Court of Justice rules Belgian excess profit tax policy constitutes State aid scheme

The judgment of the Court of Justice has a long prequel. In 2004, Belgium introduced new rules concerning cross-border transactions of intra-group companies.



The new rules allowed companies that are part of a multinational group to reduce their tax basis, in particular in order to avoid double taxation (i.e. to compensate an increase of the tax basis in another Member State). In order to benefit from this scheme, an advance ruling was required from the Belgian tax authorities. The Commission, however, later established that the tax authorities, in a number of cases, reduced the tax basis without checking whether there was a corresponding upward adjustment in another Member State (even though they were required to check this).

The tax authorities are reported to have granted a total of EUR 744 million in tax breaks to 35 multinational companies on the basis of these provisions.

In line with its crack-down on fiscal State aid in the 2010s, the Commission opened an in-depth investigation into the Belgian excess profit rulings in 2015. This culminated in the decision of 11 January 2016, by which the Commission considered that the system constituted illegal State aid, and ordered that the Belgian State recover the tax benefits granted from the beneficiaries of the aid.

An interesting aspect of the Commission’s decision, which sets it apart of other fiscal State aid decisions, is that the Commission considered that the excess profit rulings constitute a scheme rather than individual aid awards. In order to be classified as an aid scheme, three cumulative conditions must be satisfied:

  • the measure must be granted individually on the basis of an “act”,
  • that act may not require any further implementing measures for the aid to be granted,
  • beneficiaries must be defined in a general and abstract manner.

Belgium, as well as a number of aid beneficiaries, attacked the Commission’s decision before the General Court. On 14 February 2019, the General Court annulled the Commission’s decision on the basis that the latter had wrongly classified the rulings as a scheme.

The Commission subsequently appealed the General Court’s judgment to the Court of Justice, resulting in the judgment of 16 September 2021. The key take-aways of the Court’s judgment are:

  • The Commission can rely on legal provision as well as on an authority’s consistent administrative practice to show that aid is granted on the basis of an “act”, in particular where such practice consists in the systematic illegal (contra legem) application of tax provisions by the authorities. The illegality was to be found in the fact that the Belgian authorities did not check whether there was a corresponding upward adjustment of the tax basis in another Member State.

  • If the authorities only mechanically apply the act, this does not constitute a “further implementing measure”. The authorities must have influence over the amount of the aid, its characteristics and the conditions under which it is granted. In the present case, the Court of Justice considered that, since the authorities had consistently granted the tax ruling and failed to verify whether there was a corresponding increase in the company’s taxable profit in another Member State, the authorities’ approach was merely mechanical.

The Court of Justice’s judgment is a welcome development for the Commission. When it can qualify an aid measure as a scheme, the Commission may tackle the whole scheme as a whole, rather than investigating each individual grant of aid. For context: following the General Court’s annulment, the Commission had already opened 39 individual investigations.

The case is now referred back to the General Court, which must now check whether the scheme constituted State aid. Belgium and the beneficiaries naturally claim that it is not since the rulings were, in their view, neither selective nor did they confer an advantage. In particular, the Commission will have to convince the Court that the excess profit rulings were not in line with the “arm’s length” principle. The principle, the reliance on which has been advised by the OECD and which has been accepted by the General Court as a valid tool, requires that profits are valued as if all transactions occurred between non-related companies, to prevent a group from shifting around profits artificially to jurisdictions with a lower tax rate. It will be interesting to see whether the Commission will be able to rely on the principle successfully, as the General Court has previously considered the Commission applied it incorrectly with respect to Apple and Starbucks’s tax arrangements.

The curtain does not yet draw over the excess profit ruling saga, meaning the legal limbo for the beneficiaries of the tax rulings continues. The case however already underlines the importance for (potential) beneficiaries to seek robust legal advice to gauge the risks involved in any type of benefit which may be construed as State aid.

For more information please contact Hein Hobbelen and Baptist Vleeshouwers.

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