Advocate General Juliane Kokott issued an opinion yesterday, May 4, finding that the European Commission had erred in its decision that Luxembourg granted French utility company Engie illegal state aid.
The Commission found in June 2018 that Luxembourg had granted unlawful state aid to Engie in tax rulings. Engie and Luxembourg decided to fight the allegations, but the General Court ruled in favour of the Commission in May 2021.
Kokott proposed that the Court of Justice of the EU (CJEU) uphold the appeal of Luxembourg and Engie against the 2021 judgment. She concluded that the Commission decision should be annulled and the General Court ruling set aside.
According to Kokott, tax rulings in themselves do not necessarily constitute illegal state aid provided they are legal nationally and open to all taxpayers. National law is the sole reference framework, she argued.
The AG also argued the Commission take a restricted standard of review when it comes to decisions by tax authorities, specifically limiting its reach to plausibility checks. Rulings that are clearly erroneous in favour of the taxpayer may constitute a selective advantage and breach state aid law.
However, Kokott stressed that the Luxembourg tax rulings granted to Engie were not erroneous, adding that such matters are for a national tax authority and not the Commission or the CJEU.
Otherwise, she said, the European Commission and the CJEU may impinge on the fiscal autonomy of EU member states when it comes to national tax policies.
15 years in the making
The case dates to tax rulings from 2008 to 2014. At the time, Engie was called GDF Suez and the group structured financial transactions through Luxembourg companies.
These rulings concerned the tax treatment of two similar financial transactions between four companies of the GDF Suez group – GDF Suez Treasury Management, GDF Suez LNG Supply, LNG Luxembourg and Electrabel Invest – all based in Luxembourg.
The parent company transferred its shares to a subsidiary within the Engie group, in which the subsidiary then financed the shares through an interest-free convertible loan with an intermediary. This loan was reimbursed by the subsidiary by issuing shares equal to the amount of the loan, plus a premium involving the profits made.
The intermediary sold shares back to the parent company to finance the loan. If any profit was made, the holding company was entitled to the rights of owning the shares issued. The tax rulings also meant that only the subsidiary was taxed on a margin.
Under this structure, the subsidiary paid very little tax by deducting the interest cost while the holding company obtained shares that were not taxable.
These companies mainly acted as intermediaries for intra-group financing transactions within the GDF Suez group. The EU investigation concluded that Luxembourg’s treatment of the financing structures did not reflect economic reality.
After the General Court upheld the Commission’s findings in May 2021, Engie and Luxembourg lodged an appeal with the CJEU.
The AG’s opinion is not binding on the CJEU.
