#StateAid: EU opens in-depth investigation into Luxembourg's tax treatment of #GDFSuez, renamed #Engie

The European Commission has opened an in-depth investigation into Luxembourg's tax treatment of the GDF Suez group, renamed Engie. The EU is concerned that several tax rulings issued by Luxembourg may have given GDF Suez an unfair advantage over other companies, in breach of EU state aid rules, writes Catherine Feore.

The ruling comes just over 20 days since the controversial Apple decision, which Ireland and Apple are planning to appeal.

The opening of an in-depth investigation gives interested third parties and the member states concerned an opportunity to submit comments. The European Commission’s spokesperson, Ricardo Cardoso, emphasized that the opening of an investigation does not prejudge its outcome.

Tax rulings aren’t always a tax dive

Since June 2013, the Commission has been investigating the tax ruling practices of EU countries. Tax rulings may simply confirm tax arrangements and do not necessarily confer a selective tax advantage to specific companies. But if they do give an unfair advantage, this can be considered to be a subsidy.

How the deal worked

GDF Suez is a French electric utility company, the investigation concerns four subsidiaries of the group established in Luxembourg.

The investigation will look into whether the tax treatment of GDF Suez was consistent with the application of Luxembourg's national tax law. The investigators will ask if this resulted in an unfair tax advantage unavailable to other companies operating in the Duchy.

I will spare you the details of which companies were borrowing and which were lending among themselves, but the long and the short of it is that those who borrowed recorded payments to the lender as interest payments; interest payments are tax deductible in Luxembourg - except that no interest was every paid. Let’s call this dodge number one.

Tax dodge number two involved the loans being converted into company shares in favour of the lender. Again, there is nothing wrong with this per se, it is just that it resulted in the repayments being treated as equity and not being taxed... again. Had the lender received interest income, it would have been subject to corporate tax in Luxembourg.

So tax revenue - with Luxembourg's consent - is denied to the state.

Margrethe Vestager, commissioner in charge of competition policy, said: "Financial transactions can be taxed differently depending on the type of transaction, equity or debt - but a single company cannot have the best of two worlds for one and the same transaction. Therefore, we will look carefully at tax rulings issued by Luxembourg to GDF Suez."

To those of a more generous disposition, this complicated arrangement could be seen as a valuable contribution to the Duchy's impoverished tax planning industry.

'I’m Lovin’ It'

The Commission also has an ongoing investigation into tax rulings granted by Luxembourg to McDonald’s. These exempt almost all of the group company's income from taxation in Luxembourg on the basis that they are taxed in the US, despite the Luxembourg tax authorities' knowledge that they were not taxed in the US. The Commission is unwilling to confirm speculation that the fine for McDonald’s will amount to approximately €500 million in unpaid tax to be paid to the Duchy.

Further reading for the enthusiast!

#AppleTax: Dear Tim Cook – you are not Mother Teresa

#StateAid – ‘Only in Belgium’

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