The European Commission has called on Belgium to recoup €700m from 35 multinational companies that have benefited from its generous fiscal incentive scheme, as the EU ramps up its campaign against corporate tax avoidance.
The EC said selective tax advantages granted by Belgium under its “excess profit” tax scheme are illegal under EU state aid rules.
The case is significant as Margrethe Vestager, EU competition chief, is facing increasing pressure from officials in Washington, who accuse her of taking a harder line against American companies than their European rivals, write Christian Oliver and Duncan Robinson in Brussels.
The commission’s move against the Belgian scheme could, however, prove costly for European companies, such brewer as Anheuser-Busch InBev.
The tax scheme was a keystone of plans to attract investment and was marketed to international companies with the tag: “Only in Belgium.”
In one investor presentation from 2012, PwC, the accountant, said companies could benefit from an effective tax rate of just 8 per cent — far below the 33.99 per cent headline corporate tax rate in Belgium.
Other companies involved include British American Tobacco, although the sums involved are said to be much smaller, with the £67bn tobacco group benefiting by €1m over five years.
Ms Vestager said on Monday:
Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules. It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing.There are many legal ways for EU countries to subsidise investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in the EU, ultimately at the expense of EU citizens.
She added:
Companies could pay substantially less tax simply because they were multinationals.
Ms Vestager most of the companies involved are European. Roughly €500m of the estimated €700m will be paid back by EU companies.
How did the excess profit tax scheme work?
So-called “excess profit rulings” allowed business to discount profits that stemmed from the benefits of being a multinational, such as cost synergies or reputation, from their tax bill.
Instead companies would be taxed on the hypothetical profits of what a stand-alone company would have made without these advantages. This resulted in massive tax savings of between 50 and 90 per cent for some companies, according to the commission.
“The scheme cannot be justified by the need to prevent double taxation,” said Ms Vestager.
“The discounted taxes are not taxed anywhere else.” She added: “This scheme gives carte blanche to double non-taxation.”