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Belgium’s tax break to multinational companies ruled illegal

Belgium’s tax break to multinational companies ruled illegal

BRUSSELS: The European Commission said on Monday that a corporate tax break that Belgium granted to at least 35 companies, amounting to total reductions equivalent to about $765 million, was illegal.
The commission, the executive arm of the European Union, did not immediately identify the companies that benefited from the tax break.
But one of the companies known to have used the technique is a Belgian subsidiary of the international brewing giant Anheuser-Busch InBev. Although Belgium’s official corporate tax rate is 34 percent, the subsidiary paid a rate of only about 4 percent on annual profit of about 60 million euros, or $65.5 million, in 2013.
Anheuser-Busch also uses a range of other tax benefits in Belgium, where the parent company has its headquarters, and paid a tiny fraction of 1 percent on its reported profit there of $1.93 billion in 2014.
Anheuser-Busch’s tax dealings, inside and outside Belgium, are attracting particular interest as the company is seeking to complete its acquisition of another big multinational brewing giant, SABMiller, in a deal valued at $104 billion. Anheuser-Busch acknowledged on Monday that the commission’s decision could force changes to its tax approach in Belgium. But the company said it had done nothing wrong.
The European Commission said on Monday that the Belgian government would be required to recover the unpaid taxes from the companies involved, which the commission said it might identify at a later date. Although the financial amounts are unlikely to pose a hardship to the companies that would be forced to pay back taxes, Monday’s decision would put big companies and European governments on further notice that the European Commission means to crack down on special tax arrangements with companies.
Other international companies that took advantage of the Belgian tax break included the British oil giant BP and the German chemicals group BASF, according to a person with direct knowledge of the investigation who spoke only on the condition of anonymity. Others, this person said, included Atlas Copco, a Swedish tool and equipment company, and Wabco, an American maker of vehicle parts.
The ruling, part of a series of investigations led by the European Union’s competition commissioner, Margrethe Vestager, found that Belgium had given unfair tax advantages to certain companies — advantages that were not available to other companies doing business in Belgium.
The inquiry is part of a wider investigation into whether other countries and multinational companies — including Amazon in Luxembourg and Apple in Ireland — have broken European Union competition rules through tax-cutting deals that are not available to all businesses in those countries.
In October, as part of that broader effort, Ms. Vestager ordered Luxembourg to recover up to €30 million from a Fiat unit, Fiat Finance and Trade. She ordered the Netherlands to retrieve a similar amount from Starbucks.
Ms. Vestager’s effort is part of the commission’s response to the economic problems in Europe that have left many governments struggling to balance their budgets — leaning on small taxpayers impatient with what they perceive as loopholes given to big businesses. Other governments in the 28-nation European Union have accused smaller players like Belgium of dangling tax deals to attract big multinational companies in ways they say end up driving down tax revenue throughout the bloc.
And in some cases, United States tax officials and lawmakers have criticized some European countries’ tax arrangements as enabling multinationals to illegally shield profit on which the companies should be paying American taxes.
The ruling on Monday leaves Belgium in an awkward position.
Johan Van Overtveldt, the Belgian finance minister, said he would take careful account of the decision even as he told investors that he would defend their interests. He also cited “the possibility of an appeal against the decision.”
Anheuser-Busch, which has its corporate headquarters in the Belgian city of Leuven, said last year that it had complied with all tax legislation and rules in Belgium and other countries where it operates. It repeated that contention on Monday.
The commission opened a formal investigation into the Belgian arrangements in February 2014. At issue is a so-called excess profits tax break given to multinational companies that move businesses to Belgium. The idea, according to the Belgian authorities, is to ensure that companies do not end up paying taxes on the same profits more than once.
Belgium set up the system about a decade ago, partly to persuade companies to relocate a substantial part of their activities there or to make significant investments in the country. The deductions were based on reducing the amount of taxable profits of the companies involved, usually by 50 to 90 percent. The tax break was marketed by the Belgian tax authority under the logo “Only in Belgium,” according to the European Commission.
Mr. Van Overtveldt said the government had already suspended the system by granting no more excess-profit tax breaks since February last year. If the company does not appeal the ruling, he said the next stage would be a period of “further negotiations with Europe regarding the possible reimbursements.”
If such payments are necessary, “the consequences for the companies concerned would be considerable and the reimbursement itself would be particularly complex,” Mr. Van Overtveldt said.