Judgments nº T-131/16 of Tribunal General de la Unión Europea, February 14, 2019

• Resolution Date: February 14, 2019
• Issuing Organization: Tribunal General de la Unión Europea
• Decision Number: T-131/16

(State aid - Aid scheme implemented by Belgium - Decision declaring the aid scheme incompatible with the internal market and unlawful and ordering recovery of the aid granted - Tax ruling - Excess profit exemption - Fiscal autonomy of the Member States - Concept of an aid scheme - Further implementing measures)

In Cases T-131/16 and T-263/16,

Kingdom of Belgium, represented initially by C. Pochet, M. Jacobs and J.-C. Halleux, and subsequently by C. Pochet and J.-C. Halleux, acting as Agents, and by M. Segura Catalán and M. Clayton, lawyers,

applicant in Case T-131/16,

supported by

Ireland, represented initially by E. Creedon, G. Hodge and A. Joyce, subsequently by K. Duggan, M. Browne and A. Joyce and lastly by A. Joyce and J. Quaney, acting as Agents, and by P. Gallagher, M. Collins, Senior Counsel, B. Doherty and S. Kingston, Barristers,

intervener in Case T-131/16,

Magnetrol International, established in Zele (Belgium), represented by H. Gilliams and J. Bocken, lawyers,

applicant in Case T-263/16,

v

European Commission, represented initially by P.-J. Loewenthal and B. Stromsky, and subsequently by P.-J. Loewenthal and F. Tomat, acting as Agents,

defendant,

APPLICATION pursuant to Article 263 TFEU for annulment of Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium (OJ 2016 L 260, p. 61),

THE GENERAL COURT (Seventh Chamber, Extended Composition),

composed of M. van der Woude, President, V. Tomljenović (Rapporteur), E. Bieliūnas, A. Marcoulli and A. Kornezov, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written part of the procedure and further to the hearing on 28 June 2018,

gives the following

Judgment

Background to the dispute

Legal context

The Income Tax Code 1992

1 In Belgium, the rules for the taxation of income are laid down in the Code des impôts sur les revenus 1992 (Income Tax Code 1992; ‘the CIR 92’). Article 1(1) of the CIR 92 establishes, inter alia, an income tax on the total income of resident companies, namely the ‘corporate income tax’.

2 With regard specifically to the base of the corporate income tax, Article 185 of the CIR 92 provides that companies are to be taxed on the total amount of their profits, including distributed dividends.

The Law of 24 December 2002

3 On 24 December 2002, the loi du 24 décembre 2002 modifiant le régime des sociétés en matière d’impôts sur les revenus et instituant un système de décision anticipée en matière fiscale (Law amending the corporate income tax system and establishing an advance tax ruling system; ‘the Law of 24 December 2002’) was enacted. Article 20 of that law provides that the Service public fédéral des Finances (the Belgian Federal Public Service for Finance) may take a position by way of an advance tax ruling on all requests relevant to the application of tax law provisions. In addition, an ‘advance ruling’ is defined as the legal act by which the Federal Public Service for Finance determines, in accordance with the applicable provisions, how the law will apply to a particular situation or transaction that has not yet had tax consequences. It is also indicated that the advance ruling cannot entail exemption from or reduction of the tax.

4 Article 22 of the Law of 24 December 2002 provides that an advance ruling cannot be granted, inter alia, when the request concerns situations or transactions identical to those having already had tax consequences as regards the requesting party.

5 In addition, Article 23 of the Law of 24 December 2002 provides that, except in cases where the subject matter of the request so justifies, an advance ruling is issued for a period that may not exceed five years.

The Law of 21 June 2004 amending the CIR 92

6 By the loi du 21 juin 2004, modifiant le CIR 92 et la loi du 24 décembre 2002 (Law of 21 June 2004, amending the CIR 92 and the Law of 24 December 2002; ‘the Law of 21 June 2004’), the Kingdom of Belgium introduced new fiscal rules concerning the cross-border transactions of affiliated entities which are part of a multinational group, providing in particular for an adjustment of the profit subject to taxation, known as a ‘correlative adjustment’.

- The explanatory memorandum

7 According to the explanatory memorandum to the draft law presented by the Government of the Kingdom of Belgium before the Chambre des députés (the Belgian Chamber of Deputies), that law is intended to amend the CIR 92 in order to include explicitly the internationally accepted ‘arm’s length’ principle. Moreover, it is intended to amend the Law of 24 December 2002 in order to grant the Service des Décisions Anticipées (‘the Ruling Commission’) the power to issue advance rulings. The arm’s length principle was introduced into Belgian tax legislation by the addition of a second paragraph to Article 185 of the CIR 92, based on the text of Article 9 of the Model Tax Convention on Income and Capital of the Organisation for Economic Co-operation and Development (OECD). The purpose of Article 185(2) of the CIR 92 is to ensure that the tax base of companies subject to taxation in Belgium may be modified by adjustments to the profit resulting from intra-group cross-border transactions, where the transfer prices applied do not reflect market mechanisms and the arm’s length principle. In addition, the concept of an ‘appropriate adjustment’ introduced by Article 185(2)(b) of the CIR 92 is justified as a means of avoiding or undoing (potential) double taxation. It is also stated that that adjustment must be carried out on a case-by-case basis in the light of the available information provided, in particular, by the taxpayer and that a correlative adjustment should be made only if the tax administration considers both the principle and the amount of the primary adjustment made in another State to be justified.

- Article 185(2) of the CIR 92

8 Article 185(2) of the CIR 92 provides as follows:

‘… For two companies that are part of a multinational group of associated companies and in respect of their reciprocal cross-border relationships:

(a) when two companies are in their commercial and financial relationships linked by conditions agreed upon or imposed on them which are different from those which would have been agreed upon between independent companies, the profit which - under those conditions - would have been made by one of the companies but is not because of those conditions, may be included in the profit of that company;

(b) when profit is included in the profit of one company which is already included in the profit of another company and the profit so included is profit which should have been made by that other company if the conditions agreed between the two companies had been those which would have been agreed between independent companies, the profit of the first company is adjusted in an appropriate manner.’

The Circular of 4 July 2006

9 The Circulaire du 4 juillet 2006 sur l’application du principe de pleine concurrence (Circular of 4 July 2006 on the application of the arm’s length principle; ‘the Circular of 4 July 2006’) was sent to officials of the general tax administration, on behalf of the Belgian Minister for Finance, in order to provide guidance on, inter alia, the insertion of Article 185(2) of the CIR 92 and the corresponding amendments to that code. The circular underlines that those amendments, in force since 19 July 2004, are intended to transpose the arm’s length principle into Belgian tax law and constitute the legal basis enabling the adjustment, in the light of that principle, of the taxable profit resulting from intra-group cross-border relationships between affiliated companies that are part of a multinational group.

10 Thus, the circular states that the upward adjustment provided for in Article 185(2)(a) of the CIR 92 allows the profit made by a resident company that is part of a multinational group to be increased in order to include the profit that the resident company would have made from a transaction carried out at arm’s length.

11 In addition, the circular notes that the downward correlative adjustment, provided for in Article 185(2)(b) of the CIR 92, is intended to avoid or undo a (potential) double taxation. It is indicated that no criteria may be established in that respect, since that adjustment must be carried out on a case-by-case basis in the light of the available information provided, in particular, by the taxpayer. It is also noted that a correlative adjustment should be made only if the tax administration or the Ruling Commission considers both the principle and the amount of the primary adjustment to be justified. Moreover, it is specified that Article 185(2)(b) of the CIR 92 does not apply if the profit made in the partner State is increased such that it is greater than the profit that would have been obtained had the arm’s length principle been applied.

The replies given by the Minister for Finance to parliamentary questions on the application of Article 185(2)(b) of the CIR 92

12 On 13 April 2005, in response to parliamentary questions concerning the excess profit exemption, the Belgian Minister for Finance, first of all, confirmed that Article 185(2)(b) of the CIR 92 concerned the situation in which an advance ruling was issued concerning a method intended to arrive at an arm’s length profit. Next, he confirmed that the profit recorded in the Belgian financial reports of an international group active in Belgium which exceeded an arm’s length profit should not be taken into account in the determination of the profit taxable in Belgium. Lastly, he approved the position that it was not for the Belgian tax authorities to determine which foreign companies should include that excess profit in their profit.

13 On 11 April 2007, in response to a further series of parliamentary questions concerning the application of Article 185(2)(a) and (b) of the CIR 92, the...