Europe’s second-highest court will rule tomorrow whether a Belgian tax break which benefited some 35 large companies is illegal state aid, a judgment which could provide clues to other tax cases involving Apple, Starbucks and Fiat Chrysler.

As part of its crackdown on tax avoidance, the European Commission three years ago ordered Belgium to recover some €700m from the group, saying the companies’ “excess profit” tax plan gave them an unfair advantage vis-a-vis smaller firms.

The scheme allowed the companies to claim deductions for economies of scale, reducing their corporate tax base by 50pc to 90pc.

Dutch industrial company Magnetrol and Belgium subsequently challenged the Commission’s decision at the Luxembourg-based General Court.

The largest beneficiaries were Wabco, Cellio, BP, BASF, Atlas Copco and Belgacom.

Judges may also rule whether it qualifies as a scheme or are just individual tax rulings.

The tax avoidance drive has included a ruling that Ireland recover €13bn from iPhone maker Apple and Luxembourg to claw back up to €30m from Fiat Chrysler, €250m from Amazon and about €120m from Engie.

All the major companies have challenged the EU rulings. At stake is whether the Commission is over-stretching its powers by using its state aid tool to address tax fairness concerns.

Meanwhile, finance ministers from smaller European Union states yesterday opposed a plan to limit governments’ power to block EU reforms on tax matters, in a move that further reduces the chances of introducing an EU levy on large digital firms.

EU countries with smaller populations – including Ireland – have for years blocked efforts to narrow rules that are claimed to allow tax avoidance. Many of them defend their right to decide their own tax laws and attract foreign business by offering sweeteners.

The EU Commission proposed last month a gradual removal of the veto power states wield on tax rules.

But at the meeting in Brussels, Luxembourg, Malta, Lithuania, the Netherlands and Sweden called for maintaining their veto power.

Opposition from any one of them would sink the Commission plan.

Luxembourg’s Finance Minister Pierre Gramegna was among the most vocal opponents, telling reporters that preserving unanimity over tax decisions was “extremely important”.

Other smaller states, led by Ireland, have blocked a common tax on digital revenues. This has pushed several countries, including France, Italy and Spain, to adopt similar levies at national level, despite risks this could weaken the EU market.

Reuters

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