Illegal tax decisions in Luxembourg embarrass Commission
Thursday, 21 June 2018
The European Commission continues to investigate the international companies which gained preferential treatment by the tax authorities in Luxembourg in the so-called LuxLeaks scandal that was disclosed in 2014. The decisions were taken during the period when the current Commission president was prime minister in the country. In a ruling yesterday, the Commission found that Luxembourg had allowed two Engie group companies to avoid paying taxes on almost all their profits since 2008. This was illegal under EU State aid rules because it gave Engie an undue advantage. Luxembourg must now recover about € 120 million in unpaid tax.
The two companies, Engie Treasury Management, a treasury company, and Engie LNG Supply, a liquefied natural gas trading company, are both part of the Engie group. Engie (former GDF Suez) is a French electric utility company.
“Luxembourg gave illegal tax benefits to Engie,” said Commissioner Margrethe Vestager, in charge of competition policy, at a press briefing (20 June). “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.”
The Commission’s in-depth investigation was launched in September 2016. It goes at great length to map and explain Engie’s transactions to avoid paining taxes, and concludes that Luxembourg’s tax treatment of Engie’s financing structures did not reflect economic reality.
The tax rulings issued by Luxembourg endorsed an inconsistent treatment of the same transaction as both debt and equity. On this basis, the Commission concluded that the tax rulings granted a selective economic advantage to Engie by allowing the group to pay less tax than other companies subject to the same national tax rules.
For this reason, the Commission found that the treatment was illegal under EU state aid rules but it did not call into question the general tax regime of Luxembourg.
The Commission did not investigate whether the tax treatment was also illegal under national law, something which has been claimed in the trials in 2016 against those who blew the whistle and disclosed the secrete decisions.
There are no fines under EU State aid rules and recovery does not penalise the company in question. According to the Commission, it simply restores equal treatment with other companies.
Vestager confirmed at the press briefing that the Commission may open more cases in Luxembourg in the wake of the LuxLeaks scandal. It is inquiring about tax rulings in all EU member states. Besides Luxembourg, The Netherlands, Belgium and Ireland have been found to have granted selective tax advantages to companies.