EU General Court confirms EC’s final decision in Engie State aid case

May 2021

In brief

The General Court (GC) of the European Union on May 12 rendered its judgments (T-516/18 and T-525/18) regarding the action brought by Engie (formerly GDF Suez) group companies and Luxembourg against the final State aid decision of the European Commission (EC) of June 20, 2018 (SA.44888).

Takeaway: This decision confirms for the first time that the EC can determine the existence of a selective advantage for State aid purposes on the grounds of non-application of a local concept of abuse of law by the local authorities. 

Engie and Luxembourg may appeal the decision to the EU Court of Justice within two months and 10 days of notification of the decision.  Although the specific facts of this case cannot be applied to other taxpayers, multinationals should nevertheless monitor the appeals process and consider how the ultimate decisions could impact their situation.


The EC investigation related to rulings issued by the Luxembourg tax authorities between 2008 and 2014, which confirmed the tax treatment of certain mandatorily convertible instruments (the ‘instruments’) issued by two Luxembourg group subsidiaries (the ‘borrowers’) to two of the group’s other Luxembourg companies (the ‘lenders’). 

The rulings were confirming the following tax treatment: 

  • The borrowers treated the instruments as debt and recorded in their accounts accretions, which were deductible at their level.
  • The lenders entered into a forward sale agreement with a third entity and the receipt was subject to a participation exemption.

In its decision, the EC concluded that the rulings granted State aid by incorrectly lowering the tax basis of the Luxembourg companies. 

More specifically, the EC decision argued that the rulings endorsed an inconsistent treatment of the same amounts as representing deductible expenses on the instruments at the borrowers’ level and income exempt under the domestic participation exemption at the creditors’ level.

GC decision 

The GC approved the EC’s approach of analyzing this intragroup financing structure by looking at its final economic result, disregarding the specific tax treatment applicable under the Luxembourg law at the time of each individual transaction. 

For the GC, these transactions were designed to be implemented in three successive but interdependent stages achieving a single economic result. 

The GC concluded that the EC was entitled to determine that the combined effect of the transactions derogated from the reference framework and represented a selective advantage because the lenders were allowed to benefit from the provisions of the Luxembourg domestic participation exemption on amounts that correspond - from an economic perspective - to deductible expenses incurred by the borrowers in relation to the instruments.  

In a secondary line of argument, the EC ascertained - in its interpretation - that the criteria laid down by Luxembourg law in order to determine that abuse of law existed were met. Therefore, the group of companies received preferential tax treatment since the rulings did not apply the provision relating to the abuse of law. 

In the light of this provision’s objective  to combat abusive practices in tax matters, the GC considered that the holding companies were in the same factual and legal situation as Luxembourg taxpayers that cannot reasonably expect to benefit from the nonapplication of the abuse of law provisions in cases where the conditions for applying it (in the GC’s interpretation) have been satisfied.  Therefore, the holding companies benefited from a selective advantage. 

On this basis the GC concluded that, under article 107 TFEU, State aid existed.

Contact us

Alina Macovei

Tax Partner, Alternative Investments, PwC Luxembourg

Tel: + 352 49 48 48 3122

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