By Philip Blenkinsop
BRUSSELS (Reuters) - The European Commission ordered Belgium on Monday to recover 700 million euros (523 million pound) from 35 large companies in back taxes in the EU executive's biggest move yet to crack down on tax avoidance by multinationals.
The Commission said Belgium's "excess profit" tax system, whereby multinationals' economies of scale can enable them to reduce their tax bases by up to 90 percent, was illegal because it had been granted to a select number of large companies but not to smaller firms, distorting competition.
It said it could not name the companies involved, but that they were mostly European corporations and those companies would pay back around 500 million euros of the amount due.
The Commission, which rules on competition issues in the European Union, has faced accusations of a bias in its investigations against non-EU companies, notably U.S. tech giants, as it investigates tax practices across the EU.
In October it ruled that Starbucks Corp (O:SBUX) and Fiat Chrysler Automobiles NV (MI:FCHA) benefited from illegal tax deals with the Dutch and Luxembourg authorities, ordering each country to recover 20-30 million euros in back taxes.
It is also investigating the tax arrangements of Amazon (O:AMZN) in Luxembourg and Apple (O:AAPL) in Ireland.
BELGIUM MAY APPEAL
The EU's resolve to crack down on tax avoidance has galvanised national authorities in recent years into taking action to try to ensure that large companies pay a fair share of their profit in tax.
Belgian Finance Minister Johan Van Overtveldt said the ruling was in line with his expectations and that the "excess profit" system, introduced in 2005, had been on hold since February 2015, when the investigation began. Such back taxes would not affect Belgium's structural deficit, he said.
Clawing back taxes would be complex and hit the companies involved and that Belgium kept all options open, including a possible appeal, he said.
Under the Belgian scheme, multinationals could reduce their corporate tax bases by between 50 and 90 percent due to profits arising from, for example, economies of scale, which were not liable to tax in Belgium.
The Commission has said Belgian tax authority rulings, typically for four years, were often granted to companies that had relocated a substantial part of their activities to Belgium or that have made significant investments in the country.
"There are many legal ways for EU countries to subsidise investment and many good reasons to invest in the EU," EU Competition Commissioner Margrethe Vestager told a news conference.
Vestager said the Commission would continue its inquiries into tax practices across the 28-member European Union.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said that the total bill amounted to an average of 2 million euros per company per year.
"Is it worth the effort? You question too whether it is creating a good overall environment for business and if it is going to affect inward investment," he said.