11 Jan 2016
The EU has ordered Belgium to recover €700m in tax back payments from 35 multinational corporations.
News of the ruling comes following a conference in which the European Competition Commissioner, Margrethe Vestager, announced the illegality of Belgium’s tax deals with these large businesses.
The 35 companies that have benefited from the tax deals are yet to be named.
The country’s ‘excess profit’ tax scheme allowed companies operating cross-border to compare recorded profit with the speculative profit of a non-multinational company in the same situation. The difference was considered ‘excess profit’, reducing the companies’ tax base. In some cases, this allowed the businesses to benefit from tax reductions of up to 90%.
The EU came to the conclusion that Belgium was in violation of EU state aid rules and decisive action was taken, with Vestager stating that the illegal tax scheme has allowed companies to avoid paying taxes, harming fair competition in the EU at the expense of EU citizens.
Belgium argued that the tax scheme was necessary to avoid double taxation, since taxes on the same profits had not been claimed in any other country.
The ‘excess profit’ scheme has been on hold since the Commission opened its investigation in February 2015, and Belgium has not issued any further tax rulings. However, businesses that have been under the scheme since its application in 2005 have been able to continue benefiting from it.
Belgian tax authorities will now be investigating the 35 companies that have profited from the scheme to determine the individual amount of tax that must be recovered from each business.
The ruling that the deals were illegal shifts them from the territory of tax avoidance to tax evasion, and the monies saved by the multinationals concerned will now, technically, represent the proceeds of crime.
Although it is unclear on the facts whether the banks that handled the proceeds could reasonably have been expected to know or suspect ahead of the ruling that they derived from tax evasion, the case highlights the crucial importance of obtaining robust tax advice as part of the due diligence process when creating structures for customers the ostensible purpose of which is the optimisation of tax liability.
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