Update on state aid in tax matters – recent decision on the Belgian EPR

Just a few years back, state aid in tax matters was a new topic. It was unprecedented how the European Commission applied the state aid rules in tax cases like Starbucks, Apple, Fiat, Amazon and others, such as the Belgian “Excess Profits Rulings” case (“EPR”). Today, the topic seems to have moved somewhat to the background compared to everything else that is going on in the international tax field (to name a few: BEPS, ATAD, Pillar I & Pillar II, DAC 6 etc.). However, state aid in tax matters is still in motion. On 16 September 2021, the European Court of Justice ruled on the Belgian EPR case. The Court of Justice found that this regime is a ‘scheme’ within the meaning of the state aid rules. As a result, the case goes back to where it comes from: the European General Court, to further examine whether there is illegal state aid.

In the meantime, other cases are pending before the European Court of Justice, after earlier decisions by the General Court. This ongoing evolution is the reason to address the topic in this contribution.


For those less familiar with state aid in tax matters, or state aid altogether, it is based on the Treaty of the Functioning of the European Union, which prohibits certain forms of state aid. Four criteria are key: state aid is prohibited if a (i) selective (ii) advantage is offered (iii) through the resources of a Member State (iv) in a way that distorts competition.

The state aid rules are applicable in any field or sector, but only in the last decade they have been stretched quite a bit to cover a variety of tax measures as well, and in particular tax rulings. This made the European Commission investigate many individual situations to conclude that Starbucks, Apple, Fiat, Amazon etc., benefited from illegal state aid. Appeals against those cases before the General Court led most cases to conclude that there was no illegal state aid. A notable exemption is the Engie case regarding financing structures in Luxembourg, where the General Court agrees with the European Commission that there is illegal state aid.

State aid, however, is not limited to individual cases. It can also be collective when it is granted through a “scheme” that is open to a certain number of taxpayers. In contrast to the other state aid cases in tax matters, this is exactly what the Belgian EPR case is about. The Belgian tax legislation provided for a regime under which part of the profits of a Belgian company of a multinational enterprise is exempt from Belgian income tax through a downward adjustment. The exempt part is the “excess profit”, which is the profit that is deemed to be realised through synergies within the group. To benefit from this particular regime, the Belgian group company should obtain a tax ruling in which the tax authorities confirm the details and calculations of the excess profit.

Judgment of the European Court of Justice of 16 September 2021

The European Commission challenged the EPRs on a collective basis (“aid scheme”) and did not examine each ruling individually at first. The General Court annulled this decision as it noted that the conditions for an aid scheme were not met. After that decision, the European Commission has decided to attack the individual excess profit rulings as individual aid. Those cases are currently pending.

The Court of Justice has now overruled the judgment of the General Court and confirmed the concept of a "scheme" does include an established administrative practice of the authorities of a Member State when that practice reveals a "systematic approach". The European Commission substantiated that there was such a systematic approach through the examination of a sample of rulings.

The judgment of the European Court of Justice does not include a final judgment on the existence of illegal state aid. After this judgment, which only confirms that there is an aid scheme in the Belgian EPR, it is now up to the General Court to further examine whether that aid scheme constitutes lawful or illegal state aid.

Against that new decision by the General Court, another appeal before the Court of Justice is possible (and can certainly be expected, irrespective of the decision of the General Court). It is only at that moment that the Court of Justice will rule on the lawful character of the aid scheme, by answering the key questions (i) whether there is an advantage and (ii) if so, whether such advantage is selective. By that time, the Court of Justice should have ruled on other state aid cases in tax matters that are currently pending, which will already shed a light on the Court’s interpretation of a selective advantage in tax cases.


When the pending state aid cases in tax matters are dealt with by the Court of Justice, gradually, its interpretation of a selective advantage in the pending tax cases will emerge. However, the technical details of that interpretation are not all that matters. As a result of the endeavors of the European Commission in state aid, countries and companies have already drastically changed their tax policies and structures, irrespective of the details of the expected judgments by the Court of Justice.

This is a wider evolution in the international tax framework, where the implementation of BEPS (mainly through the MLI) and the increased attention by policymakers and by the public are factors that put pressure in the same direction. With the debate on digital taxation (including the emergence of digital taxes, the OECD’s Pillar I and Pillar II proposals and the work at the level of the EU) and an increased focus on environmental taxes, it is clear that the evolution of international taxation is far from over. Interesting but challenging times are ahead!


XLNC MAGAZINE | No. 08 | Autumn 2021

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