The European Commission has published the non-confidential version of the final negative decision adopted on June 20, 2018 concluding that Luxembourg granted undue tax benefits to Engie of around €120 million.
In 2008, Engie put in place a complex hybrid convertible loan structure between three Engie group companies. This triangular structure financed Engie LNG Supply's acquisition of its existing gas trading business in Luxembourg. This structure enabled the treatment of the same financing both as debt (from the perspective of Engie LNG Supply) and as an investment in return for shares (from the perspective of Engie LNG Holding). As a result, LNG Supply only paid taxes on about 1% of its profits. The remaining 99% were not taxed either at the level of LNG Supply or at the level of Engie LNG Holding, which received these profits in the form of shares. Income from shares is exempted from taxation under standard Luxembourgish tax law.
The Commission's State aid investigation concluded that the Luxembourgish tax rulings gave Engie a significant competitive advantage in Luxembourg. It does not call into question the general tax regime of Luxembourg. In particular, the Commission found that the tax rulings endorsed an inconsistent tax treatment of the same structure leading to non-taxation at all levels. Engie LNG Supply and Engie Treasury Management each significantly reduce their taxable profits in Luxembourg by deducting expenses similar to interest payments for a loan. At the same time, Engie LNG Holding and C.E.F. avoid paying any tax because Luxembourg tax rules exempts income from equity investments from taxation. This is a more favourable treatment than under the standard Luxembourgish tax rules. Therefore, Luxembourg's tax treatment of Engie endorsed by the tax rulings is illegal under EU State aid rules.
Source: European Commission
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