2003/755/EC: Commission Decision of 17 February 2003 on the aid scheme implemented by Belgium for coordination centres established in Belgium (Text with EEA relevance.) (notified under document number C(2003) 564)
Date: 2003-02-17
Institutions: European Commission
Subjects: Belgium, State aid, business management, control of State aid, corporation tax, multinational enterprise, single market, tax system

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COMMISSION DECISION

of 17 February 2003

on the aid scheme implemented by Belgium for coordination centres established in Belgium

(notified under document number C(2003) 564)

(Only the French and Dutch texts are authentic)

(Text with EEA relevance)

(2003/755/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, and in particular the first subparagraph of Article 88(2)
thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on the interested parties to give their views
pursuant to the abovementioned provisions (1), and having
regard to their comments,

Whereas:

I. PROCEDURE

(1)

In 1997 the Council
(Ecofin) approved a code of
conduct for business taxation (2) to tackle harmful tax
competition and set up an ad hoc group to examine the
tax measures to which the code of conduct applies.
Following the undertaking in the code of conduct, the
Commission issued a Notice in 1998 on the application
of the state aid rules to measures relating to direct
business taxation (3), in which it affirmed its commit-
ment to the strict application of the rules according to
the principle of equality of treatment. Against this
background, the Commission, acting in accordance with
the state aid rules, began its examination of the measures
identified by the code of conduct group as harmful. The
Commission would stress here the parallels between the
work of the code of conduct group and the Community’s
policy on state aid, both of which are aimed at eliminat-
ing those measures that distort or threaten to distort
competition in the common market. The Commission

(2)

(3)

also notes the progress that has already been made
towards this goal of eliminating harmful tax compe-
tition, and in particular the steps taken by the Member
States to abolish the measures identified by the code of
conduct group as harmful, or at least to remove the
harmful aspects of such measures.

For further details of the procedural steps that preceded
the Commission’s decision of 27 February 2002 to
initiate the formal investigation procedure, the Com-
mission would refer to the letter it sent to Belgium on
this occasion (letter initiating the procedure) (4).

To recapitulate: Royal Decree No 187 of 30 Decem-
ber 1982 provides for a tax scheme for approved
coordination centres that derogates from ordinary tax
law. On 2 May 1984 the Commission decided that it did
not object to Royal Decree No 187 in the form it would
take after amendment by the bill submitted to it by the
Belgian Government on 3 April 1984. The Belgian
Government was notified of this decision. However,
the amendments actually introduced by the Belgian
Government did not correspond to the bill submitted
to the Commission. The Commission consequently
initiated a formal investigation procedure on 12 Decem-
ber 1985. Following amendments proposed by the
Belgian Government and enacted on 4 August 1986, the
Commission informed Belgium on 9 March 1987 that it
had closed the procedure in the light of the amendments
made by Belgium in order to make the aid scheme
compatible with Article 92 of the EC Treaty (now
Article 87).

(1) OJ C 147, 20.6.2002, p. 2.
(2) OJ C 2, 6.1.1998, p. 2.
(3) OJ C 384, 10.12.1998, p. 3.

(4) See footnote 1.

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(4) On 1 December 1997 the Council adopted a Code of
conduct for business taxation and asked the Commission
to examine or re-examine the tax measures in force
in the Member States. On 11 November 1998 the
Commission issued a Notice on the application of the
State aid rules to measures relating to direct business
taxation (the Notice).

stating that these were not comments within the mean-
ing of Article 88(2) of the EC Treaty but arguments
within the meaning of Article 19(2) of Regulation (EC)
No 659/1999 relating to the measures proposed by the
Commission.

(5)

Having sent a request for information to the Belgian
authorities on 12 February 1999,
the Commission
announced on 17 July 2000 that the scheme probably
now had to be considered as state aid. It then initiated
the cooperation procedure applicable to existing aid
schemes under Article 17(2) of Council Regulation (EC)
No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (5),
by calling on the Belgian authorities to submit their
comments. The Belgian authorities criticised the pro-
cedure and demanded that the cooperation stage be
launched by the Members of the Commission, acting as
a body, rather than by the Commission departments.
The Commission contested this approach.

(6) On 11 July 2001 the Commission wrote to Belgium (6)
proposing appropriate measures to make the scheme
compatible with the rules on State aid. The Belgian
authorities sent their comments in a letter of 19 Septem-
ber 2001, informing the Commission that these com-
ments were not to be construed either as an acceptance
or as a rejection of the proposed measures.

(7)

(8)

In the absence of an explicit acceptance of the measures
within the specified time limit, and in the light of the
comments made by the Belgian authorities in their
letter of 19 September, the Commission decided on
27 February 2002 to initiate the procedure referred to
in Article 88(2) of the EC Treaty, in accordance with
Article 19(2) of Regulation (EC) No 659/1999. The
Commission informed Belgium of this decision by letter
of 1 March 2002 (7).

original one-month

The
been
extended (8), the Belgian authorities notified the Com-
mission of their position by letter of 12 April 2002,

deadline

having

(5) OJ L 83, 27.3.1999, p. 1.
(6) Letter SG(2001) D/289723.
(7) See footnote 1.
(8) Request of 27 March 2002 (A/32428).

(9)

By letter of 16 May 2002 Belgium communicated the
text of a preliminary draft bill amending Royal Decree
No 187. The amendments made to the Royal Decree by
this text are the subject of a separate procedure (9).

(10) After meetings with the Belgian authorities on 26 June
and 3 July 2002, the Commission asked Belgium for
further information about both the scheme currently in
force and the draft new scheme that had been noti-
fied (10). After an extension of the original deadline the
Belgian authorities replied by letter of 30 August 2002.

(11) The Commission’s decision to initiate the procedure
was published in the Official Journal of the European
Communities (11). The Commission asked the interested
parties to make known their views on the measure in
question. The Commission received comments on the
subject from 90 interested parties, which it then forward-
ed to Belgium by letters of 24 September and 8 Novem-
ber 2002 (12). Belgium responded by letters of 16 Octo-
ber and 16 December 2002.

II. DESCRIPTION
OF THE MEASURES INVESTIGATED

(12) The tax scheme for coordination centres is based on
Royal Decree No 187 of 30 December 1982. The Royal
Decree was supplemented by the Law of 11 April 1983,
the Royal Decree of 20 December 1984 and the Law of
28 December 1992, and has also been repeatedly
amended (13). The scheme has applied in its present form
since 1 January 1993. A general explanation by the
tax administration is contained in Circular CI.RH.421/
439.244 of 29 November 1993.

(9) The scheme notified is registered under number N351/2002.
(10) Letter COMP D/53779 of 18 July 2002.
(11) See footnote 1.
(12) Letters COMP D/55338 and D/56352.
(13) Law of 27 December 1984, Law of 4 August 1986, Royal Decree
of 3 November 1986, Law of 28 December 1990, Law of
23 October 1991 and Law of 4 April 1995.

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(13) A coordination centre qualifies for the scheme if it has
been individually approved by Royal Decree. In order to
qualify for approval a coordination centre must, under
Royal Decree No 187, be part of a group with a
multinational character (14) and have capital and reserves
of at least BEF 1 billion and an annual consolidated
turnover of at least BEF 10 billion. Only certain types
of preparatory, ancillary or centralisation work are
allowed (15), and firms in the financial sector (credit,
banking, insurance) do not qualify. Finally, coordination
centres must employ at least the equivalent of 10 full-
time staff in Belgium by the end of their first two years
in business.

(16) The coordination centre’s taxable profits may not,
however, be less than the total of the expenditure or
charges that are not deductible as business costs (‘non-
deductible expenditure’) and the exceptional or gratu-
itous advantages extended to the centre by members of
the group (‘alternative tax base’).

(17) The profits of coordination centres are taxed at the

standard rate of corporation tax.

(14) The approval of the coordination centre is valid for
10 taxable periods from the taxable period in which the
application for approval is made. Since the adoption of
the Law of 23 October 1991 the approval may be
renewed under the same conditions as those that applied
to the original approval.

(15) Royal Decree No 187 derogates from the ordinary tax
system by providing for the taxable income of approved
coordination centres to be assessed at a flat rate that
corresponds
to a percentage of expenditure and
operating costs (the ‘cost plus’ method). The calculation
is based on all the centre’s costs excluding staff costs,
financial charges and corporation tax. The profit margin
must in principle be calculated case by case, taking into
account the work actually carried out by the centre. If
the centre itself charges for some of its services at a rate
that corresponds to the costs plus a percentage for
profits, the same percentage can be used for the profit
margin, provided this is not abnormal. In the absence of
any objective criteria for determining the percentage of
profits to be taken into account the rate is set at 8 %.

(14) Multinational character is determined on the basis of

the
following criteria: establishment (subsidiaries in at least four
countries), turnover achieved abroad and capital invested abroad.
The requirement that
the multinational group must pursue
activities in at least four countries was introduced by the Law of
4 August 1986.

(15) Advertising, supplying and collecting information,

insurance
and reinsurance, scientific research, contacts with national and
international authorities, centralisation of activities in the area of
accounts, administration and data processing, centralisation of
transactions and hedging of risks associated with
financial
exchange rate fluctuations, as well as all ancillary or preparatory
work for the companies in the group.

(18) Under the Law of 11 April 1983 coordination centres
are exempt from property tax (onroerende voorheffing/
précompte immobilier) on buildings they use for business
purposes. The law also exempts them from registration
duty (registratierecht/droit d’enregistrement) of 0,50 % on
contributions and capital
increases. Lastly, dividends,
interest and royalties paid by coordination centres
are exempt from withholding tax (roerende voorheffing/
précompte mobilier) under the Law of 11 April 1983,
except, in the case of interest, if the recipient is subject
to tax on natural persons or tax on legal persons.

(19) As a result of the amendments introduced by the Royal
Decree of 20 December 1984, Article 110(6) of the
Royal Decree implementing the 1992 Income Tax Code
states that income received by the coordination centres
from their cash deposits is also exempt from withholding
tax.

(20) The exemption from withholding tax was accompanied
by a notional withholding tax on the payments made by
the centres. The tax is notional in the sense that the
recipients of the income paid by the centres receive the
full amount, without deduction of a tax, but are entitled
to offset the notional amount of tax against their final
tax bill. According to the Belgian authorities the notional
withholding tax is no longer applied to the interest paid
by the centres, on the basis of agreements concluded
since 24 July 1991, or to dividend payments with effect
from the same date or to royalties paid or assigned since
1 January 1986.

(21) The Law of 28 December 1992 introduced an annual
tax on coordination centres with effect from 1 January
1993, amounting to EUR 10 000 (BEF 400 000) per

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full-time member of staff employed by a coordination
centre, up to a maximum of
EUR 100 000
(BEF 4 000 000) per centre.

IV. COMMENTS OF THE BELGIAN AUTHORITIES
AND INTERESTED PARTIES

(22) According to the Belgian authorities the scheme applies
to around 250 approved centres and financial flows of
billions of euros.

III. REASONS FOR INSTITUTING
THE FORMAL PROCEDURE

(23) The Commission took the view that the coordination
centres probably enjoyed a specific advantage because
the cost-plus method was applied only to them. Given
that significant costs — financial charges and staff costs
— were excluded from the calculation of the tax base,
and the profit margin was generally set at 8 %, regardless
of the nature of the work performed, it seemed unlikely
that the taxable income calculated in this way would be
comparable to what would have been obtained using
the normal method that applies under ordinary tax law
and is based on the difference between assets and
liabilities. This method did not, therefore, appear to
comply with the guidelines laid down by the Organis-
ation for Economic Cooperation and Development
(OECD) in its reports on the cost-plus method.

The Commission also held that the coordination centres
and the groups to which they belonged probably
received a specific advantage in that the exemptions
from property tax, withholding tax and registration duty
on capital injections went beyond the exemptions to
which all firms were entitled on the basis of the ordinary
tax system.

Finally, the Commission held that these specific advan-
tages did not appear to be justified by the nature or
structure of the Belgian tax system and could lead to
competition being distorted and trade between the
Member States being adversely affected. The measures
in questions should therefore probably be regarded as
aid within the meaning of Article 87(1) of the EC Treaty.
Moreover, given that the exceptions provided for in
Article 87(2) and (3) of the EC Treaty did not apply, the
Commission concluded at this stage that such an aid
measure was probably incompatible with the common
market.

(24) Despite the objections by the Belgian authorities (16), the
Commission does regard the remarks they made in their
letter of 12 April 2002 as comments within the meaning
of Article 88(2) of the EC Treaty.

(25) Three associations or federations submitted comments
on behalf of the firms they represent. They were the
Verbond van Belgische Ondernemingen (VBO) (Federation
of Enterprises in Belgium), the American Chamber of
Commerce (AmCham) and Forum 187, the federation
of coordination centres, distribution centres, service
centres and call centres located in Belgium. Forum 187’s
comments, like those of the Belgian Government, are
intended to highlight irregularities in the procedure
followed by the Commission and to refute the allegation
that the scheme involves aid incompatible with the
common market. Its arguments also seek to show that
the withdrawal of the favourable decisions of 1984 and
1987 contravenes the fundamental principles of Com-
munity law, founded on legal certainty and legitimate
expectation.

(26) Apart from these three associations, 87 centres or
groups which have such centres sent comments to the
Commission individually. The centres generally describe
their own situation as regards date of approval, staff
complement
then endorse
investment
Forum 187’s comments. The list of the 53 interested
parties that did not ask to remain anonymous in order
to conceal their identity from the Belgian state appears
in the annexe to this decision.

and

and

IV.1. Procedure

(27) The Belgian authorities stand by their refusal to accept
the legal base invoked by the Commission for classifying
the scheme as existing aid and their view that the chosen
procedure was not then complied with. Forum 187,
which represents the approved centres, denies the exist-
ence of any legal base and accordingly calls on the
Commission to abandon its action. The following argu-
ments are put forward in support of these views.

(16) See recital (8).

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(28)

the Commission cannot

Firstly,
legitimately invoke
Article 1(b)(v) of Regulation (EC) No 659/1999 as the
legal base for its action because this requires the
Commission to produce evidence that the scheme did
not constitute aid when it entered into force but
subsequently became aid because of the evolution of the
common market. The Commission, however, has not
proved that such an evolution took place. No other
provision of Regulation (EC) No 659/1999 allows the
procedure for existing aid schemes to be applied in the
event of the Commission, having initially thought that a
particular measure did not constitute aid, changing its
mind and stating that
the scheme does, after all,
constitute aid within the meaning of Article 87 of the
EC Treaty. The Commission cannot, therefore, apply the
Procedure regarding existing aid schemes in Chapter V
of the said Regulation.

(29) Secondly, only under strict conditions may the Com-
mission withdraw or amend an unlawful favourable
decision with retroactive effect. It must, for example,
allow a reasonable length of time and must first produce
evidence of the unlawfulness of the decision in question.
Moreover, it must respect the legitimate expectation of
the interested parties. Under the procedure followed by
the Commission these conditions have not been met,
with the result that there is no legal base for withdrawing
the scheme.

(30) Thirdly, having itself chosen the procedure relating to
existing aid schemes, the Commission is not complying
with it. Because of the legal and economic importance
of classifying a scheme as aid, such a value judgment is
not the responsibility of the Commission departments
but of the Members of the Commission acting as a body.
The cooperation phase was therefore not properly
launched by the letter of 17 July 2000 from the services
the Competition Directorate-General. Only the
of
decision of the Members of the Commission of 11 July
2001 (17) can initiate this stage, with the result that in
this case a step in the procedure relating to existing
aid schemes was omitted. The Commission did not,
therefore, initiate the procedure in a valid way. For this
reason Belgium states that its letter of 12 April 2002
contains arguments relating to the appropriate measures
proposed rather than comments on the initiation of the
procedure.

(17) Proposal for appropriate measures.

IV.2. Aid character of the scheme

(31) Both the Belgian authorities and the interested parties
that submitted comments argue that the scheme for the
coordination centres satisfies none of the four criteria
for classifying a measure as State aid.

IV.2.1.

Economic advantage

(32)

In the first place certain interested parties point out that
the advantages arising from coordination centres are the
result of economies of scale that can be attributed to the
centralisation of certain horizontal activities within the
group, and that their decision to set up a centre in
Belgium was not influenced by tax measures that were
perceived as more favourable. In this connection they
refer to the existence of alternative locations with more
attractive tax regimes.

(33)

like the Belgian State, puts
In addition, Forum 187,
forward arguments relating to all of the individual
measures which were the subject of the procedure
initiated by the Commission on 27 February 2002.

IV.2.1.1.

E x e m p t i o n f r o m p r o p e r t y t a x

(34)

Firstly, the Commission has not shown that the tax
entails financial charges that are normally borne by
companies themselves. On the contrary, Belgian law
provides for numerous exemptions from property tax,
for example for companies based in employment areas
or areas undergoing industrial restructuring and for
innovative companies. Several regional decrees and
ordinances grant exemption from such taxes to promote
economic growth or restructuring. Given that
the
majority of companies based in Belgium consequently
benefit from some form of exemption from property
tax, this is not an advantage granted specifically to the
coordination centres.

(35) Secondly, only those centres that own the buildings
which they use can benefit from the tax advantage arising
from the exemption from property tax. According to
Forum 187, no more than 5 % of the centres are in this
situation.

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IV.2.1.2.

E x e m p t i o n f r o m c a p i t a l d u t y

(36)

Firstly, Belgium likewise denies that capital duty entails
financial charges that are normally borne by companies
themselves. In support of this claim it points out that
Belgian law provides for other exemptions from capital
duty, such as those extended to companies based in
employment areas and those connected with the award
of certain subsidies to promote investment and employ-
ment in Belgium. The majority of capital
injections
in Belgium consequently benefit from some form of
exemption, so this is not an advantage granted specifi-
cally to the coordination centres.

(37) Secondly, Article 7(1) of Council Directive 69/335/EEC
of 17 July 1969 concerning indirect taxes on the raising
of capital (18), as last amended by the Act of Accession
of Austria, Finland and Sweden, states that exemptions
that predate 1 July 1984 will be maintained. The
exemption provided for in Article 29 of the Law of
11 April 1983 dates from before this date. As regards
the possible application of Article 9 of the Directive, it
should be noted that because many other Member States
do not levy capital duty this exemption does not distort
competition conditions in the common market. As a
result, neither Article 102 of
the EC Treaty (now
Article 97), that provides for consultation of the Com-
mission, nor Article 9 of the Directive, that refers to the
provision of the Treaty, is applicable in this case. The
conditions laid down in the Directive for granting and
maintaining this exemption were in any case fulfilled.

IV.2.1.3.

E x e m p t i o n
t a x

f r o m w i t h h o l d i n g

(38)

Firstly, the application of withholding tax may not be
regarded as a firm rule of the ordinary Belgian tax
system: there are so many exceptions that the majority
of financial flows are unaffected by this rule. In support
of this assertion, the Belgian authorities list numerous
exemptions from the withholding tax on dividends and
interest, some of which they claim are closely related to
the exemptions granted to coordination centres, in the
sense that it is always income paid to non-residents that
benefits from the exemption. According to Forum 187,

(18) OJ L 249, 3.10.1969, p. 25.

any Belgian firm can avoid the deduction of withholding
tax as a ‘professional investor’ (19). Coordination centres
are professional investors and thus automatically exempt
from withholding tax. In addition, the vast majority of
interest payments to non-residents are usually exempt
from withholding tax. The scheme is thus presented as a
simplification on the grounds that the centres only
carry out transactions within the group. The Belgian
authorities had earlier cited the Commission’s support
for the abolition of all forms of deduction at source.
They accuse the Commission of being inconsistent in
objecting in this case to an exemption from deductions
at source.

(39) Secondly, contrary to what the Commission asserts, the
exemption from withholding tax does not allow those
receiving income from movable property the oppor-
tunity to pay the tax later. To compensate for the fact
that no tax is deducted at source they have to make
higher payments in advance (in the form of advances
against the tax to be levied later).

(40) Thirdly,

it is wrong to assert that exemption from
withholding tax automatically leads to a complete
absence of taxation if the withholding tax constitutes
the definitive tax. Belgium has avoided this by stipulating
that the exemption only applies if the recipient of the
interest payments is known and is not subject to tax on
natural or legal persons, the only taxpayers for whom
withholding tax is a definitive tax.

(41)

Fourthly, in the case of the exemption from withholding
tax on interest on deposits received by the coordination
centres, the Commission has a mistaken perception of
the Belgian system, which grants this exemption to
all companies in their role as ‘professional investors’.
Coordination centres are not, therefore, given preferen-
tial treatment compared to other companies.

IV.2.1.4. N o t i o n a l w i t h h o l d i n g t a x

(42) The notional withholding tax was reduced to zero in
1991, with the result that the Commission’s concern
about this measure is misplaced.

(19) Article 105(3) of RD/ITC92 refers to ‘professional investors’ and
three other categories of taxpayers that are eligible for exemption
‘semi-public
‘financial
from withholding tax,
organisations in the field of social security’ and ‘non-resident
savers’.

institutions’,

i.e.

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IV.2.1.5.

F l a t - r a t e
( c o s t - p l u s )

i n c o m e

a s s e s s m e n t

and Germany. Consequently, Forum 187 argues that no
advantage is obtained at the level of the group.

(43)

Firstly, the cost-plus method is strongly advocated by
OECD for determining the transfer prices for services
within a group. The exclusion of certain costs and
expenditure from the basis for assessment is compatible
with OECD guidelines, which state that it is not always
necessary to add a profit margin in order for the price to
satisfy competition requirements (‘at arm’s length’).
Moreover, when determining transfer prices, the Belgian
administration must base itself on the OECD reports (20).
In addition, according to the OECD principles, expendi-
ture made in a particular country via an entity that is
not a permanent establishment or subsidiary is normally
deductible for the entities for which the expenditure was
made. In that case there is no intermediation margin.

(44) Thirdly, the use of a single rate of 8 % is justified because
this is the rate that was applied even before the
introduction of the scheme for coordination centres for
determining the taxable income of Belgian establish-
ments of foreign companies. Another argument used is
that the Belgian administration also applies flat-rate
percentages for the profit margin of certain categories of
the self-employed. The Commission’s criticism of the
use of a flat-rate percentage ignores the reality of the
situation, which is that this has been administrative
practice since 1964 and is an integral part of the Belgian
tax system.

(45)

cost-plus method and the

Fourthly, the scheme is disadvantageous compared to
the ordinary tax system if the centre’s operating results
show a loss. In that case the centres have to pay both
tax on a notional flat-rate income obtained by applying
the
tax of
EUR 10 000 per employee (21), whereas they would not
have been liable for any tax under the normal method.
Moreover, any understatement of the tax to be paid by a
centre in Belgium would automatically be offset at the
level of the parent company of the multinational group
when it paid tax on its worldwide income. Examples are
cited of parent companies in the United States, Finland

flat-rate

(46)

Fifthly, no advantage is gained from excluding staff
costs, because this is offset by the flat-rate levy on the
first 10 employees. This personnel tax is equivalent to
8 % of an amount comparable to the amount of the staff
costs excluded from the calculation. The exclusion of
financial costs is justified because if they were subject to
tax the result would be a level of taxation that exceeded
the income that the centre receives as its intermediation
margin.

(47) Sixthly, the alternative basis of assessment described in
recital 16 is not a theoretical basis but often serves as
the actual tax base.

IV.2.2. Use of state resources

(48) No state resources are involved in implementing the
scheme for coordination centres. Indeed, the introduc-
tion of the scheme has attracted centres to Belgium and
thus contributed to Belgian State resources.

(49) Moreover, the majority of companies established in
Belgium benefit from one or other exemption from
withholding tax, property tax and capital duty. The
Belgian state is not, therefore, renouncing any extra tax
revenue.

IV.2.3. Distortion of competition and adverse effect on trade

between the Member States

(50)

Firstly, the arguments put forward in support of the
Commission’s decision to initiate the procedure are
superficial and theoretical. No concrete evidence is
provided that competition has been distorted and trade
the Court
adversely affected. Citing a judgment of
of Justice of the European Communities (22), Belgium
considers the failure to provide adequate reasons as
sufficient grounds for annulment.

(51) Secondly, it is wrong to ignore the tax systems of the
other Member States. The Commission’s position that
the scheme in question should be examined solely in
the context of the ordinary tax legislation currently
applicable in Belgium is unacceptable. For example, the
exemptions from property tax, withholding tax and

(20) See No 26/48 of

the Commentaar van het Wetboek van de
Inkomstenbelastingen 1992 (commentary on the Income Tax
Code) (Com.ITC).

(21) See recital (21).

(22)

Joined cases C-15/98, Italian Republic v Commission and C-105/
99 Sardegna Lines v Commission [2000] ECR I-8855.

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capital duty cannot have an adverse effect on trade
between the Member States because taxes of this sort
are not found in some — if not all — other Member
States. Nor is it apparent
from the Commission’s
analysis of the cost-plus method used in Belgium in
what way this method is more advantageous than
to
the methods applied in other Member States
constructions comparable to coordination centres. The
advantages extended to the coordination centres exist
in many other countries too, and the Commission has
thus been unable to demonstrate that competition and
trade between the Member States have been adversely
affected. The Commission should have produced hard
evidence of such adverse effects.

In so doing it

(52) Thirdly, the Commission asserts on purely theoretical
the presence of Belgian coordination
grounds that
centres within multinational groups adversely affects
competition and trade.
ignores
the economic reality that
tendency to
the general
concentrate
service provision within a group in
coordination-centre-type entities is justified by the
reduction in costs achieved through economies of
scale. According to Forum 187, all multinationals have
a unit
such
financing, accounts and
as cash-flow management,
personnel management for the companies within the
group. All of these multinationals are free to set up a
centre in Belgium or elsewhere. There is therefore no
question of competition being distorted.

centralising activities

responsible for

(53)

Fourthly, it is argued that even if the centres were in
a privileged financial situation, competition on the
financial market would not be affected because the
financial
institutions determine the conditions they
offer on the basis of an independent analysis of the
situation of a group, without taking into account the
existence of a coordination centre and the advantages
that might arise
tax schemes.
Moreover, the banks base themselves on the reference
rates (LIBOR, EURIBOR, etc.) on which the centres
have absolutely no influence.

from any special

IV.2.4.

Selectivity/specificity of the measure

manner. For example, the fact that approved centres
are not allowed to engage in insurance or reinsurance
activities is solely due to insurance legislation, which
does not permit
insurance companies to undertake
other activities, and not to any margin of discretion
exercised by the tax administration.

(55) Secondly,

the Belgian Government believes that the
Commission wrongly lays the burden of proof at its
door by requiring it to show that the measure is
justified by the nature or structure of the Belgian tax
system. The Commission is basing itself here on the
Notice. But a notice cannot impose a new obligation
on Member States. The onus is on the Commission to
demonstrate that the scheme cannot be justified by
the structure of the Belgian tax system.

J u s t i f i c a t i o n o n t h e
n a t u r e o r s t r u c t u r e o f t h e s y s t e m

g r o u n d s o f

t h e

(56)

Firstly, it is inherent in the nature of a tax system to
set limits on and conditions for the advantages and
disadvantages it offers. Contrary to the Commission’s
claim, the Belgian system is based on the principle
that companies, as ‘professional investors’, are exempt,
and not on the principle of systematic deduction of
tax at source (see recital 38). Withholding tax is
principally intended as a tax on natural and legal
persons who are then released from an obligation:
they are no longer required to declare the income
to
from movable property that has been subject
withholding tax, because this constitutes the definitive
tax on the income in question. The presentation of
the regulations that apply here in the form of a
principle followed by numerous exceptions reflects the
desire of the legislator to include these regulations in
a section of the 1992 Income Tax Code which is
common to the four types of tax that are levied (23).
According to Forum 187, it is inherent in the nature
of a tax system to establish principles and to
provide for exceptions to them. These exceptions will
necessarily benefit some companies more than others.
That does not mean that all of these exemptions have
to be regarded as state aid within the meaning of
Article 87(1) of
therefore
the EC Treaty.
inappropriate to apply the provisions of that article to
all of them.

is

It

(54)

Firstly, the Commission has not demonstrated that any
discretionary power can be exercised in granting the
advantages of
the
administration applies clear rules in a strictly uniform

the scheme. On the contrary,

(23) Tax on the income of resident natural persons, resident legal
persons, domestic companies and non-residents (subdivided
according to whether the taxpayer is a natural person or a
company).

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(57) Secondly,

the Belgian authorities use a numerical
example to demonstrate that companies in general —
and coordination centres in particular — should be
exempt from withholding tax because they carry out a
very large number of financial transactions every year.
Without the exemption, the total amount of withholding
tax deducted would exceed the amount of tax due over
the whole year, with the result that the Belgian state
would be compelled to repay large sums to all companies
in the country. This applies a fortiori to the coordination
centres because of their activities in connection with the
centralisation of cash flow management (cash pooling).

(58) Thirdly, the exemption of the centres is justified because
of the risk of double taxation associated with withhold-
ing tax. Although excess withholding tax collected on
domestic transactions can be repaid, States rarely take
account of withholding taxes levied abroad. Moreover,
even though some States allow withholding tax levied
abroad to be offset against the taxes they levy, no State
goes so far as to repay withholding tax it has levied that
is in excess of the final tax liability.

(59)

Fourthly, the selectivity denounced by the Commission
is justified because the measure is solely intended for
companies that perform tasks normally carried out by a
head office. In this connection it is pointed out that this
selectivity is roughly the same as that in the tax regime
prescribed by Council Directive 90/435/EEC of 23 July
1990 on the common system of taxation applicable in
the case of parent companies and subsidiaries of different
Member States (24), as amended by the Act of Accession
of Austria, Finland and Sweden, (or by the proposal for
a Council Directive on a common system of taxation
applicable to interest and royalty payments made
between associated companies of different Member
States) (25). Finally, the general nature of the exemption
introduced in 1983 for income paid out by the centres
was justified at the time because these centres were
intended to promote new and unfamiliar forms of
financial transaction.
that point
whether the various exemptions provided would actually
apply to these new financial flows.

It was not clear at

IV.3. Compatibility with the common market

(60) The Belgian Government takes the view that if

the
scheme does qualify as aid it is compatible with the

common market under Article 87(3)(c) of the EC Treaty,
because it was introduced to promote investment and
employment in Belgium. In support of this it cites the
Report to the King that preceded Royal Decree No 187.

(61) The Commission questioned whether the exemption
from capital duty was compatible with the Community
provisions on the subject. Belgium asserts that all the
conditions and formalities required by Directive 69/
335/EEC were complied with and confirms that the
application of this exemption is consequently compat-
ible with Article 7 of the Directive, which states that
exemptions predating 1 July 1984 must be maintained.
The exemption provided for in Article 29 of the Law of
11 April 1983 dates from before that date.

IV.4.

Legitimate expectation

(62)

Firstly, the advantage of the scheme was granted in good
faith and entirely lawfully to the approved centres. The
centres may therefore invoke the principle of legitimate
expectation in order to benefit fully from the 10-year
approval that currently applies. This legitimate expec-
tation is based on the Commission decisions of 1984 and
1987 authorising the scheme and the answer to a
Parliamentary question given by the Member of the
Commission responsible for competition in 1990 (26),
confirming that the Commission had no objections to
the scheme in the light of the rules on State aid in force
at the time.

(63) Secondly, the Commission’s abrupt withdrawal of its
favourable decisions of 1984 and 1987 violates certain
fundamental principles of Community law, in particular
the principles of legal certainty and legitimate expec-
tation. Thus Forum 187, citing European case law,
stresses that there is a presumption of legality as regards
the Commission decisions, and the Commission must
state and explain its reasons for deciding that earlier

(24) OJ L 225, 20.8.1990, p. 6.
(25) OJ C 123, 22.4.1998, p. 9.

(26) Answer given on 12 July 1990 to Written Question No 1735/
90 from Mr G. de Vries to the Commission (OJ C 63, 11.3.1991,
p. 37).

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decisions were unlawful (Papiers Peints (27)). It must do
so within a reasonable time (Alpha Steel (28)). The
addressee of a decision must be able to ascertain what
obligations the decision imposes upon him (Gond-
rand (29) and Opel Austria (30)). The Commission was
criticised for differences in interpretation between a
decision of 1999 and five previous decisions concerning
the same company (Kvaerner Warnow (31)).
the
addressee of a decision fails to appeal within two months
the decision can no longer be contested, and the same
applies to the Commission because it declared that
the scheme did not constitute State aid. Finally, the
Commission, having approved a scheme, may not
investigate each of the separate measures approved
under this scheme (Italgrani (32)).

If

(64) Thirdly, if the Commission were to ban the scheme, the
centres — or the groups to which they belong — would
suffer significant losses if they were not able to take
advantage of the remaining period of their current
approval. These losses would result in particular from
the need to transfer the centres’ activities from Belgium
to a foreign country and to break the long-term contracts
with the staff, financial institutions (33) or owners of the
buildings they rent. As a result of the centre’s obtaining
important
approval, or having its approval renewed,
investments have been made by the group in order to
organise the centre’s activities and adapt the structure of
the group (34), with a view to centralising the activities
involved. The groups in question decided to set up their
centres in Belgium or to invest there in the legitimate
expectation that the scheme did not qualify as state aid
within the meaning of Article 87 of the EC Treaty and
that they would be able to take advantage of the scheme
for the full term of their approval, and even beyond it,
i.e. with a view to remaining operational in the long
term.

(65)

For these reasons Forum 187 believes that the Com-
mission cannot go back on its earlier decisions of
1984 and 1987 and should stop the procedure initiated
on 27 February 2002. The associations and centres that
expressed their views
separately demand acknowl-
edgement of the faith that they legitimately placed in
the legality of the approval granted by the Belgian
Government and in the maintenance of the effects of the
scheme until the end of the current approval period. The
last approvals to be renewed will expire on 31 December
2010.

(66) Certain centres are also demanding the renewal of their
approval for a further 10-year term once the present
term has expired.

V. REMARK BY THE BELGIAN AUTHORITIES
ON THE COMMENTS OF THE INTERESTED PARTIES

(67) Belgium notes that the many comments submitted are
indicative of a positive attitude to the scheme. The scale
of the investments made by the interested parties shows
the extent of their trust in the legal status of coordination
centres and the Belgian and EU decisions relating to
them. The Belgian authorities also note that none of the
parties from the business world involved have expressed
any negative views on the scheme, which, in their view,
confirms that it does not involve any distortion of
competition.

VI. EVALUATION OF MEASURES

VI.1. Procedure

(68) Belgium and Forum 187 have criticisms of the fact that
the measure was classed as existing aid, of the legal basis
which the Commission chose for taking action, and of
the procedure it has followed.

(27) Case 73/74 Papiers peints v Commission [1975] ECR 1491,

paragraph 31.

(28) Case 14/81 Alpha Steel v Commission [1982] ECR 749.
(29) Case 169/80 Gondrand v Commission [1981] ECR 1931,

paragraph 17.

(30) Case T-115/94 Opel Austria v Council

[1997] ECR II-39,

paragraph 124.

(31) Joined cases T-227/99 and T-134/00 Kvaerner Warnow Werft v

Commission [2002] ECR II-1205.

(32) Case C-47/91 Italy v Commission [1994] ECR I-4635, para-

graph 24.

(33) Banks, leasing companies, etc.
(34) Costs of computer network, software, financial circuits, etc.

(69) According to the Commission, the immediate legal basis
is Regulation (EC) No 659/1999. Its underlying legal
basis is provided by Articles 87 and 88 of the EC
Treaty, which underpin all State aid-related Commission
measures. Article 87 lays down the criteria for aid and
its compatibility with the common market. They are
objective criteria and the Commission has no room for
manoeuvre as regards their evaluation. If it can show
that an aid measure meets all the criteria laid down in
Article 87, it can prove that it is aid, even if a previous

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decision states the contrary. Regulation (EC) No 659/
1999 confirms this approach in that it defines ‘aid’ as
the criteria laid down in
‘any measure fulfilling all
Article 87(1) of the Treaty’. As the matter at stake is aid
within the meaning of Article 87(1) of the EC Treaty,
Article 88 applies and it must be established whether or
not the measure concerned can be classed as existing
aid. Regulation (EC) No 659/1999 uses the term ‘new
aid’ in such cases.

was not applicable and that the formal investigation
procedure must be launched immediately. However,
such an approach would have been unjustified, in view
of the situation resulting from the 1984 decision. The
Commission therefore confirms its judgment that the
scheme for coordination centres constitutes existing aid
because it was approved in 1984.

(70) Article 88(1) of the EC Treaty provides for a more
favourable procedure for existing aid schemes, allowing
additional opportunities for interested parties to express
their views. It is only if these proposals are rejected
that the formal
inquiry procedure, which is directly
applicable to new or unlawful aid, can be applied to
existing aid. Article 1(b) of Regulation (EC) No 659/
1999 covers a variety of situations relating to ‘existing
aid’. ‘Approved aid’ is classed as existing aid, irrespective
of whether it was expressly approved as aid compatible
with the common market or as a non-aid measure, or
was tacitly approved because the Commission had no
objections. As indicated in point 32 of the letter initiating
the procedure, this provision does cover cases in which
the Commission, after initially taking the view that a
given measure did not constitute aid, has changed its
mind and now takes the view that the measure is aid
within the meaning of Article 87 of the Treaty. This
category includes aid that is classed as existing aid,
because it can be shown that it was not aid at the time
of entry into force, but was classed as aid at a later stage
as a result of developments in the common market,
although the Member State concerned had not modified
it in any way. The Commission has consequently drawn
the following conclusions.

(71)

Firstly,
if Article 1(b) of Regulation (EC) No 659/
1999 were not applicable in this case, as Belgium and
Forum 187 have tried to show, this would not imply
that the Commission has no legal basis for pursuing its
inquiry. On the contrary, since the Commission notes
that the scheme covering the centres has all the charac-
teristics of an aid scheme (see VI.2, Aid character), it
should take measures to abolish or alter aid that is
incompatible with the common market, in accordance
with Article 88 (1) or (2) of the EC Treaty. If the aid
concerned could not be shown to be existing aid, the
Commission should have concluded that it was ‘new
aid’, that the more favourable procedure for ‘existing aid’

(72) Secondly, the Commission again confirms its right to
withdraw or amend an unlawful favourable decision (see
recital 29). As indicated in point 33 of the letter initiating
the procedure, the Commission can decide to withdraw
a decision provided that certain conditions laid down in
case law (35) are met. The Commission takes the view
that if its decision were to be regarded as a withdrawal
of or an amendment to the earlier decisions of 1984 and
1987, these conditions would be met. In more general
terms, the procedure followed guarantees legal certainty
and respect
the
the procedure is clearly
beneficiaries, provided that
established and does not jeopardise the actual appli-
cation of Community law. As the procedure used for
existing aid rules out the possibility of recovering aid
granted in the past,
this decision cannot be made
retroactive. Since the procedure has implications for the
future only, and since the legitimate expectations of the
persons affected are respected, the Commission cannot,
therefore, accept the argument that the deadline within
which it would be reasonable to withdraw or amend the
unlawful decision has passed.

for the legitimate expectations of

(73) Thirdly, as regards compliance with the procedure for
existing aid, the Commission can only reiterate point 34
of the letter initiating the procedure: ‘The Commission
notes that the letter (36) of 17 July 2000 did not
constitute a formal and final position, but rather the
It did serve its
initial step in a lengthy procedure.
purpose, as it enabled the Belgian authorities to present
their observations before the Commission proposed
appropriate measures. Finally, the request for infor-
mation and the invitation to submit comments, as
mentioned in Article 17 of the Regulation laying down

(35) Notably Cases C-248/89 and C-365/89 Cargill v Commission
[1991] ECR I-2987 and I-2045, and Case C-90/95 P de Compte
v Parliament [1997] ECR I-1999.

(36) Letter D/53864 from the Commission, launching the phase of

cooperation with Belgium.

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the procedures, are of the same type as other previous
steps for which the Regulation provides in another
context (such as requests for information and injunctions
pursuant to Articles 5 and 10, requests for observations
in accordance with Article 11), which, in accordance
with established practices to which the Member States
have no objections, are carried out by Commission
departments. This is why the letter in question did not
have to be approved by the Members of the Commission
acting as a body’.

VI.2. Aid character

(74)

Following the formal investigation procedure and taking
account of the arguments adduced in connection with
the decision to launch the procedure, the Commission
takes the view that the doubts voiced at the beginning
of the procedure cannot be set aside, for the following
reasons.

VI.2.1.

Economic advantage

(75) The Commission confirms that the various exemptions
from property tax, withholding tax and capital duty, the
imposition of a notional withholding tax and the flat-
rate used to establish the centres’ taxable income, as set
out
in this Decision, result in economic advantages
within the meaning of Article 87(1) of the EC Treaty to
the centres and the groups to which they belong.

VI.2.1.1.

E x e m p t i o n f r o m p r o p e r t y t a x

(76)

Firstly, the rule applicable to income from immovable
property is that property tax is levied on owners or
persons enjoying the usufruct of a property, irrespective
of whether they are natural persons, companies or other
legal persons, or Belgian or foreign residents. The
property tax is thus a tax on all companies owning
immovable property in Belgium (37). The exceptions
referred to — companies based in employment areas,
innovative companies, and firms in restructuring areas
— do not by any means represent all or even most of
the companies based in Belgium, and it is therefore an
exaggeration to claim that the majority of Belgian firms
benefit from some type of exemption from the property
tax. Moreover, the simple fact that there are other —
numerous — derogations does not in itself constitute
sufficient justification for exemption. Any advantage

must be measured against the applicable rules on state
aid, depending on the conditions and circumstances
under which it was granted. The exemptions referred to
may be classed as not constituting aid, or as aid
compatible with the common market, or they may be
classed as aid implemented unlawfully in Belgium which
is not compatible with the common market. The Com-
mission wishes to place particular emphasis on the
substance of its Decision SG(83) D/12, addressed to
Belgium on 3 January 1983 in connection with the
scheme for companies based in employment areas. The
Decision states that the Commission has established that
the exemption from corporation tax, property tax and
registration duty falls under the general prohibition on
aid enshrined in Article 92(1) of the EC Treaty before
the aid in question is declared to be compatible with the
common market. Reference is also made to this principle
Belgium (38),
in
SG(2000) D/108799.

addressed

decision

another

to

(77) Secondly, the limited number of persons/organisations
which benefit from this exemption from property tax
does not show that these centres do not derive any
benefit from the measure.

VI.2.1.2.

E x e m p t i o n f r o m c a p i t a l d u t y

(78) The rule in Belgium (39) is that contributions to capital
are subject to tax. Capital duty is therefore normally
payable by all capital companies within the meaning
of Article 3 of Directive 69/335/EEC which make
contributions in Belgium in accordance with Article 4
of the Directive. As with property tax, the exceptions
referred to do not represent the majority of the firms
that are subject to taxation in principle, and it is thus an
exaggeration to claim that most Belgian companies
benefit from some type of exemption from capital duty.
Finally, the argument cited at the end of recital 76 is
applicable in this context
too, mutatis mutandis, as
justification for rejecting comparison with other exemp-
tions, particularly those granted to companies based in
employment areas.

(37) This means built or unbuilt immovable property,

including
material and equipment which are immovable owing to their
intrinsic nature or the use to which they are put.

(38) N226/2000 — Regional aid scheme under the law of 30 Decem-

ber 1970.

(39) See Articles 115 ff. of the Code on Registration, Mortgages and

Court Fees.

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(79)

Finally, the reference to the opinions expressed by the
Council or Commission in favour of the abolition of
capital duty appears at the very least paradoxical, given
that payment of capital duty is the rule in Belgium.
Granting an exemption to the centres is at best a step
in that direction, but if it involves discrimination the
centres will enjoy advantages not available to other
companies based on Belgian territory. Moreover,
Directive 69/335/EEC does not provide
the
abolition of capital duty, but regulates its harmonis-
ation and allows
for keeping national exceptions
indicated in
within a very stringent
Article 9. The exemption in question does not comply
with that framework.

framework,

for

VI.2.1.3.

E x e m p t i o n
t a x

f r o m w i t h h o l d i n g

(80) As with property tax and capital duty, the Commission
confirms that exemption from withholding tax consti-
tutes an economic advantage enjoyed by the centres
and the groups to which they belong. It confirms,
notably, that the withholding tax deducted under the
conditions provided for under Belgian ordinary law is
firms are subject. Where the
a tax to which most
general exemption for income paid by the centre
extends beyond the exemptions provided for by
ordinary law, it constitutes an economic advantage to
the centres and the groups to which they belong. The
advantage derived from this exemption lies in the
deferred payment of final taxes, the mitigation of final
tax or even the non-taxation of the income from
movable property in question. The arguments cited by
Belgium and Forum 187 cannot be accepted, for the
following reasons.

(81)

Firstly, as argued above, the existence of exemptions
to which certain firms can have recourse cannot be
justified by the fact that other exemptions exist. In this
context it matters little that there are more companies
with an exemption than firms obliged to pay or deduct
withholding tax. Given that there are differences in the
application of withholding tax and that these exemp-
tions confer on the beneficiaries an advantage not
enjoyed by non-beneficiaries,
these differences are
potentially caught by Article 87 of the EC Treaty, and
it is necessary to determine whether the advantage
its
conferred does in fact constitute aid;
compatibility with the common market should be
assessed.

if it does,

(82) Moreover, it is far from true to say that the greater
part of
the income paid by companies based in
Belgium is subject to an exemption under ordinary
law. Belgian law confers few general exemptions from
withholding tax that are linked with the status of the
party paying the income. Where it does confer
such exemptions, the situation of the liable parties
concerned (40)
the
centres. Moreover, such exemptions must be estab-
lished by law, not by Royal Decree. After all,
Section 266 of the Belgian 1992 Income Tax Code
to refrain from levying
restricts the Crown’s right
withholding tax to the income of parties whose
identity can be established. This restriction emphasises
the special nature of general exemptions under Belgian
law.

is not comparable with that of

(83) Most of the exemptions set out in the Royal Decree
implementing the 1992 Income Tax Code are granted
subject to stringent conditions. This applies particularly
to the exemptions conferred on professional investors,
who/which are by no means covered by a general
exemption comparable with the one granted to the
centres and the companies of the groups to which
they belong. For instance, the types of income listed
below are covered by an exemption in the case of the
centres, but not for firms subject to ordinary law:

— income paid to a foreign company based outside
the European Union in a country with which
Belgium has not concluded an agreement on the
avoidance of double taxation,

— income paid to a company based in Belgium or
elsewhere in the European Union and which does
meet the criteria laid down in Directive 90/435/
EEC,

— income paid to a company based in one of the
many countries with which Belgium has con-
cluded an agreement providing for taxation at
source, even if such taxation is limited.

(84) The exemptions applying to non-residents are subject
to stringent conditions and are confined to the income
of savers not resident in Belgium. This comparison is
not, therefore, relevant in the context of an analysis of
state aid relating to tax concessions granted to firms
rather than savers.

(40) The Belgian state, social insurance institutions, financial insti-
tutions (banks, insurance companies, etc), investment funds and
companies, the stock exchange.

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(85) Secondly, the argument relating to advance payments of
tax is not relevant in all cases, notably those described
above, in which the party receiving the income is an entity
not based in Belgium, which pays no tax in Belgium and
is not, therefore, subject to any penalties because no
advance payments have been made. In cases where the
party receiving the income does pay tax in Belgium, it
does enjoy an economic advantage, as withholding tax
is not levied, because advance payments are made
voluntarily and at particular times, in accordance with
a calendar chosen by the company, depending on its
estimated taxable revenue. Where necessary, loss-making
companies or companies with a low taxable income are
obliged to wait until the advance payments made have
been refunded.

(86) Thirdly, under ordinary law the withholding tax is the
final Belgian tax on both the income paid to savers (natu-
ral persons) or associations subject to taxation on income
accruing to legal persons and on income paid to foreign
companies which are unable to have this income offset or
refunded in the country of destination. In this case, the
general exemption granted for income paid by the centres
is beneficial to the companies of the group based abroad,
as the withholding tax is normally a final tax for them.

(87)

Fourthly, it is not true to claim that income from the
deposits of all companies in their capacity as ‘professional
investor’ is exempt from withholding tax. If this had
been the case, there would have been no need to apply
Article 110 of the Royal Decree implementing the 1992
Income Tax Code so as to ensure that the centres, which
are also ‘professional investors’, can benefit by the exemp-
tion applied to this income.

VI.2.1.4. N o t i o n a l w i t h h o l d i n g t a x

(88) The Commission thus confirms that assigning a notional
withholding tax does constitute an advantage. The fact
that the percentage was reduced to zero in 1991 does not
necessarily mean that interest received from long-term
loans concluded prior to 1991 cannot still benefit from a

notional withholding tax. Moreover, the fact that this
measure exists as a scheme represents a potential risk
to competition and trade between the Member States.
Although the percentage has been reduced to zero, the
measure has not been abolished as a matter of principle
and the percentage could be adjusted by ordinary Royal
Decree.

VI.2.1.5.

F l a t - r a t e
( c o s t p l u s )

i n c o m e

a s s e s s m e n t

(89)

Firstly, although it is not always necessary, according to
the OECD guidelines, to allow for a profit margin in order
for a price to comply with competition conditions, such
exceptions apply to occasional costs borne by an associ-
ated company, to which they are passed on. They do not
under any circumstances apply to costs borne by the
coordination centres on a regular basis in connection
with the activities for which they were established. For
instance, the centres’ staff costs and the financial costs
incurred in connection with cash management or
financing activities are essential costs which make a major
contribution to enabling the centres to earn revenue.
There is thus no justification for excluding them from
the cost-plus-basis, in the light of the OECD criteria for
establishing transfer prices.

(90) Secondly, Forum 187 seems to be drawing a comparison
with certain entities which are not permanent establish-
ments. The Commission cannot accept this comparison.
Firstly, such an entity must meet extremely restrictive
conditions which the centres accredited under Royal
Decree No 187 do not satisfy. The centres are by definition
companies under Belgian law or permanent establish-
ments belonging to a company under non-Belgian law.
These entities act on behalf of other entities and they are
transparent for Belgium as far as tax is concerned; there is
no taxable income associated with these entities, all
income is directly taxable under the auspices of the super-
visory entities. The purpose of the cost-plus method in
Belgium is essentially to reconstruct a tax base for the
centres, which work for their own benefit. Finally, the
example given implies that the amount of costs is equal
to the benefits accruing, so that the income from such
transactions is zero. In view of the aim of transparency
with regard to taxes, this situation implies that the sum
deducted as costs by the party to which the costs are

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passed on is equal to the benefits incorporated into the
tax base by the party responsible for passing on the costs.
However, applying the cost-plus method implies that
there is no longer any automatic link between income
reported in Belgium and income taxed in Belgium. The
sums deducted by the parties to which thecosts are passed
on are therefore not necessarily the sums which will be
used in calculating the tax base.

(93)

tax is

the flat-rate tax on staff

Fifthly,
(BEF 400 000 or
EUR 10 000 per employee) is no justification for exclud-
ing staff costs from the cost-plus base. This tax was intro-
duced after the cost-plus system and was thus not intend-
ed to compensate for the exclusion of staff costs from
the cost-plus base. Moreover, it is restricted to the first
10 members of staff. To receive approval, however, a
centre must employ 10 people or undertake to do so
within two years of being set up. The maximum amount
of
therefore often set at BEF 4 million
(EUR 100 000). Given that there is a ceiling on this tax
and that it relates only to the number of employees, it
does not guarantee taxation comparable with that which
would obtain if staff costs were included in the cost-plus
base. As regards the exclusion of expenses, the arguments
cited by Forum 187 — if they are correct — point instead
to the fact that the cost-plus method is not an appropriate
way to reconstruct income from particular financial
activities. Under no circumstances can it be concluded
from these arguments that these costs must be excluded
from the cost-plus base systematically and without using
an alternative method to quantify income from financial
activities.

(94) Sixthly, the Commission takes the view that the purpose
of the alternative base is to limit the impact of any abuses
and that it is not a base comparable with that obtainable
through the traditional method based on the accounting
result. This is because the alternative base includes only
the special advantages granted to the centres and advan-
tages without any quid pro quo, as well as ineligible expen-
diture. These sums are also subject to taxation in other
companies and are added to the accounting profits,
which the cost-plus method seeks to reconstruct for the
centres.

(95) The purpose of applying the OECD rules is to establish
transfer prices that are close to the prices obtaining under
conditions of free competition, in accordance with rules
accepted by transnational corporations and the tax auth-
orities of the Member States concerned. These rules make
it possible to establish thedivision of revenue for account-
ing purposes among the various branches of the corpor-
ation based in each Member State. Using this method
should also make it possible for each Member State to tax
the corporations in question in accordance with a tax base
comparable to that which would be obtained by

(91) Thirdly, it cannot be concluded from the fact that a per-
centage of 8 % has been applied since 1964 to establish
the taxable income of Belgian branches of non-Belgian
companies that this practice is compatible with theTreaty.
Rather, the Commission criticises the fact that a single
uniform percentage is applied to all activities, as this
makes it impossible for each centre to obtain a tax base in
line with the principle of free competition. Nor does this
long-standing practice imply, either for these branches
or, still less, for the centres, that this percentage is an
appropriate reference point. And even if this percentage
were, on average, acceptable where Belgian branches of
foreign companies are concerned, this argument would
on the contrary show that it is too low for centres where
it is automatically applied to a greatly reduced cost base.
Finally, given that this is an administrative practice with-
out any legal basis, it is unacceptable for this percentage,
taken out of its original context, to be a constituent part
of ordinary law or of the Belgian tax system.

(92)

Fourthly, the fact that the scheme appears to be disadvan-
tageous for the centre in the event of accounting losses
and neutral from the point of view of the group if the
parent company is taxed on its worldwide income
undoubtedly means that it is not advantageous for certain
companies. However, it can certainly not be concluded
from this that it is not advantageous for other companies
in a different situation. Moreover, the centres’ activities
are confined to preparatory or ancillary activities which
imply a limited risk of accounting loss. That is one of the
reasons why the application of the cost-plus method is
justified. As regards the taxation of the parent company’s
worldwide income, it should be noted that the countries
where this situation applies are in a minority and that
there are sometimes exceptions. Even if
the parent
company is based in one of these countries, there is no
guarantee that a tax concession granted to the centre
would be offset at the level of the parent company.

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calculating the difference between the assets and liabilities
of a company operating in an environment subject to free
competition. Where — as is the case in Belgium — this
comparable base is subject to the normal rate of corpor-
ation tax, the ultimate objective of establishing a compar-
able amount of tax has been achieved, and the application
of the cost-plus method confers no advantages. The Com-
mission’s view is that the cost-plus method used by
Belgium as part of the scheme covering the centres does
not guarantee that income from free competition is taken
into account; still
it guarantee taxation
comparable with that applied to other companies subject
to the ordinary tax system. The cumulative effect of
excluding significant costs from the cost-plus base and
the application of a single rate, generally set at 8 %,
without differentiating the types of activities carried out
by the centre, is to reduce taxes, thereby conferring an
economic advantage, as referred to in Article 87 of the EC
Treaty.

less does

VI.2.2. Use of State resources

(96) The Commission stands by its view that the economic
advantages referred to in recital 75 are paid for using
State resources. Applying the special scheme for coordi-
nation centres based in Belgium implies a reduction in tax
by comparison with the ordinary law. This means that the
Belgian State is forfeiting a proportion of its tax revenue.

(97) The increase in tax revenue referred to is based on a
comparison between thetotal tax revenue from all Belgian
companies between the introduction of the scheme and
the present date. The issue of whether a measure
constitutes aid must be assessed on an individual
basis with reference to the beneficiary company at a
particular time, in order to establish whether individual
companies receive more from the State or contribute less
to the financing of public goods and services. If this were
not the case, all forms of aid would be justified if such aid
ensured that a company was persuaded to set up in a
Member State, that its future taxable income increased
or that it was discouraged from leaving the country in
question.

referred to may be classed as incompatible or compatible
State aid, or, indeed, as not being State aid at all; this
depends on their individual characteristics. The use of
State resources is not ruled out for any of these three sorts
of measure.

VI.2.3. Distortion of competition and adverse effects on trade

between the Member States

(99) The Commission also stands by its view that the advan-
tages referred to in this Decision distort competition
between companies based in Belgium, or that there is a
risk of such distortion, and that such distortion affects
intra-Community trade. According to the case law of the
European Court of Justice (41) and as noted in point 11 of
the Notice, ‘the mere fact that the aid strengthens the
firm’s position compared with that of other firms which
are competitors in intra-Community trade is enough to
allow the conclusion to be drawn that intra-Community
trade is affected’.

(100) Firstly, theCommission believes that it provided sufficient
— albeit concise — justification for this aspect of its
decision to initiate the procedure in points 56 and 57 of
the letter initiating the procedure, even as regards the
judgment (42) referred to in the footnote. According to
paragraphs 65 and 66 of that judgment, the statement of
reasons required by Article 190 of the EC Treaty (now
Article 253) must be appropriate to the measure at issue
and must disclose in a clear and unequivocal fashion the
reasoning followed by the institution which adopted the
measure in question, in such a way as to enable the
persons concerned to ascertain the reasons for the
measure and to enable the competent Community Court
to exercise its power of review. The requirement to state
reasons must be evaluated according to the circumstances
of each case. According to the Court, it is not necessary
for the reasoning to go into all the relevant facts and points
of law. As regards decisions on State aid, in particular, the
Court has ruled that although in certain cases the very
circumstances in which aid has been granted may show
that it is liable to affect trade between Member States
and to distort or threaten to distort competition, the
Commission must at least set out those circumstances in
the statement of reasons for its decision. The arguments
set forth, however, indicate that the centres, thanks to the

(98) Moreover, the fact that Belgium forfeits other tax revenue
through other exemptions is irrelevant to an assessment
of whether the exemption in question constitutes aid. As
already mentioned in this Decision, the other exemptions

(41) Case 730/79 Philip Morris v Commission [1980] ECR I-2671.
(42) See footnote 22.

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advantages they enjoy, are strengthening their competi-
tive position in thesector of services provided to members
of the group — in which sector they compete directly
with organisations including financial institutions, trusts
and consultancies specialising in tax, recruitment, IT, and
so on — in addition to strengthening the competitive
position of firms belonging to the group which are active
in numerous economic sectors. These are all sectors
characterised by intensive international and intra-Com-
munity trade, where large multinational corporations
compete directly with other multinational or local firms
of different sizes.

(101) Secondly, the existence of comparable or competing pro-
visions in other Member States is no justification for
allocating State aid. Like the centres scheme, every
measure needs to be analysed in the context of the tax
system of the Member concerned. These measures can be
classed as general measures, compatible aid or incompat-
ible aid, depending on their inherent characteristics. How-
ever, none of these descriptions automatically rules out
the existence of distortions of competition or an adverse
impact on trade. The Commission takes the view that
Belgium’s demand that it empirically demonstrate distor-
tion of competition and the adverse impact on trade goes
too far, and in this connection it refers to the judgments
in cases C-15/98 and C-105/99.

(102) Thirdly, the Commission is well aware of the phenom-
enon of concentrating activities within multinational
groups in entities such as coordination centres. It has no
criticisms of this provided that the only reason for such
concentration is the economies of scale to which it is
supposed to lead. However, it cannot accept the setting
up of such entities in conjunction with specific tax
schemes that are considerably more favourable than ordi-
nary law. The Commission also rejects the argument that
all multinational corporations have such entities or can
set them up in Belgium or other countries. That argument
is based on the assumption that the only competitors of
large multinational groups in intra-Community trade are
other large multinational groups. This assumption is
unwarranted, as local firms or smaller multinational
groups are also engaged in intra-Community trade, but
are not eligible for the tax advantages granted to coordi-
nation centres.

(103) Fourthly, the group benefits directly and indirectly from
the financial advantages conferred by the tax scheme

applicable to the coordination centres. These advantages
strengthen the group’s financial position, which can affect
the rating given to it by banks, thereby strengthening its
financial position still further by giving it access to more
favourable conditions.

VI.2.4.

Selectivity/specificity of the measure

(104) The Commission confirms that

the advantages are
specific, as they favour particular companies in the way
referred to in Article 87 of the EC Treaty. The scheme is
directly applicable to the coordination centres and,
directly or indirectly, to the other companies within the
multinational group to which these centres must necess-
arily belong. The selective nature of application results
not from regional or sectoral criteria, but from the com-
pulsory criteria which the centres and the groups to which
they belong must satisfy in order to be approved and
thereby to be able to take advantage of the scheme (see
recital 13). These criteria include those relating to the size
and multinational character of the group and the nature
and type of activities carried out within it. The arguments
set forth by the interested parties have done nothing to
change the Commission’s views on the selective nature of
application and the absence of any justification inherent
in the nature or structure of the tax system.

(105) Firstly, as regards discretionary powers, the Commission
accepts the argument about carrying out insurance and
reinsurance activities. Nor does it contest the fact that the
administration has few — if any — powers of discretion
to grant or withhold approval of a centre, and that it is
thus not a specific feature of the scheme. However, it does
repeat its conviction that discretionary powers were used
when deciding that the standard percentage set out in the
administrative circular should be set at 8 %. Systematic
application of a single low percentage may, given the
limited base to which it applies, reduce the tax base,
thereby giving rise to an economic advantage as referred
to in Article 87(1) of the EC Treaty.

(106) Secondly, the Notice does not establish any further obli-
gations on the Member States. In the course of the various
stages of the procedure, the Commission has explained its
reasons for judging the measures in question to be selec-
tive and for denying a justification based on the nature
and structure of the scheme. In order to allay the doubts
expressed by the Commission, the Member State may, for

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example, demonstrate that the measure is not selective.
Another possibility would be to prove that the specificity
of the measure is justified by the nature or structure of the
tax system, which results in the scheme being regarded as
a general measure. In the absence of convincing argu-
ments, the Commission therefore concludes that its view
that the measure is selective was well-founded.

J u s t i f i c a t i o n o n t h e
n a t u r e o r s t r u c t u r e o f t h e s y s t e m

g r o u n d s o f

t h e

(107) The arguments on withholding tax set out in recitals 56
to 59 are unconvincing, for the following reasons.

(108) Firstly, withholding tax was introduced as a form of tax-
ation, and it is not true to claim that its main purpose is to
tax natural and legal persons who/which are not obliged
to declare the income that is subject to withholding tax.
As regards the other tax exemptions referred to, their
existence does not mean that all exemptions are justified
by the nature or structure of the Belgian tax system, nor,
specifically, that the selective criteria established by law
for the centres are justifiable. All these exemptions can be
classed as not constituting aid, or as constituting compat-
ible or incompatible aid, depending on their inherent
characteristics. For instance, following theannouncement
of the employment zones scheme in 1982, the Com-
mission explicitly classed as aid the exemptions from
withholding tax and capital duty conferred on companies
based in the employment zones, before declaring them to
be compatible with the common market.

(109) The exemptions provided for by the ordinary law with
respect to income paid to non-residents, to which the
interested parties also refer, are generally conditional and
limited to ‘non-resident savers’, that is, natural persons
who are not using movable property which produces
income to practise a professional activity.

(110) Secondly, the example given by the Belgian authorities to
show that the deduction of withholding tax is incompat-
ible with cash pooling is irrelevant in this context. The
erroneous assumption is made here that the company
which receives the income also pays tax in Belgium, but
in such a case the ordinary law is sufficient to exempt the
transaction from withholding tax. Moreover, it is not the
purpose of the associated procedure to make withholding

tax obligatory on all transactions carried out by a centre,
as it does not relate in any way to the many exemptions
provided for in the ordinary law and which the centres
can continue to use. The chance that the coordination
centres might deduct withholding tax from all income
paid out is thus restricted to cases in which all income was
paid to taxpayers who are unable to avail themselves of
the general exemptions provided for by Belgian and EU
law and the international agreements signed by Belgium.
And in this case the centre would simply be exposed to
the same risks as other companies engaged in the same
activities in a group that does not satisfy the conditions
laid down in Royal Decree No 187.

(111) Thirdly, the risk of double international taxation is the
same for the other firms engaged in the same activities as
coordination centres, but which are not covered by the
exemption scheme. Moreover, given the extensive net-
work of international agreements concluded by Belgium,
such risks are confined to transactions withcountries with
which Belgium has not concluded any such agreement.

(112) Fourthly, no indication is given as to why activities per-
formed at the head office should necessarily benefit from
an exemption scheme. Above all, no arguments were
presented to justify the selective criteria used to restrict
access to the scheme on the basis of the nature or structure
of the scheme. Firms belonging to smaller groups or
whose activities are confined to two countries can also
perform activities in their head office, but this does not
qualify them for inclusion in the scheme. The selective
nature of the scheme under Directive 90/435/EEC is not
more or less the same as that of Royal Decree No 187, as
the conditions relate to the percentage share held by a
firm (theparent company) in another firm (the subsidiary)
and the duration of this share. At all events, in adopting
this directive the Council ensured that the Member States’
tax regulations were harmonised; consequently, provided
that they are in line with the obligatory provisions of the
directive in future, they will no longer be attributable to a
particular Member State and cannot therefore be classed
as state aid. Finally, no further explanation was given of
the need, which arose in 1983, to exempt all the centres’
transactions in view of the innovative nature of the
financial instruments which they were to develop. At any
rate, it seems that this need can no longer be invoked to
advocate a special scheme for coordination centres. Given

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the current prevalence of this typeof financial instrument,
this argument would, however, seem to confirm the evol-
ution of the markets on which the centres operate.

VI.3. Compatibility with the common market

(113) In order to be compatible with the common market an
aid scheme must strictly conform to one of the situations
described in Article 87(2) and (3) of the EC Treaty. After
examining the arguments presented by the interested
parties, the Commission confirms that the scheme for
coordination centres satisfies none of the exceptions con-
tained in these provisions. The scheme is not aimed at
individual consumers, is not intended to make good the
damage caused by exceptional occurrences, or to remedy
a serious disturbance in the Belgian economy, or to pro-
mote the execution of an important project of common
European interest, or to promote culture and heritage
conservation.

(114) As regards the investment by the centres, no evidence
was provided to show that this corresponds to initial
investment qualifying for aid, as described in points 4.4
and 4.5 of the Guidelines on national regional aid (43). For
large firms, the category to which most of the coordi-
nation centres belong, investment aid is only allowed in
the regions covered by the exceptions provided for in
Article 87(3)(a) and (c). Finally, as regards job creation,
the Guidelines on aid to employment (44) state that the
level of aid may not exceed that which is necessary to
stimulate job creation. In the case under consideration the
Commission concludes that the tax advantages arising
from the scheme for coordination centres depends on the
volume of activity generated by the centre rather than the
number of jobs created.

(115) The tax advantages extended to the centre are not, there-
fore, connected with investment, job creation or specific
projects. They therefore represent permanent reductions
in charges which constitute operating aid. Operating aid
is in principle prohibited. However, point 4.15 of the
Guidelines on national regional aid states that such aid
may exceptionally be allowed in regions covered by the
derogation provided for in Article 87(3)(a). Because
Belgium is not covered by this derogation the aid
measures in question can affect trading conditions to an

(43) OJ C 74, 10.3.1998, p. 9.
(44) OJ C 334, 12.12.1995, p. 4.

extent contrary to the common interest and are accord-
ingly not covered by the exemption provided for in
Article 87(3)(c). The comparison with the employment
areas approved by theCommission in 1982 is not relevant
here as an argument for the compatibility of the measure
with the common market. Although it is not necessary to
examine the evolution of the Commission’s policy in this
matter, suffice it to say that that decision related only to
the employment zones of Wallonia and Flanders that
were experiencing high unemployment at that time. The
Commission categorically ruled out the creation of an
employment area in the Brussels Region. Yet most of the
coordination centres appear to be based in the Brussels
Region.

(116) As regards exemption from capital duty, the Commission
believes that, because the aid is incompatible with the
common market, it is not necessary in the context of the
present Decision to consider whether it is compatible
with the terms of Directive 69/335/EEC. The Commission
reserves the right to deal with this question in another
suitable context.

VI.4. Legitimate expectation

(117) The Commission recognises that there is a legitimate
expectation on the part of beneficiaries of the scheme. It
is therefore right that the Commission should allow the
centres that hold an approval on 31 December 2000 to
continue to enjoy the benefits of the scheme until the end
of their period of approval, if this was ongoing at the time
of the present Decision, up to 31 December 2010 at the
latest. This view is based on the following grounds.

(118) By issuing the approval the tax administration assumed
that the approved centre would comply with the con-
ditions for benefiting from the exemption scheme of
Royal Decree No 187 for 10 years, without having to
prove every year that the conditions were being met. If
the administration found that the conditions were no
longer being met the centre would be excluded from
the scheme in future. In accordance with the Belgian
Constitution, these agreements related only to the facts
and not to the scheme being implemented. They cannot,
therefore, give any legal guarantee that the scheme, as it
stood on the date approval was granted, would be

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maintained for the next 10 years.There is thusno contrac-
tual undertaking by the administration to the approved
centre as regards the advantages conferred. This interpret-
ation would seem to be supported by the reply from the
Belgian State, which refers to its civil liability in connec-
tion with the losses a company might suffer, rather than
its contractual liability to the company. The Belgian and
European case law referred to by the Belgian State and the
third parties regards respect for the principles of legal
certainty and legitimate expectation in the same light.
Careful reading of these judgments merely shows that the
Commission may withdraw a decision with retroactive
force only under very strict conditions, for example by
allowing a reasonable time. However, if it applies the
procedure for existing aid the Commission’s action may
not have retroactive force at all, given that it cannot
recover aid. These judgments also state that the Com-
mission may not, even in the future, withdraw its decision
if this would cause unjustified hardship to the companies
involved. Here, too, the procedure for existing aid guaran-
tees the legal certainty of the companies by allowing the
Commission the option, where necessary, of providing
for a transitional period for phasing out the scheme.

(119) In this context, the Commission believes that it should
indeed take into account the comments by the Belgian
State and the interested parties regarding the major
investment made by the companies concerned and the
groups to which they belong. This investment relates,
for example, to the creation and development of the
infrastructure for the centre and the changes made to the
organisation of the structures, networks, procedures and
distribution of activities within the group. Long-term
commitments were also made to staff, property
companies and financial institutions. Although approval
gives no guarantee as to the continued existence of the
advantageous nature of the scheme, the Commission
admits that centres were established, investment made
and commitments entered into in the reasonable and
legitimate expectation of a certain degree of continuity
in the economic conditions, including the tax regime.
The Commission has accordingly decided to allow a
transitional period so that the cost-plus scheme for the
present beneficiaries can be gradually phased out.

believes that they cannot, under any circumstances, con-
fer a right to have the scheme renewed when the present
approval expires. In view of the explicit restriction of the
approval to ten years it is impossible that a legitimate
expectation should have been created as to automatic
renewal, which would have amounted to approval that
could theoretically last for ever.

VII. CONCLUSIONS

(121) The Commission concludes that the tax scheme covering
coordination centres in Belgium is incompatible with the
common market and that measures must be taken to
remedy the incompatibility of its various components by
abolishing or amending them. As of the date of notifi-
cation of this Decision, new beneficiaries can no longer
be covered by this scheme or sections thereof, nor can
it be maintained by renewing existing approvals. The
Commission notes that centres approved in 2001 have
not benefited from the scheme since 31 December 2002.

(122) As regards the centres currently covered by the scheme,
the Commission acknowledges that the 1984 Decision
approving Royal Decree No 187 and the reply to a Parlia-
mentary question given by the Member of the Com-
mission responsible for competition (45) gave rise to a
legitimate expectation that the scheme did not violate the
rules on state aid enshrined in the Treaty.

(123) In view of the substantial investments made on this basis,
as well as the need to respect legitimate expectations and
the legal certainty of the beneficiaries, it is justifiable to
allow a reasonable period for eliminating the scheme’s
impact on the existing approved centres. The Com-
mission takes the view that this reasonable period comes
to an end on 31 December 2010. The centres whose
approval expires before this date can no longer make use
of their approval after the deadline. After the date on
which approval lapses and at any rate after 31 December
2010, it will be unlawful to grant or maintain the tax
concessions in question,

(120) Because the approvals do not represent a right to the
continuation of the scheme or its advantageous character,
the Commission
even during the approval period,

(45) See footnote 26.

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HAS ADOPTED THIS DECISION:

Article 1

The tax scheme which currently operates in Belgium for the
benefit of coordination centres approved under Royal Decree
No 187 constitutes aid incompatible with the common market.

individual approval applying on the date of notification of this
Decision and until 31 December 2010 at
In
accordance with the second paragraph, if approval is renewed
prior to that date the benefits of the scheme dealt with in this
Decision may no longer be granted, even temporarily.

the latest.

Article 3

Article 2

Belgium shall inform the Commission within two months of
the date of publication of this Decision of the measures taken
to comply with it.

Belgium is required to withdraw the aid referred to in Article 1
or to amend it in such a way as to make it compatible with the
common market.

As of the date of notification of this Decision, the benefits of
this scheme or sections thereof may no longer be granted
to new beneficiaries or maintained by renewing existing
agreements.

With regard to centres approved before 31 December 2000,
the scheme may be maintained until the expiry date of the

Article 4

This Decision is addressed to the Kingdom of Belgium.

Done at Brussels, 17 February 2003.

For the Commission

Mario MONTI

Member of the Commission