The European Commission has concluded, following an investigation begun in September 2016, that two tax rulings by the Luxembourg authorities in favour of companies in the Engie group (formerly GDF Suez) resulted in illegal state aid amounting to €120m.
In 2008, Engie put in place a complex hybrid convertible loan structure between three group companies, to finance Engie LNG Supply’s acquisition of Engie’s existing gas trading business in Luxembourg. The financing was provided by Engie LNG Holding to Engie LNG Supply via an intermediary.
Engie LNG Supply treated this transaction as a debt, making deductions which accounted for 99% of the company’s profits. No payments were actually made to the intermediary or Engie LNG Holding. Instead, these profits were parked in Engie LNG Supply until Engie converted the loan. This involved passing the profits to the intermediary in the form of shares, which the intermediary then passed on to Engie LNG Holding, which cancelled these shares to receive in cash the profits made by Engie LNG Supply. This structure was endorsed by Luxembourg under a tax ruling in 2008.
In 2010, Engie put in place the same structure between Engie Treasury Management and Compagnie Européenne de Financement (C.E.F.). This was also endorsed by Luxembourg under a separate tax ruling.
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 reduced 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. avoided paying any tax because Luxembourg tax rules exempted income from equity investments.
EU competition commissioner, Margrethe Vestager, said the tax rulings had allowed Engie to pay an effective corporate tax rate of 0.3% on certain profits in Luxembourg for about a decade. ‘This selective tax treatment is illegal,’ she added.
The European Commission has concluded, following an investigation begun in September 2016, that two tax rulings by the Luxembourg authorities in favour of companies in the Engie group (formerly GDF Suez) resulted in illegal state aid amounting to €120m.
In 2008, Engie put in place a complex hybrid convertible loan structure between three group companies, to finance Engie LNG Supply’s acquisition of Engie’s existing gas trading business in Luxembourg. The financing was provided by Engie LNG Holding to Engie LNG Supply via an intermediary.
Engie LNG Supply treated this transaction as a debt, making deductions which accounted for 99% of the company’s profits. No payments were actually made to the intermediary or Engie LNG Holding. Instead, these profits were parked in Engie LNG Supply until Engie converted the loan. This involved passing the profits to the intermediary in the form of shares, which the intermediary then passed on to Engie LNG Holding, which cancelled these shares to receive in cash the profits made by Engie LNG Supply. This structure was endorsed by Luxembourg under a tax ruling in 2008.
In 2010, Engie put in place the same structure between Engie Treasury Management and Compagnie Européenne de Financement (C.E.F.). This was also endorsed by Luxembourg under a separate tax ruling.
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 reduced 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. avoided paying any tax because Luxembourg tax rules exempted income from equity investments.
EU competition commissioner, Margrethe Vestager, said the tax rulings had allowed Engie to pay an effective corporate tax rate of 0.3% on certain profits in Luxembourg for about a decade. ‘This selective tax treatment is illegal,’ she added.
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