Following the commencement European Commission’s investigation in February of this year into a Belgian tax provision which allows multinational group companies to substantially reduce their corporation tax liability in Belgium by using ‘excess profits’ tax rulings, the EC has now published a non-confidential version of its letter to the Belgian authorities.
The letter states that 54 excess profits rulings have been granted to 47 companies, and that anything between 21% and 87% of Belgian profits for these companies have avoided tax. The letter also sets out why the EC believes that the excess profits rulings scheme is not in accordance with OECD principles, and that the provision may not comply with EU state aid rules which prohibit the granting to companies of ‘selective advantages’ that ‘distort competition’ (art 107(1) TFEU says that ‘any aid granted by a member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between member states, be incompatible with the internal market’).
The EC is continuing to investigate, and as well as requesting further information from Belgium, it also invites interested third parties to inform them of the following:
whether the third party considers that the actual transfer prices set for the intragroup transactions or relationships on the basis of which they requested a unilateral downwards adjustments are at arm's length; if yes, then why do they consider that the requested unilateral downward adjustment is warranted, and if not, why do they not apply the arm’s length principle in the determination of their actual transfer prices in the first place;
how the profits exempted in Belgium were actually allocated to the other entities of the group, and treated both from an accounting point of view and from a tax point of view.
Following the commencement European Commission’s investigation in February of this year into a Belgian tax provision which allows multinational group companies to substantially reduce their corporation tax liability in Belgium by using ‘excess profits’ tax rulings, the EC has now published a non-confidential version of its letter to the Belgian authorities.
The letter states that 54 excess profits rulings have been granted to 47 companies, and that anything between 21% and 87% of Belgian profits for these companies have avoided tax. The letter also sets out why the EC believes that the excess profits rulings scheme is not in accordance with OECD principles, and that the provision may not comply with EU state aid rules which prohibit the granting to companies of ‘selective advantages’ that ‘distort competition’ (art 107(1) TFEU says that ‘any aid granted by a member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between member states, be incompatible with the internal market’).
The EC is continuing to investigate, and as well as requesting further information from Belgium, it also invites interested third parties to inform them of the following:
whether the third party considers that the actual transfer prices set for the intragroup transactions or relationships on the basis of which they requested a unilateral downwards adjustments are at arm's length; if yes, then why do they consider that the requested unilateral downward adjustment is warranted, and if not, why do they not apply the arm’s length principle in the determination of their actual transfer prices in the first place;
how the profits exempted in Belgium were actually allocated to the other entities of the group, and treated both from an accounting point of view and from a tax point of view.
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