On 19 September, the European Commission opened an in-depth investigation into Luxembourg’s alleged fiscal aid in favour of the GDF Suez group. Following its preliminary assessment, the Commission found an inconsistency in the application of national tax law on financial transactions executed between different companies in the group, leading to considerable tax benefits in its favour. It concluded, at this stage, that it derogates from the provisions of national tax law and creates an unlawful differential treatment between the GDF Suez group and other undertakings subject to the same national rules in Luxembourg.
According to the Commission, it appears that some financial transactions between the various companies in the group are treated as both debt and equity. This tax treatment gives rise to a double non-taxation for the lenders and the borrowers in these transactions. The borrowers reduce their taxable profits by deducting as expenses the interest payments arising from the transaction and the lenders are exempted from paying any tax on the profits generated by the transaction itself. As a result, this exclusive tax advantage granted to the GDF Suez group could distort competition and consequently be declared illegal and incompatible state aid at the end of the procedure.
The decision of the Commission to open an in-depth investigation will be published in the coming months, and the Luxembourg State and all interested parties, including the beneficiary and its competitors, will have the opportunity to comment on the case in question. The Commission will then adopt a final decision after considering the different parties’ positions.
Remember that Competition Commissioner Vestager has set her State aid policy priorities on tax rulings.
It is the result of a global inquiry on tax rulings in all Member States for the period 2010 to 2012 and part of 2013. DG Competition investigated more than a thousand tax rulings and focused its attention on tax rulings that endorsed transfer-pricing arrangements proposed by the taxpayer for determining the tax basis of an integrated group company.
Following this inquiry, the Commission opened several formal State aid investigations into tax rulings granted by Ireland (Apple case), Luxembourg (Fiat, Amazon and McDonald’s cases), the Netherlands (Starbucks case) and Belgium (the Excess Profits Scheme).
These investigations led to three negative decisions in the Starbucks, Fiat and Excess Profits Scheme cases. The Apple, Amazon and McDonald’s cases are ongoing.
DG Competition has recently presented a working paper on State aid and tax rulings that aims to summarize its preliminary views on tax rulings relating to transfer-pricing rulings.