Luxembourg allowed two Engie group companies to avoid paying taxes on almost all their profits for about a decade, according to the findings of an in-depth investigation launched by European Commission.
“Luxembourg gave illegal tax benefits to Engie,” said Commissioner Margrethe Vestager, in charge of competition policy.
“Its tax rulings have endorsed two complex financing structures put in place by Engie that treat the same transaction in an inconsistent way, both as debt and as equity,” explained Vestager. “This artificially reduced the company’s tax burden. As a result, Engie paid an effective corporate tax rate of 0.3% on certain profits in Luxembourg for about a decade. This selective tax treatment is illegal.”
According to a Commission press release, this is illegal under EU State aid rules because it gives Engie an undue advantage. Luxembourg must now recover about €120m in unpaid tax.
Following the investigation launched in September 2016, the Commission concluded that two sets of tax rulings issued by Luxembourg have artificially lowered Engie’s tax burden in Luxembourg for about a decade, without any valid justification.
In 2008 and 2010, respectively, Engie implemented two complex intra-group financing structures for two Engie group companies in Luxembourg, Engie LNG Supply and Engie Treasury Management. These involved a triangular transaction between Engie LNG Supply and Engie Treasury Management, respectively, and two other Engie group companies in Luxembourg.
The Commission concluded that Luxembourg’s tax treatment of these financing structures did not reflect economic reality. Tax rulings issued by Luxembourg endorsed an inconsistent treatment of the same transaction both as debt and as equity.
This is not the first investigation launched by the Commission. Since June 2013, Brussels has been investigating individual tax rulings of member states under EU State aid rules. It extended this information inquiry to all member states in December 2014.
In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to at least 35 multinationals, mainly from the EU, under its “excess profit” tax scheme are illegal under EU State aid rules.
In August 2016, the Commission concluded that Ireland granted undue tax benefits of up to €13bn to Apple. In October 2017, the Commission concluded that Luxembourg granted undue tax benefits of up to €250m to Amazon.
The Commission also has two ongoing in-depth investigations concerning tax rulings issued by Luxembourg in favour of Mc Donald’s and Inter IKEA, and one investigation concerning a tax scheme for multinationals in the United Kingdom.