The CJEU has found that a February 2019 judgment from the European General Court in the case of Commission v Belgium and Magnetrol International relied on several errors of law. The CJEU has referred the case back to the General Court for other aspects of the case to be taken into consideration.
The CJEU found that the General Court misapplied the term ‘act’ in its analysis of the Belgian scheme. As a result, the court decision fell short of the three conditions to determine whether the scheme is in breach of EU state aid law.
The General Court ruled against the European Commission in 2019, determining that Belgium’s excess profits tax regime does not constitute state aid. Yet the CJEU ruling has brought the case up for debate once more. The General Court could reach the same conclusion again, or it could change its decision and rule in favour of the European Commission.
If the Commission wins the case, the Belgian government will be expected to claim back the tax exemptions it granted to more than 50 large businesses. Furthermore, the state aid case will set a strong precedent for multinational enterprises (MNEs) operating across the EU.
Facts of the case
The case goes back to 2004 when the Belgian government began offering excess profit tax exemptions to MNEs. Such companies could obtain a ruling from the Belgian tax authority, provided they demonstrated they had relocated a key function to Belgium.
The profits were deemed ‘excess’, in this context, if they exceeded the profit that would have been generated by comparable standalone entities in similar circumstances. In such cases, the Belgian tax authority granted the company in question a corporate tax exemption.
As a result, the Belgian excess profit tax regime allowed MNEs to reduce their corporate tax base by 50% to 90% in some cases. The Commission launched a state aid investigation into the scheme in 2015.
The European Commission found that the excess profit exemptions constituted a state aid scheme in 2016. The Commission ordered the Belgian government to recover the aid granted to 55 companies, including Magnetrol International.
The Belgian government and Magnetrol International responded by taking the case to the General Court of the European Union to annul the Commission’s decision. This time, the taxpayer got what it wanted. The General Court annulled the Commission’s decision in February 2019. The court rejected the allegations that the Belgian tax scheme was a part of a ‘systematic approach’ by the Belgian tax authority.
However, the European Commission decided to fight back. The Commission filed an appeal in April 2019 with the CJEU arguing that the General Court had made several errors in the interpretation of what constitutes a state aid scheme.
Failures of definition
There are three cumulative conditions to classify a state measure as an aid scheme. First, state aid may be granted in specific cases to undertakings on the basis of an act. Second, no further measures are needed for that aid to be granted. Third, the undertakings in question must be defined in an abstract way.
The CJEU found that the General Court failed the first condition because it misapplied the concept of an ‘act’ and limited its analysis to a key provision of the Income Tax Code (1992) and its application by the Belgian tax authority.
The General Court failed to take into account the claim of a ‘systematic approach’ on the part of the tax authority, according to the Court of Justice. The CJEU argued that the sample of 22 tax rulings from a total of 66 rulings shows that the Belgian tax authority may have taken a ‘systematic approach’.
As a result, the General Court also failed to meet the second condition to classify a scheme as state aid, because the concept of an ‘act’ is crucial to the definition. The Belgian tax authority had systematically granted the excess profit exemption when companies met the requirements.
Likewise, the CJEU stressed that the third condition is intrinsically linked to the first and second conditions. Since the General Court made errors of law concerning the first two conditions, the third condition could not be met either.
Therefore, the General Court must reconsider its judgment thanks to this domino effect. This case is far from over and will rumble on for years to come.
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