On Wednesday 20 June, the European Commission found that the Luxembourg State had allowed two companies of the Engie group to avoid paying the tax they owed on virtually all of their profits from 2008 and 2010. It therefore ordered them to pay back the sum of €120 million to Luxembourg.
“This decision is another step to make sure that companies pay their fair share of tax”, Margrethe Vestager, the Commissioner for Competition, told a press conference. She said the aim is to ensure that the tax practices of the member states are “in line with our common EU rules”.
The Commission's decision following follows the launch of an in-depth investigation, which was opened on 19 September 2016 (see EUROPE 11627).
Following the complex legal and fiscal arrangements set in place by the Engie group, Luxembourg awarded fiscal treatment that did not correspond to the economic reality to two intra-group financing structures, Engie LNG Supply (from 2008) and Engie Treasury Management (from 2010), by means of tax rulings.
This treatment was reflected by posting a single operation as both a debt and a stake-holding. In this way, according to the Commission, the tax rulings allowed the group to avoid tax on 99% of the profits generated by the two Luxembourg-based entities.
By no means calling the general tax regime in force in Luxembourg into question, the services of the Directorate General for Competition of the Commission sought to clarify whether the tax treatment received by Engie was more favourable than that applicable to other operators in the country. The institution considered that its tax treatment “gave Engie a significant competitive advantage in Luxembourg”, in the form of “non-taxation at all levels”.
The Commission therefore considers that Luxembourg awarded state aid that was incompatible with the EU rules on the matter and ordered Engie to repay to Luxembourg the sum of €120 million in taxes payable, plus interest. The Luxembourg authorities must now calculate the exact amount to be recovered, on the basis of the model presented by the institution.
Vestager furthermore welcomed the announcement made by the Luxembourg government on 15 June that it was to revise its income tax legislation.
Luxembourg and Engie disagree with the decision. Reacting promptly to the Commission's decision, both Luxembourg and Engie challenged the institution's reasoning. “Luxembourg considers that Engie has not been granted state aid incompatible with the internal market, within the meaning of article 107 (1) of the Treaty on the Functioning of the European Union”, the Luxembourg finance ministry stated in a press release. It goes on to stress that it reserves “all its rights”, suggesting that it will appeal against the decision.
Engie was even more forthright, arguing that it had “fully complied with the applicable tax legislation and considers that it has not benefited from a state aid”. The company also announces that it will appeal to the General Court of the European Union to have the Commission's decision overturned. (Original version in French by Lucas Tripoteau)