Case T‑131/16 RENV

Kingdom of Belgium

European Commission

Judgment of the General Court (Second Chamber, Extended Composition), 20 September 2023

(State aid – Aid scheme put into effect by Belgium – Decision declaring the aid scheme incompatible with the internal market and unlawful and ordering recovery of the aid granted – Tax ruling – Taxable profit – Excess profit exemption – Advantage – Selectivity – Adverse effect on competition – Recovery)

Aid granted by a Member State – Concept – Aid from State resources – Tax ruling – Reductions in the tax burden of national entities forming part of multinational groups – Included

(Art. 107(1) TFEU)

(see paragraphs 27-32)
Aid granted by a Member State – Concept – Tax measures – Tax ruling – Reference framework for determining the existence of an advantage and of its selective nature – Taking only national law into account – Administrative practice that is contrary to the applicable legislation not included in the reference framework – Whether permissible

(Art. 107(1) TFEU)

(see paragraphs 37-81)
Aid granted by a Member State – Concept – Grant of an advantage to the beneficiaries – Measure conferring a tax advantage – Tax ruling – Tax exemption resulting from an administrative practice that is contrary to the applicable legislation – Tax exemption leading to a lower tax burden than would arise under the normal rules of taxation – Included

(Art. 107(1) TFEU)

(see paragraphs 92-101)
Aid granted by a Member State – Concept – Selective nature of the measure – Measure conferring a tax advantage – Tax ruling – Differentiation between operators in a comparable factual and legal situation in the light of the objective of the national tax system – Measure which may be regarded as selective

(Art. 107(1) TFEU)

(see paragraphs 118-141)
Aid granted by a Member State – Concept – Selective nature of the measure – Derogation from the general tax system – Justification derived from the nature and general scheme of the system – Tax exemption not addressing situations of double taxation in a necessary and proportionate manner – No justification

(Art. 107(1) TFEU)

(see paragraphs 145-149)
Aid granted by a Member State – Effect on trade between Member States – Adverse effect on competition – Criteria for assessment – Aid which may affect that trade and distort competition – Reductions in the tax burden of national entities forming part of multinational groups – Included

(Art. 107(1) TFEU)

(see paragraphs 151-157)
Aid granted by a Member State – Recovery of unlawful aid – Aid granted in the form of tax exemption – Reductions in the tax burden of national entities forming part of multinational groups – Identification of the national entities and the multinational groups as beneficiaries of the aid – No manifest error of assessment – Recovery ordered from the multinational groups concerned – No breach of the principles of legal certainty and legality

(Art. 108(2) TFEU)

(see paragraphs 163-171, 179, 180)
Acts of the institutions – Statement of reasons – Obligation – Scope – Commission decision on State aid – Decision finding aid incompatible with the internal market and ordering its recovery – Decision including information enabling the addressee of the decision to determine the amount to be recovered and the beneficiaries who are required to repay the aid – Sufficient statement of reasons

(Art. 108 TFEU)

(see paragraphs 175-178)

Résumé

Between 2004 and 2014, the Belgian tax administration issued tax rulings to Belgian entities of multinational corporate groups. On the basis of those tax rulings, those entities were able to reduce their tax base in Belgium by deducting what was considered to be ‘excess’ profit from the profit which they had recorded. According to the Belgian tax authorities, that excess profit arose from synergies, economies of scale or other benefits resulting from membership of a multinational group and, accordingly, was not attributable to the Belgian entities in question.

By a decision of 11 January 2016, ( 1 ) the European Commission found that the excess profit exemption scheme, pursuant to which the Kingdom of Belgium had issued the tax rulings, constituted a State aid scheme for the purposes of Article 107(1) TFEU that was incompatible with the internal market. Taking the view that that scheme had been put into effect in breach of Article 108(3) TFEU, the Commission ordered that the aid thus granted be recovered from its beneficiaries, a definitive list of which was to be drawn up by the Kingdom of Belgium following the decision.

After actions for annulment were brought before it by the Kingdom of Belgium and by a number of undertakings that were identified in the Commission’s decision or that had benefited from a tax ruling, the General Court annulled the Commission’s decision by a judgment of 14 February 2019, ( 2 ) on the ground that the Commission had incorrectly found that there was an aid scheme.

On appeal by the Commission, the Court of Justice set aside the judgment of the General Court and definitively rejected the pleas challenging the existence of an aid scheme and the Commission’s power. ( 3 ) Since the state of the proceedings was not such as to permit final judgment to be given in respect of the pleas for annulment that had not yet been examined by the General Court, the Court of Justice referred the case back to the General Court in order for it to rule on those pleas.

In the proceedings following referral, the General Court rejects all of the pleas for annulment which it was required to review and accordingly dismisses in their entirety the actions brought by the Kingdom of Belgium and the applicant undertakings.

Findings of the Court

In support of their actions for annulment, the Kingdom of Belgium and the applicant undertakings challenged in particular the existence of an advantage arising from the excess profit scheme and the selectivity of that advantage.

As regards the reference system, that is to say, the ordinary or ‘normal’ tax system in relation to which the two aforementioned elements must be analysed, the Kingdom of Belgium and the applicants claimed that the Commission had erred in finding that the Belgian corporate income tax system provided for all of a company’s recorded profit to be taxed, while disregarding the possibility that adjustments might be made. Moreover, the Commission had, in their submission, incorrectly excluded the excess profit scheme from that reference system.

In that regard, it was apparent, however, from the applicable provisions of the Belgian Income Tax Code that the taxable profit consisted, fundamentally, of all profits recorded by undertakings subject to taxation in Belgium. Those recorded profits constituted the starting point for calculating that tax, and could be subject to the upward and downward adjustments provided for by law. However, while the applicable legislation made the downward adjustment of profits subject to a twofold condition, namely that the Belgian entity’s profit that was to be adjusted should have been included in the profit of another associated company and that the latter company would have made that profit if conditions similar to those agreed between independent companies had been applicable, the excess profit exemption which the Belgian tax authorities applied in their tax rulings was not subject to that twofold condition. In the light of that finding, the Court concludes that the Commission was right to find that the excess profit exemption scheme, as applied by the Belgian tax authorities, did not form part of the reference system applicable in the present case.

The Court also rejects the criticism which the Kingdom of Belgium and the applicant undertakings levelled against the finding, in the contested decision, of the existence of an advantage favouring the beneficiaries of the tax rulings.

First, the Court confirms that the Commission did indeed consider the advantage criterion and disclosed the factors taken into account in considering the existence of an advantage. The fact that the analysis of advantage was included in a section that also covers the examination of selectivity did not have any impact in that regard. Secondly, the Court notes that the implementation of the excess profit scheme, characterised by the grant of exemptions in disregard of the legal conditions applicable, was capable of resulting in a reduction of the tax which the benefiting entities would otherwise have had to pay. In those circumstances, the Commission cannot be criticised for having found that that scheme was such as to favour its beneficiaries.

The Court rejects, moreover, the various complaints put forward to counter the Commission’s finding, concluding its primary line of reasoning, that the excess profit scheme derogated from the ordinary Belgian corporate income tax system, in that the Belgian tax authorities’ practice of making a unilateral downward adjustment without the need to establish that the profit that was to be adjusted had been included in the profit of another company, and that it was profit which would have been made by that other company if the relevant transactions had been between independent companies, was not provided for by that system. The Court also rejects the complaints against the Commission’s conclusion that the advantage resulting from that practice of the Belgian tax authorities, in derogation from the reference system, was not available to all entities in a similar legal and factual situation.

In the first place, the Court rules that, in the light of the administrative practice of the tax authorities, the Commission did not err in finding that the entities forming part of a multinational group which benefited from the excess profit exemption were treated differently from other entities in Belgium that did not benefit from it, although those entities were in a comparable factual and legal situation in the light of the objective of the ordinary tax rules, which is the taxation of all taxable profits of all companies resident or operating through a permanent establishment in Belgium.

In the second place, the Court finds that the Commission did not, moreover, make an error of assessment when it stated that the scheme at issue was selective in that it excluded companies that had decided not to make investments, centralise activities or create employment in Belgium. In fact, it was apparent from the sample of tax rulings analysed in the contested decision that all of those rulings had been granted following proposals by requesting parties to invest, to relocate certain operations or to create a certain number of jobs in Belgium.

In the third place, in view of the fact that none of the tax rulings in that sample concerned entities belonging to small groups of undertakings, the Commission also cannot be criticised for having stated that the scheme at issue was selective in that it was not open to undertakings that were part of a small group.

In those circumstances, the Court does not consider it necessary to examine the complaints against the Commission’s subsidiary line of reasoning as to selectivity, in so far as the excess profit exemption derogated from the arm’s length principle.

The Court also rejects the arguments put forward by the Kingdom of Belgium to the effect that the excess profit scheme was not financed through State resources since the excess profit did not fall within its tax jurisdiction.

On that point, the Court makes clear that, under the ordinary system of taxation of corporate profits in Belgium, the total amount of profit recorded by resident companies is, fundamentally, taxable in Belgium. Thus, it is by taking into account that choice made by the Belgian legislature, in the exercise of its tax jurisdiction, that the Commission was able to conclude that the non-taxation of the excess profit of Belgian entities of multinational groups, when it was, fundamentally, taxable profit, constituted a loss of resources that belonged to that State.

The Kingdom of Belgium’s argument that the excess profit exemption, as applied by the tax authorities, was justified by the nature and general scheme of the tax system and, more specifically, by the objective of avoiding double taxation, is not compelling either. In practice, that exemption was not conditional upon proof that the excess profit had been included in the profit of another associated company or that it had actually been taxed in another State. The Commission was, therefore, right to conclude that the exemption system at issue did not address situations of double taxation in a necessary and proportionate manner.

Nor had the Commission erred in finding that the excess profit exemption scheme distorted or threatened to distort competition and was liable to affect trade within the European Union.

In that regard, the Court notes that the exemption system at issue was capable of altering the activities within the groups of undertakings that included a Belgian entity, in that decisions on making investments, the location of activities and creating employment were liable to be taken in such a way that that Belgian entity would make profits that would subsequently be exempt in Belgium. In those circumstances, the Commission cannot be criticised for having found that the aid granted by the tax rulings was liable to affect trade between the Member States and to distort or threaten to distort competition.

The Court rejects, moreover, the pleas put forward by the Kingdom of Belgium and the applicant undertakings alleging errors by the Commission in identifying the Belgian entities that had obtained an advance ruling and the multinational groups to which those entities belonged as beneficiaries of the scheme at issue.

On that point, the Court states that, in the contested decision, the Commission highlighted elements that supported its conclusion that there were, in principle, links of control within the multinational corporate groups to which the Belgian entities that had obtained advance rulings belonged. In view of those elements, the Commission did not exceed the limits of its broad discretion when it found that those groups constituted an economic unit with those entities, benefiting from State aid under the scheme at issue, within the meaning of Article 107(1) TFEU. Nor, in the light of those considerations, had the Commission breached the principles of legal certainty and legality by ordering that the unlawful aid be recovered from those groups.

Furthermore, it is also apparent from the contested decision that the Commission had, in accordance with the case-law, provided explanations enabling the Kingdom of Belgium to look at the individual situation of each undertaking concerned both as regards the beneficiaries from which the aid was to be recovered and the amount to be recovered.

In the same context, the Court rejects the arguments of the applicant undertakings alleging breach of the principle of proportionality in that recovery was ordered from all beneficiaries, regardless of their size, resources and degree of sophistication. Indeed, since recovery of State aid is the only consequence of its unlawfulness and of its incompatibility with the rules on State aid, it cannot be contingent on the situation of its beneficiaries.

Lastly, the Court rejects the complaint of the applicant undertakings that, in ordering the recovery of an amount equal to the tax that would have been imposed on the beneficiaries’ income had a tax ruling not been issued, without taking into account any upward adjustments that might have been made by another tax administration in respect of the excess profit, the contested decision had required an amount to be recovered that might have been higher than the advantage received by the beneficiaries.

In that regard, the Court recalls, first, that the Commission is not required to carry out an analysis of the aid granted in individual cases under an aid scheme. It is only at the stage of recovery of the aid that it becomes necessary to look at the individual situation of each undertaking concerned. Secondly, and in any event, the contested decision does not affect the rights on which any taxpayer may rely, under the double taxation treaties applicable, inter alia, in order to secure an appropriate adjustment of that taxpayer’s taxable profit, following an upward adjustment by the tax authorities of other jurisdictions.

( 1 ) Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium (OJ 2016 L 260, p. 61; ‘the contested decision’).

( 2 ) Judgment of 14 February 2019, Belgium and Magnetrol International v Commission (T‑131/16 and T‑263/16, EU:T:2019:91).

( 3 ) Judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741).