French energy giant Engie hit with €120 million ‘illegal’ state aid ruling

EU Competition Commissioner Margrethe Vestager called Luxembourg's tax breaks for Engie "illegal" under state aid rules. [Alexandros Michailidis / Shutterstock]

Luxembourg will have to recover about €120 million in unpaid tax from French energy giant Engie, after the European Commission found the Grand Duchy guilty of breaching strict state aid rules.

The EU executive announced on Wednesday (20 June) that Luxembourg allowed two Engie group companies to avoid paying tax on almost all their profits for nearly a decade.

After an investigation lasting since September 2016, the Commission found that Luxembourg granted a “selective economic advantage” to two subsidiary companies, Engie LNG Supply and Engie Treasury Management, meaning the French company did not have to pay any tax on 99% of those groups’ profits.

EU Competition boss Margrethe Vestager said that Luxembourg’s decisions had “artificially reduced the company’s tax burden”, adding that Engie only paid “an effective corporate tax rate of 0.3% on certain profits”.

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In a statement, the Commission explained that the two Engie-owned companies reduced their taxable profits in the Grand Duchy by deducting expenses similar to loan interest repayments. Luxembourg tax rules exempt income from equity investments from taxation.

But this means that Engie, formerly known as GDF Suez, enjoyed more favourable terms than standard Luxembourg tax rules, because income from subsidiary companies is only tax free for the shareholder if the income was taxed at subsidiary level.

In its investigation, the EU executive found that Engie LNG Supply should have been taxed at a standard 29% rate. The other company’s profits have not been assessed yet but the Commission insisted that it will be “closely monitored”.

Today’s ruling is not a fine and the Commission’s competition directorate is keen to avoid using ‘punishing’ language. Instead, Vestager’s department maintains that the €120 million recovery is meant to “restore equal treatment with other companies”.

The Engie ruling is the latest in a long string of tax investigations involving Luxembourg, including so-called sweetheart deals with Fiat, Starbucks, McDonald’s and IKEA, the latter two of which are currently ongoing.

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