On 14 February 2019, the General Court (“GC”) annulled the European Commission’s (“Commission”) decision of 11 January 2016 declaring Belgium’s system of excess profit rulings as an aid scheme incompatible with the Internal Market.  The Commission had ordered the Belgian authorities to recover around € 700 million from at least 35 companies that had benefited from the excess profit exemption through tax rulings.  The GC considered that the excess profit exemption was not a “scheme” within the meaning of State aid law and that the Commission should have considered each tax ruling individually.  Whilst the judgment does not address the question of “selectivity”, which is central to most tax ruling cases, it establishes that tax rulings, which are given with some latitude and discretion by the tax authorities, cannot be reviewed collectively as a “scheme”, but must be assessed individually.


In Belgium, the tax authorities are able to issue rulings determining the tax base of Belgian subsidiaries of multinational groups on the basis of the calculated arm’s length profit of the subsidiary in question.  “Excess profit”, i.e. profit recorded in Belgium by multinational companies which exceed the profit calculated using the arm’s length principle, could be excluded from the tax base.  Such excess profit could result from, for example, economies of scale or other synergies enjoyed by companies in multinational groups.  Although the legal basis for the tax exemption was Article 185 (2) b) of the Belgian tax code, the benefit of the exemption could only be obtained through a tax ruling determining the company’s tax base.

The Commission opened a formal investigation into the system of excess profit rulings  in February 2015 and declared it incompatible with the Internal Market less than a year later in January 2016.  According to the Commission, that system was a “scheme” within the meaning of the State aid rules, as it did not require further implementing measures and the beneficiaries were defined in a general and abstract manner.  Furthermore, the Commission considered that the measure was selective on several grounds.  First, it favoured companies belonging to multinational groups over standalone companies.  Second, it was available only to multinational groups that modified their business model to establish new operations in Belgium.  Lastly, the measure was de facto selective because in practice it only benefited large and medium groups, not small ones.  It therefore distorted competition and constituted operating aid incompatible with the Internal Market.

Findings of the Court

The Belgian authorities and one of the alleged beneficiaries, Magnetrol International, brought actions for annulment of the Commission’s decision before the GC in March and May 2016. They essentially raised 4 pleas, alleging that:

  • the Commission exceeded its powers by using the State aid rules in respect of matters falling within the exclusive tax jurisdiction of the Belgian State;
  • the tax exemption for excess profit was not a “scheme” within the meaning of Article 1 (d) of Regulation 2015/1589;
  • the tax rulings applying the exemption were not “selective measures” and therefore did not constitute State aid; and
  • the Commission infringed the principles of legality and of legitimate expectations by ordering the recovery of the aid.

Encroachment on Belgium’s exclusive jurisdiction in the field of direct taxation

As regards the allegation that the Commission unlawfully encroached on the Belgian State’s exclusive tax jurisdiction, the Court recalled that, while Member States do have exclusive competence in the field of direct taxation, that does not mean that all direct tax measures are exempt from the application of State aid rules.  When establishing direct taxation rules, for example as regards companies’ tax base, Member States cannot favour a group of economic operators over other operators that are in a comparable situation.  The GC, consequently, concluded that the Commission had not exceeded its powers by examining the compatibility of the measures in question with the EC State aid rules.

Absence of a scheme de jure

As regards the second plea, the GC agreed with the Belgian authorities and Magnetrol that the tax exemption for excess profit did not constitute a “scheme” within the meaning of Article 1(d) of Regulation 2015/1589.  The Court recalled that under that provision, an aid scheme was defined as “any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time or for an indefinite amount”.

It further explained that on the basis of this definition, a measure can only be considered as a scheme if 3 conditions are met:

  • the essential elements of the aid scheme must be set out in the provisions identified as the legal basis for the scheme;
  • the authorities in charge of applying that scheme cannot have any margin of discretion in its application; and
  • the legal basis of the scheme must define beneficiaries in a general and abstract manner.

The GC considered that the Commission had failed to demonstrate that these conditions were met in the case at hand.  First, the acts that the Commission had identified as the legal basis for the scheme – Article 185 (2) b) of the Belgian tax code as well as a law of 21 June 2004, a ministerial circular, an explanatory memorandum and replies to parliamentary questions – did not set out the essential elements of the alleged scheme.  Those acts did not provide for the methodology for calculating the excess profit.  Nor did they list the conditions on the basis of which, according to the Commission, the benefit of the exemption was granted by the Belgian tax authorities, such as the development of new activities in Belgium.

Additionally, the tax authorities had a clear margin of discretion when issuing tax rulings applying the excess profit exemption.  They did not mechanically apply the acts identified by the Commission as the legal basis for the scheme.  Rather, they determined the parameters that would have to be satisfied to obtain the tax exemption and calculated the amount of excess profit.  They also verified that the parameters were met.

Finally, the beneficiaries could not be identified merely on the basis of Article 185 (2) b) of the Belgian tax code – nor by the other acts identified by the Commission as legal basis for the “scheme”, which applied to all Belgian companies belonging to a multinational group.  The “scheme” identified by the Commission on the other hand, applied to a smaller group, namely companies belonging to a multinational group that could claim a reduction of their tax base for excess profit on the basis of the parameters applied by the Belgian tax administration.

Absence of a scheme de facto

The Court also rejected the Commission’s argument that the existence of an aid scheme could be established by the fact that the Belgian tax authorities followed a systematic approach when making excess profit tax rulings.  According to established case law, where the legal acts establishing a scheme cannot be identified, the Commission can rely on a set of circumstances which taken as a whole indicate the de facto existence of an aid scheme.  The Court noted that the Commission had not relied on this line of case law to establish the existence of the “scheme”.

Furthermore, the Court ruled that the Commission could not establish a systematic approach on the part of the Belgian authorities to the requisite legal standard.  The Commission only reviewed a sample of the 66 excess profit tax rulings made by the Belgian tax authorities between 2005 and 2015 and did not explain how that selection had been made.  Moreover, the Belgian tax authorities reviewed applications for an excess profit exemption on a case by case basis and did not always apply the same parameters to award the benefit of the exemption and calculate the amount of excess profit.

The GC therefore annulled the Commission’s decision and did not assess the two other pleas.


This is the first judgment addressing the Commission’s decisions on tax rulings and it was consequently impatiently awaited by the State aid community.  As the judgment does not touch upon the central question of “selectivity”, its predictive value for the other Commission tax ruling decisions that are currently being considered by the GC is limited.  However, it does show that the GC is ready to annul these decisions.

The judgment also provides pointers as to how in the future the Commission will have to deal with tax exemptions applied through tax rulings.  As tax rulings may leave discretion to the fiscal authorities to determine the fiscal situation of the applicant, the Commission will not be able to group tax rulings applying the same exemption under the “scheme” umbrella to avoid having to take individual decisions on each ruling.  As a result, the Commission will have to devote more time and resources to target such tax rulings.