The General Court annuls one of the European Commission's "tax exemption State aid decisions"


The European Commission made an error in concluding in 2016 that Belgium's tax exemption of excess profit earned by multinational companies constituted a "State aid scheme". The General Court has therefore annulled the Commission's decision.
Judgment of the General Court of 14 February 2019 in case T-131/16 - Kingdom of Belgium v. the European Commission
By assistant attorney Adrian Kielberg


Since 2005, Belgium has allowed multinational groups to be exempted from tax on excess profit generated by group companies active in Belgium. According to Belgium, the purpose of the exemption was to avoid double taxation in certain transfer pricing situations. 

Under this scheme, multinational companies moving profit from one company to another could obtain the exemption if the companies were able to prove that the profit originated from intra-group savings or economies of scale. The profit was included if it would not have been earned by a comparable standalone company in comparable circumstances.

By a decision from 2016, the European Commission found that the consequence of the scheme was that a number of multinational companies had not been taxed on the main part of their actual profit. The result was, according to the Commission, a serious distortion of competition in the European Union, because the scheme conferred a selective advantage on the multinational groups, which were therefore favoured at the expense of other companies operating in Belgium that were not part of a multinational group. Furthermore, the Commission emphasised that the companies benefiting from the scheme did not have to demonstrate that the exempted profit was included in the tax base in another country. Consequently, the Commission ordered Belgium to recover EUR 700 million of unpaid tax.

Belgium and one of the multinational companies affected by the Commission's decision, Magnetrol International, decided to bring the decision before the General Court. They pleaded that the Commission:


  • had encroached upon the tax jurisdiction of the Kingdom of Belgium;
  • had erred in classifying the tax exemption as an "aid scheme".

Ireland intervened in the case in support of those pleas. Read our former newsletter about Apple's "tax benefit State aid cases": Additional Commission focus on State aid in the form of tax benefits.

The General Court's judgment

With regard to the alleged encroachment upon the exclusive tax jurisdiction of Belgium, the Court contended that although this is a field in which each Member State enjoys fiscal autonomy, the Member States must comply with the EU law when exercising that autonomy. Since the Commission is competent to ensure compliance with the staid aid rules, it cannot therefore, according to the General Court, be accused of having encroached upon the exclusive tax jurisdiction of Belgium by examining whether the tax exemption was compatible with EU law.

The General Court found, though, that the Commission erred in classifying the tax exemptions as a "State aid scheme". If it is possible to conclude that aid is granted under an "aid scheme", it is not necessary for the Commission to analyse the aid granted in individual cases under the scheme.

First, the General Court found that the provisions in Belgian legislation constituting, according to the Commission, the basis for the tax exemption scheme did not exhaustively define the conditions for the grant of the tax exemption. Therefore, further implementing measures were necessary in order to implement each tax exemption.

Secondly, the General Court found that the Belgian authorities had had a certain discretion as regards the grant of tax exemption under the scheme. The Belgian authorities had therefore had decisive influence on the conditions for, extent and characteristics of the exemptions.

Finally, the General Court refused the conclusions that the beneficiaries could be defined in a general and abstract manner, and that the Belgian tax authorities had had a systematic approach to the tax exemptions.

The General Court therefore concluded that the aid was not granted under an "aid scheme" and that the Commission had made an error by not analysing the aid granted in the individual cases. The General Court annulled the European Commission's decision without deciding on whether the exemptions were contrary to the State aid rules.

Implications of the judgment

The "tax exemption State aid schemes" have for some time been a focus area for the Commission. The General Court's judgment makes it harder for the Commission to broadly challenge businesses' advantageous tax schemes with reference to the State aid rules. Generally, it will be necessary to make an individual assessment of each scheme, unless it is part of a uniformly applied exemption scheme. This will improve the legal rights of tax payers. 

It is still unclear whether the General Court's judgment will be appealed to the European Court of Justice.

Read the General Court's judgment.