The European Commission has ruled that Luxembourg was complicit in giving illegal tax benefits to energy firm Engie.
An investigation launched in september 2016 found that Luxembourg authorities had allowed two Engie group companies to avoid paying taxes on “almost all” profits over a decade.
The practice is illegal under EU State aid rules due to the “undue advantage” it gives.
Luxembourg has been ordered to recover about €120 million in unpaid tax from the energy firm.
Commissioner Margrethe Vestager, in charge of competition policy, said “Luxembourg gave illegal tax benefits to Engie. Its tax rulings have endorsed two complex financing structures put in place by Engie that treat the same transaction in an inconsistent way, both as debt and as equity.
“This artificially reduced the company’s tax burden. As a result, Engie paid an effective corporate tax rate of 0.3% on certain profits in Luxembourg for about a decade. This selective tax treatment is illegal.”
In 2008 and 2010, respectively, Engie implemented two complex intra-group financing structures for two Engie group companies in Luxembourg, Engie LNG Supply and Engie Treasury Management. These involved a triangular transaction between Engie LNG Supply and Engie Treasury Management, respectively, and two other Engie group companies in Luxembourg.
The Commission concluded that Luxembourg’s tax treatment of these financing structures did not reflect economic reality.