Belgium’s $762 Million Tax Loophole Shut in EU Payback Order

The European Union ordered Belgium to recover about 700 million euros ($762 million) in illegal tax breaks given to at least 35 companies, including Anheuser-Busch InBev NVand BP Plc, as regulators continued a crackdown on overly generous tax schemes throughout the 28-nation bloc.

The European Commission told Belgium to recoup the full unpaid tax, saying that excess-profit rulings allowed global corporations to reduce their tax base by as much as 90 percent. Other beneficiaries included BASF SE, Proximus SA, Atlas Copco AB, Wabco Holdings Inc. and Celio France SAS, according to a person familiar with the matter who asked not to be named as the identities are confidential.

“In essence, the scheme allowed companies to pay substantially less tax, simply because they are multinational,” Margrethe Vestager, the EU’s competition chief, told reporters in Brussels. “It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing.”

Tax deals including Apple Inc.’s arrangements with Ireland and Amazon.com Inc.’s agreements with Luxembourg are also under investigation by the EU, which last year ordered the Netherlands to recover as much as 30 million euros in back taxes from Starbucks Corp. The EU has said tax avoidance and evasion cost about 1 trillion euros a year.

Since 2005

Most of the companies that benefited from the Belgian tax loophole, in place since 2005, are European and they will have to pay back around 500 million euros out of the estimated 700 million euros in total, Vestager said.

“While we are disappointed by this decision, we remain confident that our tax rulings are in full compliance with the EU jurisprudence on state aid and that we have always complied with Belgian and international tax provisions,” said Kathleen Van Boxelaer, a spokeswoman at Leuven, Belgium-based AB InBev. “We will consider our options, taking into account the reactions by the Belgian authorities.”

On Paper

Belgium’s De Tijd newspaper reported in 2014 that a tax agreement allowed AB InBev to transfer 140 million euros of profit from around the world over three years to a Belgian company that exists only on paper.

BASF said in a statement that it is one of the largest taxpayers in Belgium and that it’s “closely following” the development of the EU case. Wabco said it is “reviewing the commission’s announcement.”

A BP spokesman declined to comment in an e-mail as did Stockholm-based Atlas Copco, the world’s largest maker of air compressors. The other companies didn’t immediately respond to requests for comment.

Belgium allowed multinational companies to deduct profits from their taxes due to supposed intra-group synergies and economies of scale, the commission said. The EU regulator said it wasn’t convinced by Belgium’s argument that the advantage could be justified to prevent double taxation as no corresponding tax claim was made by another country.

“The result is double non-taxation,” Vestager said, adding that the deducted profits are not taxed anywhere.

Logistical Nightmare

Belgian Finance Minister Johan Van Overtveldt said the consequences of clawing back the 700 million euros would be difficult for the companies affected and a logistical nightmare for tax officials. He said in a statement that the country would seek talks with the EU and could consider an appeal like those filed by the Netherlands and Luxembourg in related cases.

McDonald’s Corp. is in the EU’s firing line over a similar issue after the regulator said in December it suspects neighboring Luxembourg broke state-aid rules by allowing a unit to escape taxes in the nation and across the Atlantic by misusing a double-taxation accord.

The EU’s decision sets a “fascinating” precedent given that Belgium is a relatively small player in poaching tax base from other EU states, according to Alex Cobham, the director of research at the Tax Justice Network.

Ireland, Luxembourg and Netherlands “have taken in hundreds of billions of dollars in profits from elsewhere,” he said. “If similar steps were put in place to require the clawback of unpaid taxes, the scale would be enormous.”