CN01 - ECJ rules that Belgian excess profit rulings qualify as a scheme

On 16 September 2021, the ECJ handed down its much awaited judgment on whether the Belgian tax rulings concerning excess profits could be classified as an aid scheme (as opposed to individual aid measures). The ECJ set aside the General Court's judgment and backed the European Commission's finding that the rulings at issue qualify as a scheme.

Key takeaways

• State aid in the form of a scheme is to be distinguished from State aid in the form of an individual aid. With respect to the former, the Commission can confine itself to examining its general features in an abstract manner to assess whether it grants State aid.
• ECJ clarified that the systematic contra legem application by tax authorities of a tax provision can form the basis of an aid scheme. In this context, a tax ruling issued by a tax authority does not constitute a further implementing measure (and therefore an individual aid).
• The General Court now has to examine whether the Belgian excess profit scheme conferred upon multinational businesses a selective advantage.

Background

From 2005 to 2014, Belgian tax law provided for the possibility for Belgian companies belonging to multinational groups to make downward adjustments to their taxable base for 'excess profits' (i.e. profits that exceed the profit that would have been made from a transaction carried out at arm's length). The exemptions – which were granted on the basis of tax rulings - were intended to avoid or undo potential double taxation.

In 2016, the European Commission (the "Commission") found that excess profit rulings issued by the Belgian tax authorities constituted an unlawful State aid scheme (the "Decision") and ordered the recovery of the alleged aid from 55 multinational businesses.

The Decision was challenged by Belgium and 28 alleged beneficiaries (including companies such as Magnetrol, AB InBev, and BASF). 

On 14 January 2019, the General Court ("GC") ruled that the Commission did not demonstrate that the rulings constituted an 'aid scheme', as opposed to 'individual aid' measures. For this reason, it annulled the Decision (but did not conclude on whether the 'excess profit' tax exemptions gave rise to illegal State aid). 

The Commission appealed the judgment arguing that the GC misinterpreted the concept of 'aid scheme'. In parallel, it decided to open 39 separate formal investigations into individual excess profit rulings.

ECJ judgment

The ECJ first recalled that for a State measure to qualify as an aid scheme, three cumulative conditions must be met: 

• aid has to be granted individually on the basis of an "act";
• "no further implementing measure" is required for that aid to be granted; and
• beneficiaries must be defined in a "general and abstract manner".

As regards the first condition: the ECJ confirmed that the term 'act' may also refer to a consistent administrative practice by tax authorities where that practice reveals a "systematic approach". The GC was therefore wrong to limit its analysis to the normative acts allowing for the exemption and should also have taken account of the "systematic approach" followed in the tax rulings. 

As regards the second condition: the GC ignored that one of the essential characteristics of the scheme at issue lay in the fact that the tax authorities systematically granted the exemption when certain conditions (identified in the Decision) were met. The tax authorities therefore had no discretion and no 'further implementing measure' was necessary.

As regards the third condition: the ECJ noted that the errors concerning the first two conditions necessarily led to a wrong assessment of the third condition.

Finally, unlike the GC, the ECJ considered that the sample of rulings examined by the Commission (22 rulings selected in a weighted manner from a total of 66) is, "by its nature, capable of representing a systematic approach taken by the Belgian tax authorities".

Accordingly, in line with the opinion of Advocate General Kokott, the ECJ set aside the first instance judgment and referred the case back to the GC. 

Comment

The GC now has to rule on the pending aspects of the case and in particular on whether the excess profit scheme conferred upon its beneficiaries a selective tax advantage. In its Amazon and Apple judgments (which are under appeal) – which concerned individual tax rulings – the GC found that the Commission failed to prove the existence of an advantage. 

With respect to the selectivity condition, the qualification of the rulings as a scheme is not without consequences. While the Commission is in principle allowed to presume the selectivity of an individual aid, it has to show with respect to a tax scheme that it discriminates between companies which are in a similar situation in the light of the tax reference system.