The General Court today handed down its decision in the Belgian Excess Profits case, finding that the Belgian Excess Profits regime did not amount to State aid (on the basis of the arguments put forward by the European Commission). The reason essentially was that the Commission did not persuade the Court that the regime amounted to an ‘aid scheme’. An aid scheme is a general scheme, for instance some generally applicable legislation, whereby individual aid is granted. The full definition is:

“any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time and/or for an indefinite amount” (Article 1(d) of Reg 2015/1589)

What is critically important to note is that the Court only had to decide whether the regime itself amounted to an aid scheme. It was not deciding whether the way in which the law was administered by the tax authority was selective. In this way the case has always differed from the ‘individual rulings’ cases of Apple, Fiat, Amazon, Starbucks, IKEA and Engie.

Why the case focused on the entirety of the scheme, rather than the individual rulings provided to undertakings is very usefully explained in this incredibly helpful twitter thread from Professor Ruth Mason (hint: money), whilst that thread and this blogpost from George Peretz QC also assist in understanding the implications for the other ongoing State aid rulings cases.

What I wish to focus on here is the use of the word discretion in the judgment itself. One of the critical reasons for the General Court finding against the Commission in this case was that the Belgian Tax Authority enjoyed a margin of discretion in the application of the Excess Profits regime. This was important because to say that there was a margin of discretion in the application of the regime would mean that in fact ‘further implementing measures’ were required and hence the regime could not amount to an ‘aid scheme’ (see paras 99 to 113). The relevant Belgian law allowed a downward adjustment to be made by the Belgian tax authority and to determine how this should be. As put by the General Court, the Belgian law thus allowed “a correlative adjustment should be made only if the tax administration or the Ruling Commission considers both the principle and the amount of the primary adjustment to be justified”. This should be taken to mean that the discretion that was being exercised here, according to the Court, was a legal discretion as distinct from what could be termed a de facto discretion.

What do I mean by the distinction between legal and de facto discretion? By ‘legal discretion’, I mean the power to choose where that choice is determinative legally. So in the case of ordinary legislation, such as a tax on income, the tax authority does not have legal discretion to determine how much money is due in income tax. Rather they make an assessment, but that assessment can be challenged and the tax authority is not the ultimate arbiter of how much is owed – that will be the judiciary. This is not to say that tax authorities do not have power when they make assessments (and indeed that assessment may be influential for the ultimate arbiter) – this might helpfully be distinguished as ‘de facto discretion’. But critically it is not legal discretion. Thus in the case for instance of Apple, it would be incorrect to say that the Irish Revenue Commissioners had legal discretion to decide how much money was due from Apple. They could make an assessment, but if that was challenged then the arbiter would be a judge. When it comes to advance rulings provided by tax authorities then, the tax authorities will have legal discretion as to whether to provide the ruling or not (unless there is law in place that provides that the tax authority is under an obligation to provide the ruling, as in the case of the Belgian Profits Regime case for those who were entitled to apply). It will not have legal discretion to decide how the substantive tax provisions apply in the case at hand (unless the relevant legislation mentions that the tax authority legally determines some component of the tax liability, again as was deemed to be the case in the Belgian Profits Regime case).

This distinction between legal discretion and de facto discretion comes through in the judgment of the General Court, in particular at paras 99 and 100. It is written that “the fact that a prior request for approval must be submitted to the competent tax authorities in order to benefit from an aid does not imply that those authorities have a margin of discretion, when they merely verify whether the applicant meets the requisite criteria in order to benefit from the aid in question”. What the Court found distinctive about the regime in question however was that the legal determination was to be made by the tax authority, as evidenced 1) by the scope of the responsibility granted to the tax authority to determine whether a downward adjustment should be granted; 2) that not all rulings granted aid (thus, the fact that not all exercises of the same power produced the same result, then the tax authority must have been exercising a choice and therefore a discretion); 3) and related to the second point, the assessment of individual rulings demonstrates that the rulings differed in their outcomes (and the factors leading to those outcomes) depending on the circumstances. They were determined on a case-by-case basis; 4) the fact that many applications for rulings are rejected.

Going forward, to be clear, the General Court’s decision does not mean that the Belgian State is off the hook. The fact that legislation according to the General Court provided a legal discretion to the tax authority does still mean that State aid may have arisen in (possibly many) individual instances. If the European Court of Justice agrees, then the question that would need to be answered is whether the administrative discretion was consistently exercised according to objective, non-discriminatory and ascertainable criteria (see for instance paras 123-125 of Commission Notice on the notion of State aid).