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Commission ‘erred’ in Luxembourg tax finding

An Advocate General at the EU's highest court has found that the European Commission "erred" in finding that Luxembourg had granted illegal state aid to French energy company Engie in the form of tax advantages.

The case is one of a number that are being closely watched in the context of the legal battle involving Apple, the Irish Government and the commission over alleged favourable tax treatment granted to Apple.

The commission had found in 2018 that Luxembourg had granted Engie unlawful state aid in connection with restructuring operations in Luxembourg.

The General Court of the European Union later upheld the commission’s view, and dismissed an action brought by Luxembourg and Engie, who then appealed to the Court of Justice of the European Union (CJEU).

In the commission’s view, the group had, in tax rulings, been granted tax treatment whereby almost all profits made by two subsidiaries in Luxembourg would ultimately remain untaxed.

Tax rulings

In an opinion delivered yesterday (4 May), Advocate General Juliane Kokott said that the CJEU should uphold the appeals and annul the commission decision.

She stressed that tax rulings did not, in themselves, constitute illegal state aid.

“Tax rulings are unproblematic in terms of state aid law as long as they are open to all taxpayers, and are in line with the relevant national tax law, which forms the sole reference framework,” Kokott said.

She said that the commission and the General Court proceeded on the basis of an “incorrect reference framework”.

EU cannot ‘shape’ ideal law

They had assumed that the Luxembourg tax law in force at the time contained a principle of correspondence, according to which a tax exemption for certain income at the level of the parent company was contingent on taxation of the underlying profits at the level of the subsidiary.

“Such a link is not, however, apparent, and cannot simply be interpreted into Luxembourg law because it might be preferable. The EU institutions cannot use state-aid law to shape an ideal tax law.,” the Advocate General stated.

She added that only tax rulings that were “manifestly erroneous in favour of the taxpayer” might constitute a selective advantage and be considered an infringement of state-aid law.

Opinions from an advocate general are not binding, but are generally followed by the CJEU.

The CJEU is due to hear an appeal from the commission later this month against a decision by the General Court to dismiss a finding by the EU body that Apple must pay Ireland back-taxes of €13 billion.

The commission had found that two tax rulings issued by Revenue to determine the amount of tax to be paid by two Irish-incorporated Apple subsidiaries amounted to illegal state aid under EU law.