Luxembourg: European Commission erred in finding grant of State aid (CJEU judgment)

A CJEU judgment decision that the EC erred in finding grant of State aid

A CJEU judgment decision that the EC erred in finding grant of State aid

The Court of Justice of the European Union (CJEU) today held that the European Commission (EC) erred in finding that Luxembourg 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 121 KB] from the CJEU, the EC found in June 2018 that Luxembourg had granted the taxpayer unlawful State aid in connection with two tax ruling on intra-group financing transactions. In the EC’s view, the tax treatment had enabled the taxpayer to avoid taxation on almost all profit made by the taxpayer’s subsidiaries in Luxembourg in a manner that was incompatible with the internal market.

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 of the CJEU in May 2023 issued an opinion proposing that the CJEU uphold the appeals and set aside the judgment of the General Court because the EC had erred in finding that Luxembourg granted unlawful State aid to the taxpayer. Read TaxNewsFlash

Consistent with the Advocate General’s opinion, the CJEU today held that the EC erred in finding that Luxembourg granted unlaw State aid to the taxpayer.

  • The court first noted that in order to determine whether a national measure constitutes State aid, the EC must demonstrate that the measure confers a selective advantage on the beneficiary. In order to classify a tax measure as “selective,” the EC must begin by identifying the reference system, that is the “normal” tax system applicable in the State concerned. Next, the EC must demonstrate that the measure at issue derogates from that reference system because it differentiates between undertakings in a comparable situation.
  • The provisions of Luxembourg law at issue do not expressly make the exemption of income from participations at the level of a parent company dependent on the taxation of distributed profit at the level of its subsidiary. That was the interpretation of those provisions put forward by Luxembourg. In the present case, the EC departed from that interpretation, finding that it was incompatible with the general objective of taxing all resident companies. However, the EC is in principle required to accept the interpretation of provisions of national law given by the member state provided that that interpretation is compatible with the wording of those provisions. A finding of unlaw State aid was not warranted to the extent the Luxembourg tax authorities did not depart from their own practice concerning comparable transactions.

Read a December 2023 report prepared by the KPMG EU Tax Centre

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