Engie financing case breaks new ground for EU state-aid busters

12 July 2018 10:04am

20 June 2018. By Matthew Newman.

French utility Engie is just the latest multinational found by the European Commission to have benefited from preferential tax arrangements in Luxembourg, but the case differs from the others in the type of alleged tax-avoidance mechanism used.

Previous investigations in Luxembourg into tax arrangements for a Fiat finance unit, Starbucks and Amazon focused on how these multinationals allegedly skirted tax through complex transactions between subsidiaries. In a record case, the commission has obliged Ireland to recover 13 billion euros ($15 billion) from the iPhone maker.

The Engie case shows the commission taking a slightly different direction. The probe focused on the internal mismatch in how Luxembourg handles the tax breaks on a financial transaction between Engie's Luxembourg-based units.

In particular, the EU executive said it suspects the transactions were treated both as debt and as equity in the tax rulings. This would have enabled both the borrower and the lender to avoid tax — hence “non-taxation at all levels.”

The commission said today that Engie, a utility multinational formerly known as GDF Suez, is obliged to pay back about 120 million euros to Luxembourg (see here).

— Inconsistent tax treatment —

The commission investigated Luxembourg’s tax rulings — arrangements on how future transactions would be taxed — concerning two companies belonging to Engie, and concluded that the government had misapplied its own tax rules, resulting in a favorable non-taxation on certain intra-group loans.

The EU watchdog, which vets whether government measures give companies unfair advantages over rivals, said these rulings granted Engie tax arrangements that weren’t available to other companies subject to the same tax rules in Luxembourg.

In a statement today, Luxembourg denied granting any special tax treatment or selective advantage to Engie. The government said it will study the decision and that it "reserves all its rights."

The Grand Duchy could file an appeal at the EU courts in Luxembourg.

Joh Sung-Wook Interview