It has been a few days coming, but the European Commission's decision, on Monday 19 September, to open an in-depth investigation into Luxembourg tax rulings granted to GDF Suez (now known as Engie) coincides with the beginning of a trip by the commissioner responsible for the dossier, Margrethe Vestager, to the United States.
Although the Commission states that it announces its decisions as soon as they are ready, this is still good timing for a communication exercise regarding the United States, which is annoyed at what it sees as discrimination against its companies.
In the present case, the Commission has preliminary suspicions that Luxembourg selectively broke its own national tax legislation and treated a single financial transaction between different companies belonging to GDF Suez inconsistently, treating it as both a loan and a stakeholding.
"Financial transactions may be taxed differently, depending on their nature – loan or stakeholding – but the same company cannot gain under both scenarios for the same transaction", Vestager explained in a press release.
Since 2008, the Luxembourg authorities have issued several tax rulings on the tax treatment of two similar financial transactions carried out between four companies of the group, all based in Luxembourg. These transactions are convertible bonds on which the lender receives no interest.
As far as the borrowers are concerned, the transactions are treated as loans and this therefore allows them considerably to reduce their taxable profit by being able to deduct, as an expense, the interest generated by the transaction. For the lenders, transactions are treated as stakeholdings and Luxembourg's tax rules provide a tax exoneration for any income generated from these. Finally, it appears that a significant proportion of the profits registered by the group in Luxembourg through these two set-ups are not taxed at all, in the Commission's preliminary view. The institution announces that it will look into the matter more closely.
For its part, the Luxembourg government reacted by stating that no individual tax treatment or selective advantage had been granted to companies of the Engie group in Luxembourg. The Grand Duchy has also pledged to provide all information required by the Commission in the framework of its investigation. (Original version in French by Élodie Lamer)