Ruling sparks furore over tax-deductible fines

Date: 06/02/1997

By Chris Johnstone

THE Belgian government has exposed confusion within the EU over whether European Commission fines on firms breaking competition rules can be offset against tax.

The debate has been sparked by a ruling from the Belgian finance ministry that a fine imposed on cement firm CBR for its part in a serious cartel could be deducted from the company's tax liability.

According to the ministry, the Commission competition fine had the character of an administrative rather than a punitive measure and therefore could be regarded as tax deductible.

Commission officials were this week guarded in commenting on the Belgian case and the questions it poses.

“Tax questions are a matter for national governments,” said one, who added that member states were under no obligation to inform the Commission of their policy on the issue.

But an official from the Directorate-General for competition (DGIV) said it would take a dim view of governments blunting the impact of its fines, which were aimed at discouraging unfair practices.

The Belgian finance ministry ruling follows an appeal by CBR, now majority-owned by a German counterpart, which had complained that it was being doubly punished by the 7.5-million-ecu fine imposed by the Commission on its Belgian operation.

A spokesman said the firm was expected both to pay the fine and have the amount taken off its tax allowance for total earnings.

At the time of the complaint, CBR contrasted its tax treatment in Belgium with that of its Dutch subsidiary, which received a similar fine in the same cartel case but was not subject to a double penalty.

The company is contesting the fine in the European Court of Justice, but has paid

the outstanding amount pending a final judgement - now expected in two or three years' time.

In theory, Commission fines for breaches of competition law can climb to as much as 10&percent; of a company's turnover, but in fact rarely reach such high levels.

The cement fines were some of the heaviest ever levied by the Commission, reflecting the seriousness of the cases, which arose after companies across Europe started to carve up the EU market as early as 1985 with a series of bilateral and multilateral agreements aimed at conserving their sales areas and prices.

When threatened with cheap exports of Greek cement, they concluded a new set of agreements aimed at soaking up some of the new supply and preventing it from reaching selected markets.

In the agricultural sector, where the Commission frequently demands that governments recover cash from law-breaking farmers, the question of tax deductibility for fines does not appear to have been raised.

“All we worry about is getting the money back from the governments,” said an official. “The rest is for them to sort out.”