Engie Gets $139-Million Tax Bill as EU Bans Luxembourg Pact

(Bloomberg) -- French energy utility Engie SA faces a 120 million-euro ($139 million) tax bill after the European Union said it benefited from an unfair fiscal arrangement with Luxembourg.

Concluding a state-aid probe into the tax affairs of Engie, the European Commission on Wednesday said Luxembourg selectively deviated from provisions of national law to help lower the tax bill for France’s former natural-gas monopoly, then known as GDF Suez.

The probe is one of a string of cases by the EU, which has sought to crack down on member nations giving a select few companies a tax advantage over others. The tax breaks at issue in the case were implemented by Engie in 2008 and in 2010, and allowed the company to pay an effective corporate tax rate of 0.3 percent on certain profits in Luxembourg for about a decade. This is illegal, the EU’s antitrust chief said.

The so-called tax rulings “endorsed two complex financing structures put in place by Engie that treat the same transaction in an inconsistent way, both as debt and as equity,” EU Competition Commissioner Margrethe Vestager said in a statement. “This artificially reduced the company’s tax burden.”

EU Clampdown

The Brussels-based EU executive authority’s state-aid officials embarked on a quest in 2013 to find questionable deals among the thousands of otherwise legal tax pacts governments have arranged for companies for years. The clampdown saw Ireland ordered to recoup a record 13 billion euros in back taxes, plus interest, from Apple. The first court hearings in a series of pending appeals are set to begin Thursday, pitting Luxembourg and a Fiat Chrysler Automobiles NV unit against the EU over a 2015 payback order for 30 million euros.

Luxembourg, which has recently changed its laws to avoid a clash with international standards, rejected the commission’s findings, saying that Engie’s tax structures were in line with rules applicable at the time and there was no selective treatment.

“Luxembourg considers that Engie has not been granted state-aid incompatible” with EU rules, the finance ministry said in an emailed statement. “Luxembourg will use appropriate due diligence to analyze the decision and reserves all its rights.”

‘Big or Small’

At a press conference in Brussels on Wednesday, Vestager said all the changes Luxembourg is making “are important steps in the right direction to avoid non-taxation in the future.” The EU’s ultimate goal is “that all companies, big or small, pay their fair share of tax where profits are earned because only then can companies compete on equal terms.”

Luxembourg’s not off the hook yet. The EU is still analyzing specific tax rulings it has approved and “may open more cases,” Vestager told reporters.

Engie denied receiving any state aid from Luxembourg, saying in a statement that it will appeal the commission’s decision.

“Engie has fully complied with the applicable tax legislation and considers that it has not benefited from a state aid,” the company said, adding that it “remains confident that this announcement will have no impact on its 2018 results.”

The EU probe, which started in 2016, concluded that Luxembourg’s treatment of Engie’s financing structures didn’t reflect economic reality and gave the company a selective economic advantage by allowing it “to pay less tax than other companies subject to the same national tax rules.”

‘Ninety-Nine Percent’

“In fact, the rulings enabled Engie to avoid paying any tax on 99 percent of the profits generated by Engie LNG Supply and Engie Treasury Management,” the regulator said, referring to two Engie companies based in Luxembourg.

The intensified scrutiny pushed the country -- a key target alongside the Netherlands and Ireland for the EU probes -- to regulate the way so-called tax rulings are given to companies. The change, effective since January last year, will make it harder for the financing arms of multinational corporations to get special tax deals.

Luxembourg was among the first nations to be singled out in 2014 on its tax practices, when a group of investigative reporters published thousands of pages from secret arrangements between the tiny nation and companies including Walt Disney Co., Microsoft Corp.’s Skype and PepsiCo Inc. The so-called LuxLeaks publications have been used by the European Commission in its deliberations.

Luxembourg is still facing an EU state aid probe over tax arrangements with McDonald’s Corp.

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