Tax rulings for GDF Suez state aid?

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Energy - GDF Suez - Competition - Tax Rulings - State aid

On 5 January 2017, the European Commission published a public version of its decision of 19 September 2016, by which it initiated the procedure of article 108(2) TFEU against two tax rulings of the Luxembourg tax administration (d.d. 9 September 2008 and 9 February 2010) in favour of GDF Suez it considered, due to the resulting selective advantage, to constitute state aid that is not compatible with the internal market (see article 107, (1) – (3) TFEU).

In a press release of 19 September 2016 the European Commission indicated that Luxembourg granted a selective advantage to GDF Suez group companies by issuing the group private rulings concerning the taxation of intercompany free interest loans convertible into equity.

According to the European Commission, the rulings allowed the borrowers to deduct imputed interest payments on the interest-free loans in Luxembourg, thus allowing the group to greatly reduce its Luxembourg taxable income. The loans were later converted into company shares which incorporated the value of the interest payments.

Luxembourg agreed in tax rulings that no profit attributable to the previously deducted interest was taxable in Luxembourg as it was dividend-like and associated with an equity investment.

The European Commission considers that in the tax rulings the two financial transactions are treated both as debt and as equity, which is an inconsistent tax treatment of the same transaction and which gives rise to double non-taxation.