Share with your friends

Luxembourg: EC state aid investigation, tax rulings granted Finnish-headquartered company

Luxembourg: EC state aid investigation

The European Commission today announced it has opened an in-depth investigation to examine whether tax rulings granted by Luxembourg to a food and drink packaging company headquartered in Finland may have given the company an unfair advantage over its competitors, in breach of EU state aid rules.


Related content

As explained in an EC release, the investigation concerns three tax rulings issued by Luxembourg to a Luxembourg-based company of the multinational group entity that is headquartered in Finland.

  • The Luxembourg company carries out intra-group financing activities, and receives interest-free loans from another company of the multinational group based in Ireland. These funds are then used by the Luxembourg company to finance other group companies through interest-bearing loans.
  • The three tax rulings issued by Luxembourg allow the Luxembourg company to unilaterally deduct from its taxable basefictitious interest payments” for the interest-free loans it receives. According to Luxembourg, these fictitious expenses correspond to interest payments that an independent third party in the market would have demanded for the loans that the Luxembourg company receives. However, the Luxembourg company does not pay interest. These deductions reduce the Luxembourg company's taxable base and, as a result, the company is taxed on a substantially smaller profit.

The EC release further notes that at this stage, the EC has doubts that this tax treatment, as endorsed in the Luxembourg tax rulings, can be justified. The EC’s concerns are that Luxembourg has accepted a unilateral downward adjustment of the Luxembourg company’s taxable base that may grant the company a selective advantage. In turn, this would allow the group to pay less tax than other stand-alone or group companies that have transactions priced in accordance with market terms. If confirmed, this would be “illegal state aid.”

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

Read a March 2019 report prepared by the KPMG member firm in Luxembourg

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal