On January 16, 2015, the European Commission published a decision dated October 7, 2014 relating to a state aid investigation into tax rulings granted by Luxembourg to companies of a multinational group. The decision sets out the factual and legal basis for the Commission’s preliminary view that one of these rulings constitutes state aid.

The decision states that the Commission will continue its investigation, taking into account comments submitted in the course of the procedure, pending a final decision on whether the ruling is compatible with EU law on state aid. Similar decisions were published in September 2014 in respect of rulings issued by Luxembourg, Ireland and the Netherlands concerning three other multinational groups.


In June 2014 the Commission started its investigation into alleged state aid granted by Luxembourg to companies within the multinational group in question by way of a transfer pricing ruling.

Under EU law, the Commission is obliged to review state aid granted by EU Member States and, if it finds that the aid is not compatible with EU law, require the Member States concerned to abolish or alter such aid within a prescribed time period. Broadly speaking, aid is incompatible with EU law if it distorts competition by, for example favoring certain undertakings thus affecting trade between Member States. However, certain aid is specifically considered as being compatible with EU law, such as certain regional aid granted to promote economic development.

The Decision

According to the decision, the ruling in question reduces charges that would normally be borne by the Luxembourg entity concerned. The Commission expressed concerns that the ruling may underestimate the taxable profits of the latter and held that to the extent the Luxembourgish authorities have deviated from the arm’s length principle as regards the contested tax ruling, the measure should be considered selective. Its preliminary view is that this ruling therefore constitutes state aid and may not be compatible with EU law. Accordingly, the Commission decided to initiate the formal state aid investigation procedure.

Next steps

This decision forms the start of the formal procedure to investigate the alleged state aid granted by Luxembourg. The procedure is now open for interested parties including Member States to provide comments to the Commission.

Comment Meijburg & Co

This procedure deals with the question whether or not the multinational group in question reports enough taxable profit in Luxembourg rather than the question currently discussed at OECD level on BEPS which is, in brief, whether or not enough corporate income tax is paid in countries where customers of internationally operating businesses are resident.

Moreover, one may wonder what impact the outcome of this procedure could have on the ruling practices of other Member States. In that respect it is important to note that Luxembourg did not submit any transfer pricing report (including a functional analysis) nor did it explain the type of IP for which the royalties were paid. In addition, the methods used for determining the amount of royalties and taxable profits are - in the opinion of the Commission - unusual and do not seem to correspond to any of the methods listed in the OECD Guidelines.

Furthermore, the Commission feels that the facts of the case indicate that the functions performed by the Luxembourg operating company were much more complex than reported by Luxembourg. Finally, the Commission points out that the ruling request was assessed at very short notice (within 11 days) and that its duration (more than 10 years) was unusually long when compared to rulings in other Member States.

Therefore, we conclude that the doubts that the Commission has about the Luxembourg ruling practice are of a more fundamental nature than its doubts about the practices in some other Member States such as in the Netherlands.

If you would like more information on this topic, our tax advisors will naturally be happy to be of assistance.

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