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EU widens corporate tax breaks probe to Belgium

The EU opened an investigation on Tuesday into Belgium’s tax deals for multinational firms, widening a major probe into sweetheart tax arrangements for big business across Europe.

Competition commissioner Margrethe Vestager said Belgium’s tax system may breach European Union rules on illegal state aid, by effectively giving international corporations an unfair advantage.

“They seem to be allowing a few multinationals to pay very few taxes on part of their profits and basically we think without any valid justification on taxation principles,” Vestager told a press conference in Brussels.

“If our concerns are confirmed, this generalised scheme would be a serious distortion of competition unduly benefitting a selected number of multinationals.”

She declined to name the companies involved, but said they included firms from the United States and elsewhere.

The Belgian investigation is the latest in a series that the European Commission, the 28-nation EU’s powerful executive arm, has opened into tax deals offered by member nations.

Luxembourg was last month charged with giving illegal tax breaks to Internet shopping giant Amazon.

It followed last year’s “Luxleaks” scandal, which revealed details of tax breaks given to dozens of major firms while current Commission President Jean-Claude Juncker was prime minister of Luxembourg.

The EU has also launched investigations into US tech giant Apple’s tax deals with Ireland, coffee-shop chain Starbucks with The Netherlands and Italian automaker Fiat, also with Luxembourg.

– Profits untaxed –

EU rules say some tax breaks offered to big companies breach the bloc’s rules on state aid, as they amount to a government subsidy that is aimed at attracting mulitnationals to do business in certain countries.

Belgium’s system allows companies to reduce tax by registering “excess profits” that allegedly result from the advantage of being part of a multinational group.

But Vestager said those tax breaks should be available for stand-alone companies or Belgian groups, rejecting Belgium’s claims that the system avoids “double taxation” in two or more countries.

She said the tax discounts “typically amount to over 50 percent of the profits covered and in some cases as much as 90 percent.”

If found at fault, a country would have to recover the amount granted in illegal state aid, potentially a huge amount of money given that some of the tax deals date back many years.

Such tax arrangements are widespread in practice and are not strictly illegal in themselves, constituting tax avoidance rather than tax evasion which does breach the law.

But critics say they allow companies too much leeway, minimising their tax burden at the expense of ordinary citizens who have had to suffer through tough austerity programmes imposed by EU governments desperate to balance the public books.

The fallout from the 2008 global financial crash, which brought the EU economy to its knees, put tax policy at the top of the agenda, with member states pledging to make the system fairer and more transparent.

Tax policy, however, remains a member state prerogative in the EU so the Commission has taken up the cudgels on competition grounds.