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EU state aid update

Tax Development Aug 30, 2016

Negative decision for Apple and Ireland

On 30 August 2016, the European Commission (EC) concluded that Ireland had granted Apple illegal tax benefits worth up to EUR 13 billion between 2003 and 2014, by issuing two tax rulings in 1991 and 2007. These rulings established transfer pricing (TP) calculation methods for two of Apple's Irish subsidiaries. The selected TP methods allowed the subsidiaries to derive worldwide profits, most of which were subsequently allocated to a "head office" that was not based in any country.

The applied tax rulings were qualified as selective by the EC and are illegal under EU state aid rules because they grant Apple a significant advantage over other businesses. As a consequence of this preferential treatment, an amount of EUR 13 billion (plus interests) should be paid by Apple to Ireland. This amount could be shared between several EU members should other countries require Apple to pay more taxes on the profits recorded by the Irish subsidiaries.

The Irish Ministry of Finance denied any grant of state aid and announced the Irish government’s decision to appeal the EC’s decision, stating that the full amount of the tax due from Apple was collected on the grounds that:

  1. Revenue did not depart for the applicable tax law;
  2. When applying the law, no preference was shown; and
  3. The full tax due was paid in accordance with the law.

The US Secretary of Treasury expressed its disagreement with EC’s decision, characterizing it as an attempt to affect the US tax base and consequently the US tax income, as Apple would be eligible to claim a US credit or deduction for the taxes paid in Ireland.

Several EU members expressed their interest in claiming part of a fair share over the EUR 13 billion due, as this option was introduced in EC’s decision.

EU Commission opens in-depth state aid investigation into tax treatment of GDF Suez (Engie) by Luxembourg

On 19 September 2016, the EC announced the opening of an in-depth investigation into tax rulings granted by Luxembourg to GDF Suez (now Engie) which appear to have given an unfair advantage to GDF Suez compared to other companies subject to the same national taxation rules of Luxembourg.

The investigation refers to several tax rulings related to the tax treatment of two similar financial transactions between four Luxembourg-based companies of the GDF Suez group. These financial transactions are convertible loans bearing zero interest for the lender. A convertible loan was granted in 2009 by LNG Luxembourg (lender) to GDF Suez LNG Supply (borrower) and another one in 2011 by Electrabel Invest Luxembourg (lender) to GDF Suez Treasury Management (borrower).

According to the EC, these financial transactions are treated both as debt and as equity, resulting into an inconsistent tax treatment of the same transaction. Nevertheless, the borrowers can make provisions for interest payments to the lenders, and the lenders' income is considered to be equity remuneration similar to a dividend from the borrowers (transactions treated as equity).

The Luxembourg Ministry of Finance responded to the announcement of the EC, stating that it does not regard those rulings as incompatible state aid, as no special treatment or selective advantage was granted to the group.