The European Commission (EC) [official website] ruled [press release] Monday that selective tax advantages offered by Belgium under its “excess profit” tax scheme are illegal under EU state aid rules. The “excess profit” tax scheme, effective since 2005, reduced the corporate tax base of companies by anywhere between 50 and 90 percent. The scheme, which was marketed under the logo “Only in Belgium” by the tax authorities, was considered a discount for companies belonging to a multinational group. An investigation begun by EC [press release] in February 2015 revealed that the scheme wavered from standard practice under the corporate tax rules of Belgium and the general arm’s-length economic principles. According to EC Commissioner Margrethe Vestager [official profile], the tax scheme disrupts healthy competition by placing smaller companies, which are not part of a multinational group, on an unequal footing. The commission rejected the argument that the discounts under the scheme were necessary to prevent double taxation. The companies benefiting from this scheme were primarily Europe-based companies. 35 multinational companies, who have benefited from this scheme in an amount exceeding USD $750 million, are now required to pay unpaid taxes to Belgium.

The EU in recent years has attempted to crack down [JURIST report] on the growing multinational company tax avoidance schemes. A number of EU members, including Luxembourg [ICIJ report], Ireland, the Netherlands and Belgium [BBC reports], have come under scrutiny for alleged “sweetheart” tax deals between national governments and multinational companies allowing them to greatly reduce foreign tax costs. According to EC, corporate tax avoidance is believed to reduce EU Member States’ public budgets by billions of euros a year. Leaked documents released by the International Consortium of Investigative Journalists (ICIJ) [official website] in November 2014 revealed [report] that more than 340 international companies, including Pepsi, IKEA, Accenture and FedEx, had negotiated private tax rulings from the government of Luxembourg to secure favorable tax rates. Last March the EC released [press release] a package of proposed legislation aimed at combating tax deals between individual EU member states and multinational companies. Included in the “Tax Transparency Package” is legislation requiring member states to automatically exchange information regarding their tax rulings to other member states every three months.