Brussels, 08/02/2006 (Agence Europe) - The European Commission has opened an enquiry into the Luxembourg law of 1929 which exempts holdings and financial companies from corporate taxation. In the view of the Competition Commissioner Neelie Kroes: “It is time to review this old-established regime favouring multinational groups setting up their financial activities in Luxembourg, as it appears it may unduly affect the functioning and competitiveness of the EU's financial industry”. The scheme allows Luxembourg to attract certain activities from large multi-national groups (financing, patent and licence management, etc.). These groups are therefore exempt from any Luxembourg tax on the revenues which they receive or pay (dividends, interest and royalties), which facilitates the distribution of profits within the multi-national. The Commission, which considers that the 1929 law is now obsolete, has unsuccessfully suggested to Luxembourg that it gradually modify the law, which could constitute a disguised subsidy and distort the European financial services market. The in-depth enquiry aims to establish whether the tax exemptions granted under the law constitute state aid or whether they are in fact compatible with European legislation.