The European Commission (Commission) announced the opening of a formal investigation into advance tax rulings (ATRs) granted by Luxembourg to companies of the Engie group since 2008. This investigation concerns an individual measure, like most of the recent tax State aid investigations, including those pending into the tax treatment of Amazon and McDonald’s in Luxembourg. As such, it should not directly impact other taxpayers.
According to EU State aid rules, the granting of State aid that may distort competition by favouring certain undertakings, is generally incompatible with the EU Single Market. The Commission’s decision to open a formal investigation constitutes a new step in checking whether the ATRs merely confirmed the correct application of Luxembourg tax laws or instead granted a special advantageous treatment to its recipients. This new investigation is part of a series of cases opened by the Commission to tackle tax avoidance and base erosion with the State aid tools. More cases are expected to be opened against several Member States.
In the case at hand, a Luxembourg debtor company books a deductible expense under a convertible loan issued by another Luxembourg company. For the latter, the accrual in value of that loan is not yet taxed. Upon conversion of the loan into equity, according to the Commission, a non-taxable dividend-like income is recognized. In the preliminary view of the Commission, this would constitute State aid. Please note that the decision to open a formal investigation does not prejudice the final outcome of the case.
The Commission will now look in depth at the matter using the investigation tools available pursuant to Council Regulation (EU) 2015/1589. The Luxembourg Minister of Finance issued a press release stating no selective advantage had been granted to the beneficiaries of the ATRs and that it will cooperate with the Commission to clear doubts in this regard. Today’s announcement by the Commission can be found here. The press release of the Luxembourg government can be found here.