Luxembourg: European Commission erred in finding grant of State aid (CJEU Advocate General opinion)

CJEU Advocate General opinion that EC erred in finding that Luxembourg had granted unlawful State aid to taxpayer

European Commission erred in finding grant of State aid

The Advocate General of the Court of Justice of the European Union (CJEU) today issued an opinion that the European Commission (EC) erred in finding that Luxembourg had granted unlawful State aid to the taxpayer.

The joined cases are Engie Global LNG Holding v Commission (C-454/21) and Luxembourg v Commission (C-451/21).


As explained in a release [PDF 100 KB] from the CJEU, the EC found in July 2018 that Luxembourg had granted the taxpayer unlawful State aid in connection with restructuring operations in Luxembourg. In the EC’s view, the taxpayer had been granted tax treatment (in tax rulings) whereby almost all profits made by two subsidiaries in Luxembourg would ultimately remain untaxed. Even though there was only low taxation at the level of the operating subsidiaries through an agreed basis of assessment, the parent companies benefited from the tax exemption for participation income (group relief). As a result, a selective advantage was granted to the taxpayer in derogation of the requirement under Luxembourg tax law that tax exemption at the level of the parent company be afforded only after taxation at the level of the subsidiary.

Luxembourg and the taxpayer appealed to the General Court of the European Union, but that court agreed with the EC and dismissed the actions. Luxembourg and the taxpayer then appealed to the CJEU.

The Advocate General today issued an opinion proposing that the CJEU uphold the appeals and set aside the judgment of the General Court and annul the EC decision.

  • The Advocate General emphasized that tax rulings do not, in themselves, constitute illegal State aid, and they are an important instrument for creating legal certainty. Tax rulings are unproblematic in terms of State aid law as long as they are open to all taxpayers and are in line with the relevant national tax law, which forms the sole reference framework.
  • In that respect, the EC and the General Court incorrectly assumed that Luxembourg tax law required that tax exemption for participation income at the level of the parent company is contingent on taxation of the underlying profits at the level of the subsidiary.
  • In addition, the Advocate General argued in favor of only a restricted standard of review in respect of tax law decisions taken by the tax authorities that is limited to a plausibility check. Not any incorrect tax ruling, but only tax rulings which are manifestly erroneous in favor of the taxpayer may constitute a selective advantage and be considered an infringement of State aid law. Otherwise, the EC would become a de facto supreme inspector of taxes and the CJEU would become de facto supreme tax courts, which would impinge on the Member States’ fiscal autonomy in the field of non-harmonized taxes.
  • The Advocate General found that in the present case, the tax rulings were not manifestly erroneous.

The Advocate General’s opinion is not binding on the CJEU. The role of the Advocates General is to propose to the court, a legal solution to the cases for which they are responsible. The CJEU judges will now begin their deliberations in this case with a judgment to be given at a later date.


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained 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 3712, 1801 K Street NW, Washington, DC 20006.