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Luxembourg: EU General Court upholds EC challenge to tax ruling

Luxembourg: EU General Court upholds EC challenge

The General Court today released a judgment that upheld the European Commission’s decision on a tax ruling as illegal state aid granted by Luxembourg to a multinational entity.


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According to a release [PDF 162 KB] from the General Court:

  • On 3 September 2012, the Luxembourg tax authorities issued a tax ruling in favor of the taxpayer (a member of a multinational group that provided treasury and financing services to the group companies established in Europe). The tax ruling endorsed a method for determining the taxpayer’s remuneration for these services, which enabled the taxpayer to determine its taxable profit on a yearly basis for corporate income tax in Luxembourg.
  • In 2015, the EC concluded that the tax ruling constituted state aid and that it was operating aid that was incompatible with the internal market. The EC also found Luxembourg had failed to notify it of the proposed tax ruling and had not complied with the “standstill obligation.” The EC found that Luxembourg was required to recover the unlawful and incompatible aid from the taxpayer.
  • Luxembourg and the taxpayer each brought an action before the General Court for annulment of the EC’s decision. Their claims were based in part on the EC’s finding that the tax ruling conferred an advantage and that it did not comply with the arm’s length principle.

In today’s judgment, the General Court dismissed the actions and confirms the validity of the EC’s decision. In part, the release from the General Court stated:

The Court makes clear that the arm’s length principle as described by the [EC] in the contested decision is a tool that allows the [EC] to check that intra-group transactions are remunerated as if they had been negotiated between independent companies. Thus, in the light of Luxembourg tax law, that tool falls within the exercise of the [EC] powers under Article 107 TFEU. The [EC] was therefore, in the present case, in a position to verify whether the pricing for intra-group transactions endorsed by the tax ruling at issue corresponds to prices that would have been negotiated under market conditions.

Read a September 2019 report prepared by KPMG’s EU Tax Centre

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