in Brussels this lunchtime, commissioner Vestager said the commission would take a decision on the ongoing investigations into Ireland and Luxembourg “if and when they are ready”.

The Belgian government said it had expected the ruling and had suspended the excess profits scheme in February past year.

Belgium must claw back €700m in illegal tax breaks, the European Union has ruled, in its latest crackdown on “sweetheart” tax deals in Europe.

The scheme was introduced in 2005, when Belgium’s prime minister was Guy Verhofstadt, today the leader of the Liberal ALDE group at the European Parliament.

Under the system, Vestager said multinationals did not have to pay taxes on more than 50 percent of their actual profits.

“This latest European ruling against Belgium’s cosy tax deals with dozens of multinationals is good news“.

British American Tobacco, which makes Dunhill, Lucky Strike and Pall Mall, and brewer AB Inbev, whose brands include Budweiser, Corona and Beck’s, were named as among the companies that had benefited.

“National tax authorities can not give any company, however large however powerful, an unfair competitive advantage to others”, Vestager said Monday.

“We should take a position if and when they are ready”, Vestager told reporters, implying that all cases could not lead to sanctions. In October the Commission ordered the Netherlands and Luxembourg to recover between €20 and €30 million from Starbucks and Fiat respectively.

“The advanced tax ruling system provides legal certainty for investors”, it also said.

Although the financial amounts are unlikely to pose a hardship to the companies that would be forced to pay back taxes, Monday’s decision would put big companies and European governments on further notice that the European Commission means to crack down on special tax arrangements granted to only privileged companies. “In all our cases, we are indifferent to the nationality of the companies involved”, Vestager said in a speech in Washington previous year.