On 5 November 2014, a group of investigative journalists ("ICLG") placed approximately 540 rulings granted by the Luxembourg tax administration to some 340 companies active in a large number of industries (energy, financing, media, retail, health, etc.). The rulings were for a large majority granted during the period between 2008 and 2010. All of these documents have been made available on a publicly accessible website. Most of the companies involved are mentioned by name, more will follow.

Subject of the rulings

These rulings concern a wide array of structures that mainly relate to intra-group financing activities performed by Luxembourg companies. The arm's length spread remaining at the level of the Luxembourg company in back-to-back loan structures is obviously often dealt with in these documents. It must be noted that since the Luxembourg tax administration published its Circular 164/2 of 28 January 2011 on the tax treatment of intra-group financing transactions, rulings regarding intra-group financing activities are only granted provided that the arm's length character of the transaction is backed by a transfer pricing study.

The intra-group financing rulings also often cover additional and more complex structuring elements, such as the use of a Luxembourg branch of a foreign company paying interest on loans granted by that same foreign parent company. Using the tax Luxembourg tax consolidation regime, the interest cost borne by the Luxembourg branch is then used to offset interest income obtained by other Luxembourg group companies granting intra-group loans.

The leaked rulings also cover structures set up to benefit from the specific tax regime for income stemming from intellectual property rights. This regime is currently already under scrutiny by the EU Commission for potential EU state aid.

State aid

In the current enforcement climate where the Commission has opened the hunt for "fiscal State aid",[1]this is like throwing a lightened match in a pool of gasoline. If the Commission wants to find out which companies obtained tax rulings, it now only has to click to find out. The ICLG link is easy to surf, organised by country or sector in case you want to do a quick search. It is a disaster for the companies concerned.

Background: In March 2014, the European Commission pushed Luxembourg formally to disclose detailed information on specific rulings, a true fishing expedition by which the Commission sought to access names of particular companies that had obtained rulings. Luxemburg refused to submit and seized the Court of Justice in Luxemburg to oppose the Commission's "speculative requests for information". The Commission did not await the outcome and opened formal investigations in June, targeting inter alia a particular ruling in benefit of the main automobile manufacturers.

With the disclosed information, certainly already downloaded by the Commission's services, the Commission knows what it needs to move to the next steps: investigate the companies.

What do you need to do know?

  • Check out whether your company is among the names disclosed.
  • If not, check whether your company has a ruling with the Luxemburg authorities.
  • Call us for a "health check" of your ruling and for further advice.

What are our arguments to help you defend your rights?

  • The Commission may not use the information unlawfully disclosed, which it could not have obtained lawfully.
  • The Commission's attempts to access or use information on specific rulings are incompatible with the rights of defence.
  • The Commission's way of hunting down fiscal State aid is a breach of the principle of proportionality.
  • The Commission fails to respect the competence of Member States in matters of direct taxation.
  • The rulings are fully in line with the Luxemburg tax system.
  • The Luxemburg tax system does NOT grant individual companies selective advantages, in other words: there is no fiscal State aid!

Background: In the past, the Commission challenged general tax schemes (laws) under State aid rules, not individual rulings. It is now taking the fight one step further, unduly stretching the concept of "State aid". As YOUR legal advisors, we help you proof that YOUR tax ruling does NOT involve a selective advantage and does not involve any State aid.