The methodology of the EU Commission and implicitly its impartiality and its good admnistration questioned by the General Court in the tax state aid investigations in the Belgian excess profit regime case

Cases T-131/16 and T-263/16
PartiesCourtChamberJudge-RapporteurAdvocate GeneralSubject-matter
AppealKingdom of Belgium and Magnetrol International v European CommissionGeneral Court7th Chamber (Extended Composition) V. Tomljenović/State aid – Aid scheme – Tax ruling
KeywordsState 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
Significant pointsApart from the first plea alleging infringement of the exclusive competence of Member States in the field of direct taxation, which would preclude the Commission’s control of State aid, and which was dismissed by the General Court (“GC”), the object of the judgment delivered was technical. It concerned the concept of an aid scheme as opposed to that of an individual aid measure. The judgment is important with regard to the Commission's offensive against what it considers to be tax gifts granted by certain Member States to multinational groups. By means of a precise and detailed statement of reasons, it highlights certain methodological shortcomings by the Commission in its investigations in this area.

Could the Commission have correctly identified an aid scheme concerning the exemption of excess profits under Belgian law? The practical stakes were substantial because the existence of an aid scheme exempted the European Commission from examining all individual measures granted to companies on the basis of the alleged scheme. The Commission could instead take a single decision on the regime as a whole, prohibiting its continuation. Such a classification enabled the Commission to order the suspension of the legislation concerned as a whole as soon as the formal investigation procedure was opened. While the Commission had not expressly requested it in the case at hand, Belgium opted for such a suspension considering the risks at stake.

In determining the existence of an aid scheme and not of a range of individual aid measures, the Commission had been unable to identify a legal act establishing such a scheme. On the basis of established case law allowing it to do so, the Commission had sought to rely on a set of circumstances likely to demonstrate the existence of the scheme. To this end, the Commission had identified four legal elements: a legal provision (Article 185(2)(b)); an extract from its preparatory work (the explanatory memorandum of the law of 21 June 2004); an administrative circular (of 4 July 2006); and, finally, the responses of the Minister of Finance to parliamentary questions on the application of the abovementioned legal provision. In the Commission’s view, these were the acts on the basis of which the excess profits exemption was granted.

However, the GC pointed out, first, that several essential elements of the alleged aid scheme did not actually stem from the bases of the scheme identified by the Commission but were derived from the examination of a sample of individual measures. In other words, the Commission had built, on the basis of certain individual measures, an alleged general scheme which it sought to link to elements of Belgian tax law. The essential elements of the alleged scheme in question that were not present in the bases of the scheme were the two-step method of calculating excess profits and certain forms of intensification of the companies’ presence in Belgium].

In a similar vein, the GC noted that the category of beneficiaries identified by the Commission did not correspond to that contained in the legal provision considered by the Commission as one of the bases of the alleged scheme. This constituted a further distortion of the Belgian legal framework by the Commission and confirmed that the connection established between the alleged aid scheme and the elements identified as the bases of that scheme was erroneous.

The GC also considered that one of the elements presented as essential by the Commission, the two-step method of calculating surplus profits, had not been systematically adopted in the decision.

In addition, the GC pointed out that the Belgian tax administration enjoyed a substantial margin of discretion in determining whether or not a profit adjustment was necessary, which contradicted the hypothesis of a general scheme giving rise to simple individual implementing measures.

On the one hand, the approach by the Belgian taw authorities was done on a case-by-case basis. The profit adjustment did not require the allocation of the profits concerned to another company. Contrary to the requirement of the legal provision, the amount to be exempted and the excess profits were not defined in the basic acts. Only 50% of the files submitted to the administration gave rise to an advance ruling.

On the other hand, the tax administration’s systematic approach presented in the alternative by the Commission as the basis of the alleged general scheme was inexistent. Not only did the GC logically dismiss this claim, indicating that it could not accept a justification provided only subsequent to the adoption of the Commission's decision, but it also sought to demonstrate the Commission's methodological weaknesses in invoking this alleged systematic approach. In particular, the Commission had sought to establish the existence of such a consistent treatment on a sample covering one third of the Belgian tax administration's individual decisions without justifying the choice of this sample or specifying the reasons why it had been considered representative of all individual decisions. On another point, it had simply referred to one eleventh of the decisions without any clarification on the sufficiently representative nature of the sample.
NoteworthyThe GC found substantial errors on the part of the Commission in its analysis of the elements of Belgian tax law considered as constituting a general aid scheme. The assessment was regarded as arbitrary by the GC. Their multiplication gives the impression that, for the Commission, the ends (i.e. the fight against tax optimisation and harmful tax competition, increased taxation of multinationals, tax harmonisation within the European Union) justified the means (i.e. distortion of facts, distortion of reality). At the end of a masterful demonstration, the GC recalls that political instrumentalisation has limits in a Union governed by the rule of law. It is one thing for the Commission to develop new and ambitious legal arguments, but it is another to distance itself from reality and manipulate the facts in order to serve specific purposes.

The Commission's drift and lack of rigour in the decision raise questions as to the reliability of the way in which it has handled other tax-related state aid cases, which are still ongoing. The GC's forthcoming judgments in this area are eagerly awaited, therefore.

Moreover, the GC's concern and its scrutiny of the Commission’s analysis of the national tax law at stake may stem from a desire to strike a balance between, on the one hand, the exclusive competence of the Member States in the field of direct taxation and, on the other hand, the fact that State aid law is nevertheless intended to apply in this area. The Commission's respect for the competence of the Member States to continue to develop tax policies towards companies requires, at the very least, that it treats the tax law of a Member State as it is, without pre-conceived bias.