Luxembourg told to recover EUR 120m Engie state aid

(BRUSSELS) - Luxembourg allowed two Engie group companies to avoid paying taxes on almost all their profits for about a decade, without any valid justification, the European Commission found on Wednesday.

Under EU State aid rules this is illegal because it gives Engie an undue advantage. Luxembourg has now been told it must recover about EUR 120 million in unpaid tax.

"Luxembourg gave illegal tax benefits to Engie," said Competition Commissioner Margrethe Vestager: "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."

Following an in-depth investigation launched in September 2016, the Commission concluded that two sets of tax rulings issued by Luxembourg have artificially lowered Engie's tax burden in Luxembourg for about a decade, without any valid justification.

Engie LNG Supply buys, sells and trades liquefied natural gas and related products, while Engie Treasury Management manages internal financing within the Engie group.

Both are Luxembourg-incorporated companies that are fully-owned by the Engie group and ultimately controlled by Engie S.A. in France.

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. Tax rulings issued by Luxembourg endorsed an inconsistent treatment of the same transaction both as debt and as equity. On this basis, the Commission concluded that the tax rulings granted a selective economic advantage to Engie by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the rulings enabled Engie to avoid paying any tax on 99% of the profits generated by Engie LNG Supply and Engie Treasury Management in Luxembourg.

The non-confidential versions of the decision will be made available under the case number SA.44888 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.