VW Is Said to Face EU Scrutiny Over Luxembourg Tax Affairs

(Bloomberg) -- Volkswagen AG’s fiscal affairs in Luxembourg are under scrutiny from the same European Union watchdogs who slapped Apple Inc. and Amazon.com Inc. with massive tax bills, according to a person familiar with the matter.

The European Commission’s competition unit is looking into whether the carmaker, mired in a separate scandal over diesel emissions, may have benefited from an unfair tax deal from the Grand Duchy, according to the person, who spoke on condition of anonymity because the process isn’t public. The preliminary query is part of a wider crackdown on sweetheart tax deals that’s snared some of the world’s biggest companies.

While VW could potentially face an order to pay millions of euros in back taxes, it’s also possible the regulator could find no wrongdoing and close the case.

German magazine Der Spiegel reported in October that the carmaker’s tax structures in Luxembourg since 2012, involving a holding company and a financing company, helped it avoid paying higher taxes back home. VW in 2014 also decided to transfer almost two dozen subsidiaries from a Netherlands-based holding company to Volkswagen Finance Luxemburg SA, the magazine said.

VW’s tax in the country is in line with applicable laws and not based on a so-called tax ruling given out by Luxembourg authorities, company spokesman Nicolai Laude said by email.

Luxembourg’s finance ministry and the European Commission declined to comment.

Tax Quest

The Brussels-based EU executive authority is targeting tax practices that give a selective advantage to some companies to attract their business and the jobs attached. Its 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 ($16 billion) in back taxes, plus interest from Apple.

“If a company is under public ownership, they have a particular responsibility also to follow the spirit of the tax law and not only the letter,” said Sven Giegold, a German Green member of the European Parliament.

A report by the Greens/EFA lawmakers in the European Parliament helped trigger another EU probe last year into the tax affairs of Ikea. The report argued Ikea, which is privately held, may have avoided at least 1 billion euros in tax from income from stores from 2009 to 2014. The EU on Tuesday published a letter to the Dutch government in which it said it may demand Ikea units supply more information on late founder Ingvar Kamprad’s role at a Dutch unit since data provided by the Netherlands to date was “not sufficient.”

VW Woes

A full-blown tax probe would add to VW’s regulatory woes. The Wolfsburg, Germany-based carmaker has already earmarked more than 25 billion euros in fines, settlements and other costs since it admitted in September 2015 that it used software to cheat on emissions tests on 11 diesel models.

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.

Special Attention

Ireland, the Netherlands and Belgium have also been picked out for special attention as the EU regulator has homed in on decisions that could potentially favor select companies. Such question rounds, as in the case of VW, are often just the start of investigations and don’t necessarily indicate there’ve been any violations.

Luxembourg is still facing two formal EU state aid probes over tax deals for McDonald’s Corp. and Engie SA that are at a much more advanced stage.

Starbucks Corp. and a Fiat Chrysler Automobiles NV unit were first to get a negative EU decision, in 2015, and were ordered to repay as much as 30 million euros each to the Netherlands and Luxembourg respectively. The following year, 35 companies including Anheuser-Busch InBev NV were asked to pay as much 700 million euros in total back to Belgium.

Top Man

Gert Jan Koopman, the commission’s deputy director general for state aid and Competition Commissioner Margrethe Vestager’s top man in charge of the cases, has said that the EU’s probes are nowhere near finished.

“We are still looking at a variety of individual cases, but also a number of schemes in member states,” Koopman said at an event last year. “This remains a very large priority and I would also expect over the next year for there to be a large number of cases.”

While appeals have been filed at the EU courts, a first hearing has yet to be scheduled. Any ruling will help lawyers establish legal precedents on the use of state-aid law.

©2018 Bloomberg L.P.