Capsugel, BASF, Omega Pharma among firms to benefit from contested tax scheme

Capsugel takes Commission to EU court over ‘illegal’ tax scheme demands

By Annie Harrison-Dunn contact

- Last updated on GMT

Capsugel and others have taken action against the Commission for a ruling that meant an estimated €700 million in unpaid taxes would have to be returned to the Belgian taxman. ©iStock/PiotrAdamowicz
Capsugel and others have taken action against the Commission for a ruling that meant an estimated €700 million in unpaid taxes would have to be returned to the Belgian taxman. ©iStock/PiotrAdamowicz

Related tags: European union

Capsule manufacturer Capsugel and at least six other companies have taken the European Commission to EU court over the ruling that a Belgian ‘excess profit’ tax scheme was illegal.

In January the Commission concluded that generous selective tax advantages granted by Belgium under its ‘excess profit’ tax scheme were illegal under EU state aid rules.

It said the scheme had benefitted at least 35 multinationals “mainly from the EU”​, and ordered the companies to return the estimated total of €700 million in unpaid taxes to the Belgian taxman.

According to Commission documents​, Capsugel negotiated a 60-80% net profit before tax (NPBT) exemption with the Belgian government. 

UK healthcare company Omega Pharma and German chemical giant BASF were other nutrition industry names that benefited from the scheme, with Omega Pharma negotiating a NPBT exemption of 40-60% and BASF's exemption undisclosed. 

Capsugel said it does not comment on pending litigation as a matter of policy.

NutraIngredients was awaiting comment from Omega Pharma and BASF at the time of the publication of this article.

A statement from BASF received after publication can be seen HERE​. 

US-headquartered Capsugel is now challenging the Commission on the decision along with six other companies. 

According to a filing with the European General Court​, Capsugel claims the Commission committed an error of law and a manifest error of assessment” ​in its ruling on the tax scheme and “failed to state the reasons”​ for its decision.  

Companies charge against Commission

In May alone six other companies filed action against the Commission in joint and individual cases.

The EU’s Official Journal of the European Union shows a joint case​ from Belgian bakery firm Puratos, lighting company Delta Light and hygiene products manufacturer Ontex; a lone case​ from Belgian adhesive manufacturer Soudal; a case​ from Swedish industrial company Atlas Copco Airpower and Atlas Copco AB and finally one from Dutch manufacturing firm Magnetrol International​.

A spokesperson for the Commission told us: "All European Commission decisions are subject to the scrutiny of EU courts. The Commission stands by its decision and will defend it in Court."

The issue with scheme

The Commission said at the time of its ruling that the Belgian ‘excess profit’ tax scheme applicable since 2005 was so generous it constituted as state aid.

The ruling was the result of an in-depth investigation opened in February 2015​ ​showing the scheme derogated from normal practice under Belgian company tax rules and the so-called "arm's length principle".

This is illegal under EU state aid rules.

"Belgium has given a select number of multinationals substantial tax advantages that break EU state aid rules. It distorts competition on the merits by putting smaller competitors who are not multinational on an unequal footing,” ​competition commissioner Margrethe Vestager said in a statement at the time.

“There are many legal ways for EU countries to subsidise investment and many good reasons to invest in the EU. However, if a country gives certain multinationals illegal tax benefits that allow them to avoid paying taxes on the majority of their actual profits, it seriously harms fair competition in

belgian tax

the EU, ultimately at the expense of EU citizens."

Paying the tax man

The tax breaks – marketed by the Belgian tax authority under the logo ‘Only in Belgium’ – benefited certain multinational groups only, not stand-alone companies solely active in Belgium.

The amount was calculated by comparing the actual recorded profit of a multinational with the hypothetical average profit a stand-alone company in a comparable situation would have made.

The scheme was based on the premise that multinationals make ‘excess profit’ as a result of things like economies of scale, reputation and supplier networks.

It typically reduced corporate tax by between 50% and 90% and was valid for four years with possible renewal. 

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