EC Hits Engie for Unfair State Aid (Update)

(Adds Engie denial)

The European Commission has found that Luxembourg allowed two Engie group companies to avoid paying taxes on almost all their profits for about a decade without any valid justification, it said as it wound up its enquiry June 20.

"This is illegal under EU state aid rules because it gives Engie an undue advantage. Luxembourg must now recover about €120mn ($140mn) in unpaid tax," the EC said.

In 2008 and 2010, respectively, Engie – then known as GDF Suez – implemented two complex intra-group financing structures for Engie LNG Supply and Engie Treasury Management, both in Luxembourg. The EC concluded that Luxembourg's tax treatment was inconsistent, treating the same transaction both as debt and as equity. On this basis, the EC concluded that the tax rulings enabled Engie to avoid paying any tax on 99% of the profits generated by Engie LNG Supply and Engie Treasury Management. 

Today's decision follows an in-depth investigation launched in September 2016. Commissioner Margrethe Vestager, in charge of competition policy, said: "Luxembourg had artificially reduced the company's tax burden. As a result, Engie paid an effective corporate tax rate of 0.3% on certain profits in Luxembourg for about a decade. This selective tax treatment is illegal."

However, Engie said in a statement June 20 that it disputed the finding and would seeking an annulment of it. It said it had "fully complied with the applicable tax legislation and considers that it has not benefited from a state aid. In addition, Engie was transparent by requesting, from the Luxembourg authorities, a ruling confirming its correct interpretation of Luxembourg law.