Competition commissioner Margrethe Vestager said the commission believed Belgium’s tax system violated European Union rules on illegal state aid by giving international companies an unfair advantage over Belgian competitors.
Belgium allows companies to reduce their tax bills by claiming deductions for “excess profits” that result from being part of a multinational group. These include economies of scale that flow from being an international business. But the commission said the deductions could significantly overstate the actual benefits, usually amounting to more than 50% of profits covered by the tax ruling, and in some cases 90%.
Vestager said: “The Belgian ‘excess profit’ tax system appears to grant substantial tax reductions only to certain multinational companies that would not be available to standalone companies.
“If our concerns are confirmed, this generalised scheme would be a serious distortion of competition, unduly benefiting a selected number of multinationals.”
Like other countries, including Ireland, Luxembourg and the UK, Belgium has tried to use its corporate tax system to attract large foreign companies. Belgium has high labour costs but the “excess profit” provision lets multinational businesses cut their corporate tax bills to well below the standard 34% rate.
Vestager rejected Belgium’s argument that the arrangement avoided “double taxation” of a company in two or more countries, saying that no other country had made a claim to tax the same profits.
The Brussels crackdown comes after the Guardian and other news organisations published details of leaked tax rulings in Luxembourg showing how some of the biggest multinationals and household names had used complex financial webs to legally cut their liabilities.
After the Luxleaks revelation the commission in December asked all 28 member countries for details of tax deals made with companies between 2010 and 2013.
To qualify for the Belgian tax break, a company needs to secure a ruling from the country’s tax authorities. The scheme appears only to benefit multinational companies and the rulings are often granted to companies that have moved large parts of their activities to Belgium, the commission said.
Vestager declined to name companies that benefited but said they were based in the US and elsewhere.
The commission’s inquiry seeks to stop EU countries using unfair tax breaks to lure companies trying aggressively to reduce their tax bills.
The commission is also investigating the tax arrangements of Amazon and Italian carmaker Fiat in Luxembourg, Apple in Ireland and Starbucks in the Netherlands.
Tax avoidance is not illegal but revelations about low tax bills for multinational corporations such as Apple and Amazon have prompted protests about the power of “stateless capital” to avoid paying a fair contribution towards the societies in which corporations do business.
Europe and the US have increased efforts to stop countries competing unfairly to attract companies and to reduce corporations’ ability to move their business to the cheapest jurisdiction. The commission started its investigation into some states in June 2013 but expanded it to include all member countries at the end of last year.
Under pressure from the commission, Ireland was forced in October to close a tax loophole, the “double Irish” that had attracted companies such as Apple and Facebook to base their European headquarters in the country.
President Obama set out plans on Monday to force US multinationals to pay tax on more than $2tn (£1.3tn) of profits held in countries with lower corporate taxes. The White House has also clamped down on so-called inversion acquisitions of foreign companies by US companies that then move their tax bases to the takeover target’s country to make savings.
Vestager, Denmark’s former deputy prime minister and economic minister, became competition commissioner in November and was soon in the spotlight when the Luxleaks documents revealed tax deals in Luxembourg when her boss, commission president Jean-Claude Juncker, was prime minister.
The revelations led to calls for Juncker to be investigated over allegations that he encouraged corporate tax avoidance. Juncker has rejected the allegations.
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