20 September 2023 (*1)

(State aid – Aid scheme put into effect by Belgium – Decision declaring the aid scheme incompatible with the internal market and unlawful and ordering recovery of the aid granted – Tax ruling – Taxable profit – Excess profit exemption – Advantage – Selectivity – Adverse effect on competition – Recovery)

In Case T‑131/16 RENV,

Kingdom of Belgium, represented by C. Pochet and M. Jacobs, acting as Agents, and by M. Segura and M. Clayton, lawyers,

applicant,

supported by

Ireland, represented by M. Browne, A. Joyce, D. O’Reilly and J. Quaney, acting as Agents, and by P. Gallagher, M. Collins and C. Donnelly, Senior Counsel, and B. Doherty and D. Fennelly, Barristers-at-Law,

intervener,

European Commission, represented by B. Stromsky, P.-J. Loewenthal and F. Tomat, acting as Agents,

defendant,

THE GENERAL COURT (Second Chamber, Extended Composition),

composed of A. Marcoulli, President, S. Frimodt Nielsen, V. Tomljenović (Rapporteur), R. Norkus and W. Valasidis, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written part of the procedure,

having regard to the judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741),

further to the hearing on 8 February 2023,

gives the following

By its action under Article 263 TFEU, the Kingdom of Belgium seeks the annulment of Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium (OJ 2016 L 260, p. 61; ‘the contested decision’).

The facts of the dispute and the legal background were set out by the General Court in paragraphs 1 to 28 of the judgment of 14 February 2019, Belgium and Magnetrol International v Commission (T‑131/16 and T‑263/16, EU:T:2019:91), and by the Court of Justice in paragraphs 1 to 24 of the judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741). For the purposes of the present proceedings, they may be summarised as follows.

By an advance ruling issued by the ‘service des décisions anticipées’ (Advance Ruling Commission) of the service public fédéral des finances belge (Belgian Federal Public Service for Finance) under Article 185(2)(b) of the Code des impôts sur les revenus 1992 (Income Tax Code 1992; ‘the CIR 92’), read in conjunction with Article 20 of the loi du 24 décembre 2002 modifiant le régime des sociétés en matière d’impôts sur les revenus et instituant un système de décision anticipée en matière fiscale (Law of 24 December 2002 amending the corporate income tax system and establishing an advance tax ruling system) (Moniteur belge, 31 December 2002, p. 58817; ‘the Law of 24 December 2002’), Belgian resident companies that were part of a multinational group and Belgian permanent establishments of foreign resident companies that were part of a multinational group could reduce their tax base in Belgium by deducting what was considered to be ‘excess’ profit from the profit which they had recorded. Under that system, part of the profit made by the Belgian entities benefiting from an advance ruling was not taxed in Belgium. According to the Belgian tax authorities, that excess profit arose from the synergies, economies of scale or other benefits resulting from membership of a multinational group and, accordingly, was not attributable to the Belgian entities in question.

4.4

Following an administrative procedure that was initiated on 19 December 2013 with a letter by which the European Commission requested the Kingdom of Belgium to provide information on the system of excess profit tax rulings, which were based on Article 185(2)(b) of the CIR 92, the Commission adopted the contested decision on 11 January 2016.

5.5

By the contested decision, the Commission found that the excess profit exemption scheme that was based on Article 185(2)(b) of the CIR 92, pursuant to which the Kingdom of Belgium had issued advance rulings to Belgian entities of multinational groups of undertakings, granting those entities an exemption in respect of part of their profit, constituted a State aid scheme giving its beneficiaries a selective advantage, for the purposes of Article 107(1) TFEU, that was incompatible with the internal market.

Thus, the Commission argued, principally, that the scheme at issue granted beneficiaries of the advance rulings a selective advantage, since the excess profit exemption applied by the Belgian tax authorities was a departure from the ordinary Belgian corporate income tax system. In the alternative, the Commission found that the excess profit exemption could confer a selective advantage on beneficiaries of the advance rulings, in so far as that exemption was not in line with the arm’s length principle.

7.7

Having found that the scheme at issue had been put into effect in breach of Article 108(3) TFEU, the Commission ordered that the aid thus granted be recovered from its beneficiaries, a definitive list of which was to be drawn up by the Kingdom of Belgium following the decision.

8.8

Following the adoption of the contested decision, the Kingdom of Belgium and several companies identified by that decision or which had benefited from an advance ruling under the scheme at issue brought actions for the annulment of that decision.

9.9

By the judgment of 14 February 2019, Belgium and Magnetrol International v Commission (T‑131/16 and T‑263/16, EU:T:2019:91; ‘the original judgment’), in the first place, the General Court rejected as unfounded the pleas in law alleging, in essence, that the Commission had misused its powers in relation to State aid and encroached upon the Kingdom of Belgium’s exclusive jurisdiction in the field of direct taxation.

10.10

In the second place, the General Court held that, in this case, the Commission had incorrectly found that there was an aid scheme, in breach of Article 1(d) of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 [TFEU] (OJ 2015 L 248, p. 9), and, consequently, the General Court annulled the contested decision without considering it necessary to examine the other pleas that had been put forward against it.

11.11

Following the appeal brought against the original judgment, the Court of Justice delivered its judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741; ‘the judgment on appeal’).

12.12

In the judgment on appeal, the Court of Justice held that the original judgment was vitiated by errors of law in so far as it had been held that the Commission had wrongly concluded that there was an aid scheme in this case.

On the basis of the errors identified by the Court of Justice, the original judgment was set aside.

14.14

In accordance with the first paragraph of Article 61 of the Statute of the Court of Justice of the European Union, the Court of Justice decided to give final judgment on certain pleas in law where it considered that the state of the proceedings was such as to permit it to do so, namely those concerning the Commission’s encroachment upon the exclusive jurisdiction of the Kingdom of Belgium in the field of direct taxation, and those relating to the existence of an aid scheme.

15.15

Thus, first of all and like the General Court, the Court of Justice rejected the pleas relating to the Commission’s encroachment upon the exclusive jurisdiction of the Kingdom of Belgium in the field of direct taxation.

Next, the Court of Justice concluded that the excess profit exemption scheme could be considered an aid scheme within the meaning of Article 1(d) of Regulation 2015/1589, and that, therefore, the pleas in law relating to the existence of an aid scheme had to be rejected as being unfounded.

17.17

Lastly, with regard to the other pleas for annulment relied on by the Kingdom of Belgium, the Court of Justice considered that the state of the proceedings was not such as to permit final judgment to be given, and referred the case back to the General Court in order for it to rule on those pleas.

II. Procedure and forms of order sought

18.18

Following the judgment on appeal and in accordance with Article 216(1) of the Rules of Procedure of the General Court, the present case was assigned to the Second Chamber (Extended Composition) of the General Court on 20 October 2021.

19.19

In accordance with Article 217(1) of the Rules of Procedure, the parties lodged statements of written observations within the time limits prescribed. Supplementary statements of written observations were also lodged by the main parties in accordance with Article 217(3) of the Rules of Procedure.

The Kingdom of Belgium claims that the General Court should:

–annul the contested decision;

–in the alternative, annul Articles 1 and 2 of the contested decision;

–order the Commission to pay the costs.

21.21

Ireland claims that the General Court should annul the contested decision, as requested by the Kingdom of Belgium.

22.22

The Commission contends that the General Court should:

–dismiss the action;

–order the Kingdom of Belgium to pay the costs.

III. Law

In support of its action, the Kingdom of Belgium raises five pleas in law. Following the judgment on appeal, in which the Court of Justice ruled on the first two pleas in law, the first of which related to the Commission’s encroachment upon the exclusive jurisdiction of the Kingdom of Belgium, and the second, to the existence of an aid scheme, the General Court must give a new ruling on the third to fifth pleas, the third relating to the incorrect classification of the excess profit exemption as State aid within the meaning of Article 107(1) TFEU, the fourth, to the incorrect identification of the beneficiaries of the alleged aid, and the fifth, to breach of the principles of legality and of the protection of legitimate expectations, in that recovery of the alleged aid was ordered erroneously.

24.24

The Kingdom of Belgium submits, in essence, that the fact that the excess profit exemption, as a consistent administrative practice, constitutes a scheme does not mean that it can be concluded that it fulfils all the criteria laid down in Article 107(1) TFEU for a measure to qualify as State aid. Thus, in support of that plea, the Kingdom of Belgium puts forward arguments, in several parts and sub-parts, by which it challenges the Commission’s findings in relation to those criteria set out in Article 107(1) TFEU, that is to say, the financing of the scheme at issue through State resources, the existence of a selective advantage and a distortion of competition.

The Commission contends that the plea put forward by the Kingdom of Belgium should be rejected.

26The Kingdom of Belgium, supported in that regard by Ireland, submits, in essence, that a State can only renounce tax revenue if it is entitled to collect the corresponding contributions. In the present case, the excess profit corresponds to the profit generated by the corporate groups concerned and cannot, therefore, be attributed to the Belgian entities. For that reason, that profit does not fall within the tax jurisdiction of the Kingdom of Belgium, which would not be entitled to tax it.

27It should be recalled that it is settled case-law that the definition of ‘aid’ is more general than that of a subsidy, given that it includes not only positive benefits, such as subsidies themselves, but also State measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which thus, without being subsidies in the strict sense of the term, are similar in character and have the same effect as them. Accordingly, a measure by which the public authorities grant certain undertakings favourable tax treatment which, although not involving the transfer of State resources, places the recipients in a more favourable financial position than other taxpayers amounts to State aid within the meaning of Article 107(1) TFEU (see judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraphs 71 and 72 and the case-law cited).

28First, in recital 114 of the contested decision, the Commission claimed that the scheme at issue involved the exemption of excess profit, which constituted a reduction of tax for the undertakings benefiting from that scheme and, therefore, a loss of tax revenue that would otherwise have been available to the Kingdom of Belgium. Therefore, contrary to the Kingdom of Belgium’s contention, the Commission did in fact identify the State resources involved in the alleged aid scheme, namely the tax revenue which would have been available to the Kingdom of Belgium, according to the Commission, in the absence of that scheme.

29Secondly, under Article 185(1) of the CIR 92, the total amount of the recorded profit of resident companies is taxable in Belgium. Accordingly, that profit must be regarded as falling within the tax jurisdiction of the Kingdom of Belgium even if it may be adjusted, specifically under the Belgian tax rules applicable, such as Article 185(2)(b) of the CIR 92.

30Thirdly, in so far as the present case concerns tax charge reductions that were granted by the Advance Ruling Commission, admittedly in accordance with an administrative practice, but only in response to a request made by the beneficiary, it cannot be maintained that the exempted profit was, fundamentally, profit that was not taxable in Belgium. In fact, in the absence of a request in that regard, that profit would have been taxed in Belgium. Accordingly, the Kingdom of Belgium cannot maintain that that profit does not fall within its tax jurisdiction.

31Fourthly, contrary to Ireland’s contention, it must be noted that the reason why the Commission found that State resources were involved in the present case is precisely that, under the ordinary system of taxation of corporate profits in Belgium, which includes Article 185(1) of the CIR 92, the total amount of profit recorded by resident companies is, fundamentally, taxable in Belgium. Thus, it is by taking into account the choice made by the Belgian legislature, in the exercise of the tax jurisdiction of the Kingdom of Belgium, that the Commission was able to conclude that, to the extent that the excess profit was not taxed, when it was fundamentally taxable profit, such non-taxation resulted in a loss of resources that belonged to that State.

32In the light of the above, the Court must reject the arguments of the Kingdom of Belgium, supported by Ireland, challenging the Commission’s conclusion as to the financing of the scheme at issue through State resources.

33The Kingdom of Belgium disputes the Commission’s findings concerning the existence of an advantage granted by the scheme at issue and its selectivity. More specifically, as regards selectivity, in reliance on the case-law concerning assessment for the purposes of classifying a tax measure as ‘selective’, the Kingdom of Belgium challenges the Commission’s identification of the reference system, that is to say, the ordinary or ‘normal’ tax system applicable, its finding that the scheme at issue constitutes a derogation from that reference system, and its rejection of the Kingdom of Belgium’s justification for the scheme, based on the nature and general scheme of the Belgian tax system.

34In this case, it is appropriate to begin by examining the Kingdom of Belgium’s arguments challenging the identification of the reference system against which the existence or non-existence of an advantage must be assessed, as well as the possible selectivity of such an advantage. The Court will then go on to consider the Kingdom of Belgium’s arguments challenging the Commission’s findings in relation to both the existence of an advantage and the selective nature of that advantage because of the existence of a derogation from the reference system and, also, in relation to the lack of justification based on the nature and general scheme of the Belgian tax system.

(a) Identification of the reference system

35The Kingdom of Belgium submits, in essence, that the Commission erred in identifying the reference system, because it failed to take into account the fact that that system also included the excess profit scheme. The Kingdom of Belgium further maintains that the Commission erred in law by invoking Article 24 of the CIR 92, relating to the taxable income of natural persons, which is not, as regards the determination of taxable profit, entirely applicable to companies that belong to an international group.

36Ireland submits that the Commission did not take into account the rules applicable in Belgium, although the reference system cannot extend beyond the national tax system and each State has absolute discretion to define the tax base within its system. Accordingly, it is not relevant how the profits from a transaction would be treated in other tax systems.

37It must be recalled that the determination of the reference system is of particular importance in the case of tax measures, since the existence of an economic advantage for the purposes of Article 107(1) TFEU may be established only when compared with ‘normal’ taxation. Thus, determination of the set of undertakings which are in a comparable factual and legal situation depends on the prior definition of the legal regime in the light of whose objective it is necessary, where applicable, to examine whether the factual and legal situation of the undertakings favoured by the measure in question is comparable with that of those which are not (see judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission, C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 69 and the case-law cited).

38In that context, it has been held that the determination of the reference system, which must be carried out following an exchange of arguments with the Member State concerned, must follow from an objective examination of the content, the structure and the specific effects of the applicable rules under the national law of that State (see judgment of 6 October 2021, World Duty Free Group and Spain v Commission, C‑51/19 P and C‑64/19 P, EU:C:2021:793, paragraph 62 and the case-law cited).

39In addition, it is apparent from settled case-law that, while the Member States must thus refrain from adopting any tax measure liable to constitute State aid that is incompatible with the internal market, the fact remains that outside the spheres in which EU tax law has been harmonised, it is the Member State concerned which determines, by exercising its own competence in the matter of direct taxation and with due regard for its fiscal autonomy, the characteristics constituting the tax, which define, in principle, the reference system or the ‘normal’ tax regime, from which it is necessary to analyse the condition relating to selectivity. This includes, in particular, the determination of the basis of assessment and the taxable event (see judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission, C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraphs 65 and 73 and the case-law cited).

40It follows that only the national law applicable in the Member State concerned must be taken into account in order to identify the reference system for direct taxation, that identification being itself an essential prerequisite for assessing not only the existence of an advantage, but also whether it is selective in nature.

41Furthermore, in order to determine whether a tax measure has conferred a selective advantage on an undertaking, it is for the Commission to carry out a comparison with the tax system normally applicable in the Member State concerned, following an objective examination of the content, the structure and the specific effects of the applicable rules under the national law of that State. Parameters and rules external to the national tax system at issue cannot therefore be taken into account in the examination of the existence of a selective tax advantage within the meaning of Article 107(1) TFEU and for the purposes of establishing the tax burden that should normally be borne by an undertaking, unless that national tax system makes explicit reference to them (see, to that effect, judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission, C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraphs 92 and 96).

42In the present case, the Commission set out in recitals 121 to 129 of the contested decision its position concerning the reference system.

43Thus, in recitals 121 and 122 of the contested decision, the Commission stated that the reference system was the ordinary system of taxation of corporate profits under the general Belgian corporate income tax system, which had as its objective the taxation of profit of all companies subject to tax in Belgium. The Commission noted that the Belgian corporate income tax system applied to companies resident in Belgium as well as to Belgian branches of non-resident companies. Under Article 185(1) of the CIR 92, companies resident in Belgium were liable to corporate income tax on the total amount of their profit, unless a double taxation treaty applied. Moreover, under Articles 227 and 229 of the CIR 92, non-resident companies were only taxable on specific Belgium-sourced income. The Commission also stated that, in both cases, Belgian corporate income tax was payable on the total profit, which was established according to the rules on calculating profit as defined in Article 24 of the CIR 92. Under Article 185(1) of the CIR 92, read in conjunction with Articles 1, 24, 183, 227 and 229 of the CIR 92, the total profit was calculated as corporate income, minus deductible expenses which were typically recorded in the accounts, so that the profit actually recorded formed the starting point for calculating the total taxable profit, without prejudice to the subsequent application of upward and downward adjustments provided for by the Belgian corporate income tax system.

44In recitals 123 to 128 of the contested decision, the Commission explained that the excess profit exemption scheme applied by the Belgian tax authorities was not an inherent part of the reference system.

45More specifically, in recital 125 of the contested decision, the Commission found that that exemption was not prescribed by any provision of the CIR 92. Article 185(2)(a) of the CIR 92 allowed the Belgian tax administration to make a unilateral primary adjustment of a company’s profits where transactions or arrangements with associated companies were concluded on terms that differed from arm’s length conditions. By contrast, Article 185(2)(b) of the CIR 92 provided for the possibility of making downward adjustments of a company’s profit from an intra-group transaction or arrangement, subject to the additional condition that the profit to be adjusted had to have been included in the profit of the foreign counterparty to that transaction or arrangement.

46In addition, in recital 126 of the contested decision, the Commission recalled that the objective of the Belgian corporate income tax system was to tax corporate taxpayers on their actual profits, irrespective of their legal form or size and of whether or not they formed part of a multinational group of undertakings.

47Furthermore, in recital 127 of the contested decision, the Commission noted that, for the purposes of determining taxable profit, integrated multinational group companies were required to set the prices they applied to their intra-group transactions instead of those prices being dictated by the market, which is why Belgian tax law contained certain special provisions applicable to groups, which were generally aimed at putting non-integrated companies and economic entities structured in the form of groups on an equal footing.

48In recital 129 of the contested decision, the Commission concluded that the reference system to be taken into consideration was the Belgian corporate income tax system, which had as its objective the taxation of profits of all companies resident or operating through a permanent establishment in Belgium in the same manner. That system included the applicable adjustments under the Belgian corporate income tax system, which determined the company’s taxable profit for the purpose of levying Belgian corporate income tax.

49It should be noted at the outset that the parties are agreed on the starting point: that the ordinary Belgian corporate income tax system constitutes the reference system.