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04/12/2016

Belgium targeted in EU tax avoidance investigations

Euro & Finance

Belgium targeted in EU tax avoidance investigations

Margrethe Vestager [European Commission]

The European Commission is investigating a Belgian system allowing companies to reduce their tax bills significantly, it said on Tuesday (3 February), widening its inquiry into tax deals struck with multinationals across the EU.

The Commission, which rules on competition and subsidies in the EU, said deductions granted through Belgium’s “excess profit” tax system usually amount to more than 50% of profits and can sometimes reach 90%.

Excess profits are calculated as being advantages, such as economies of scale or intra-group synergies, that result from being a multinational group. The Commission said the deductions significantly overestimate the benefits of being in a multinational group.

“The Belgian ‘excess profit’ tax system appears to grant substantial tax reductions only to certain multinational companies that would not be available to stand-alone companies,” Margrethe Vestager, commissioner in charge of competition policy, said in a statement.

Vestager said that if the Commission’s concerns were confirmed, the Belgian tax scheme would be a serious distortion of competition unduly benefiting a selected number of multinationals.

A company needs prior confirmation by Belgian tax authorities through a tax ruling for the deductions to apply.

The Commission said such rulings were often granted to companies that had relocated a substantial part of their activities to Belgium or that have made significant investments in the country.

Belgium’s finance ministry was not immediately available for comment.

The Commission is also investigating the tax arrangements of Amazon and Italian carmaker Fiat in Luxembourg, Apple in Ireland and Starbucks in the Netherlands.

In December, the Commission asked all 28 member countries for details of tax deals made with companies between 2010 and 2013.

Tax avoidance, while not illegal, has in recent years galvanised authorities into taking action to try to ensure that multinational companies pay a fair share of their profit in tax.

Positions

Philippe Lamberts, a Belgian MEP who is co-president of the Greens/EFA group in the European Parliament, applauded the Commission's move.

"We welcome the EU Commission's decision to investigate Belgium's 'excess profit' regime, which is yet another piece of the nefarious puzzle that has enabled corporations to avoid their tax responsibilities in the EU. As the Luxembourg leaks revelations confirmed, multinational corporations have gone to great lengths to avoid paying taxes and they have been abetted in doing so by EU governments.

Belgium's finance minister must now fully comply with this inquiry. Beyond the important question of whether this amounted to illegal state aid, it again points to the more fundamental problems posed by tax competition or dumping. This is a wider political issue and it must be fully investigated, with a view to providing a comprehensive European response to end this mass scale tax avoidance. We believe a European Parliament inquiry committee is the most appropriate instrument for doing so and we count on the other political groups to support this."

Background

The European Commission has long sought to harmonise national corporate tax systems, claiming that this will contribute to its goal of creating more growth and jobs in Europe and boosting the competitiveness of EU companies.

Currently, there are 28 different systems in Europe for calculating a company's taxable earnings, making it costly and burdensome for businesses to operate in several member states. The Commission says creating a single tax base will encourage cross-border activities and investments. 

The idea of a common consolidated corporate tax base (CCCTB) was initially voiced in a 2001 communication but progress has been slow due to member states' reluctance to allow the Commission to encroach upon their national sovereignty in this area. 

A first report on progress to date and next steps towards a CCCTB was issued in April 2006. The Commission followed up a year later with a communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010.

But the plan has since been stuck in the pipeline due to opposition from at least seven member states, which fear losing their sovereignty over national tax. When the first progress report was debated in 2006, 12 countries were in favour and seven – Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus – were against. The rest were still undecided.

Further Reading