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EU commission orders Belgium to reclaim €700m from multinationals

The nation allowed multinationals to reduce their recorded profits by 'more than 50 per cent and in some cases up to 90 per cent'

11 January 2016

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Belgium's 'excess profit' tax scheme has been branded as illegal by the European Commission and thus incompatible with European Union state aid rules.

The scheme has benefited at least 35 multinational corporations since it became applicable in 2005, all of whom now must return any unpaid tax to Belgium, thought to total €700m.

Marketed by Belgium's tax authority under the logo, 'Only in Belgium', it gave multinationals an unfair advantage over 'stand-alone' companies who are not part of a group and therefore not eligible for the scheme.

Commissioner Margrethe Vestager, who is in charge of competition policy, said that the scheme 'seriously harms' and 'distorts competition'.

She commented: '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.'

The nation's tax regime taxes companies on the basis of profit recorded as a result of business conducted in Belgium.

Under the 'excess profit' scheme, multinationals could record excess profit on the premise that multinational companies make 'excess profit' as a result of being part of an international group.

The profit that was actually recorded for tax purposes was taken from the 'hypothetical average profit of a stand-alone company in a comparable situation would have made', the commission has said.

This had the effect of reducing the recorded profit of multinational companies 'by more than 50 per cent and in some cases up to 90 per cent'.

Margrethe Vestager added: '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.

The majority of the multinationals to have benefited from the scheme are largely European companies.


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Tax & Wealth structuring