(CN) – Belgium’s “excess profit” tax scheme for corporations is illegal and $760 million must be clawed back from 35 multinational companies, the European Commission said Monday.
Since 2005, Belgium has employed an “excess profit” tax scheme to discount corporate taxes for multinational companies by 50 to 90 percent. Stand-alone companies, however, did not get the same treatment – which the Belgian government touted as the “Only in Belgium” program.
The commission said at least 35 corporations have taken advantage of the tax discounts.
Under the scheme, Belgian tax authorities compared the profits of multinational companies with the hypothetical average profit a similar stand-alone business could expect. Any difference in profit was deemed “excess” and the corporations’ taxes were reduced accordingly, the commission said.
So if a multinational corporation recorded $10 million in profit and a comparable stand-alone recorded $4 million, Belgium ignored the $6 million difference and only taxed the larger corporation for $4 million in profits. Belgium must now claw back at least $760 million in unpaid taxes under the scheme, the commission said.
“Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules,” competition commissioner Margrethe Vestager said in a statement. “It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing.”
She added, “There are many legal ways for EU countries to subsidize investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in the EU, ultimately at the expense of EU citizens.”
The commission opened its investigation into Belgium’s corporate-tax scheme in early 2015, on the heels of similar investigations into whether Ireland’s deal with Apple , the Netherlands’ pact with Starbucks , and Luxembourg’s tax treatment of Amazon and Fiat comply with state-aid rules.
While regulators’ investigations into the Ireland-Apple and Luxembourg-Amazon deals continue, the commission this past October ordered the Dutch and Luxembourgish governments to claw back up to $67 million in unpaid taxes from Starbucks and Fiat, respectively.
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