Vestager Targets Engie’s Taxes as She Meets U.S. Critics

  • EU already looking at McDonald’s, Amazon’s Luxembourg taxes
  • Apple faces $14.5 billion bill in Ireland after EU probe

Margrethe Vestager is targeting the tax affairs of France’s biggest gas distributor on the eve of her meetings with some of the toughest critics of her investigations of Apple Inc. and other American firms.

The European Union Antitrust Commissioner is meeting Monday with officials including U.S. Treasury Secretary Jacob J. Lew, whose February letter to top EU authorities criticized what he called the unfair targeting of American firms. The addition of France’s Engie SA to those investigated by the EU for allegedly unfair tax advantages may help tone down some of the harsher complaints about Vestager, who dumped a tax bill of as much as 13 billion euros ($14.5 billion) on Apple last month over its Irish operations.

“The announcement of the Apple decision was carefully timed to attract maximum media attention,” said Georg Berrisch, a lawyer for Baker Botts LLP in Brussels. “Today’s decision against a large European company seems equally skillfully timed to appease U.S. criticism that the commission is only going after U.S. targets.”

Vestager has repeatedly denied focusing on American companies in her quest to weed out unlawful deals from the more than 1,000 tax rulings across the 28-nation bloc she is analyzing. The EU’s state-aid enforcement in the field of taxation is a matter of “fairness” that obeys a basic rule of thumb, according to her.

“A government cannot give special tax treatment to certain companies that are not available to others,” Vestager said Monday in a speech in Washington.

Amazon & McDonald’s

U.S. companies such as Inc. and McDonald’s Corp. are also being probed for the tax rulings they got from Luxembourg. Starbucks Corp. and Fiat Chrysler Automobiles NV were ordered in October to repay about 30 million euros each in back taxes, and Anheuser-Busch InBev NV is among 35 companies that were ordered in January to pay as much 700 million euros in illegal tax breaks back to Belgium.

“If we are now more likely to open cases against U.S. companies, it is because we are now getting information from other sources,” Vestager said in an interview published Sept. 16 in Handelsblatt. “It was a hearing in the U.S. Senate that told us just how Apple’s profits in Europe were taxed. These kind of facts had been totally secret before.”

Margrethe Vestager
Margrethe Vestager
Photographer: Jasper Juinen/Bloomberg

In the latest probe, the Brussels-based watchdog said it will look at whether Luxembourg tax authorities selectively deviated from provisions of national law in rulings given to Engie, formerly known as GDF Suez. The arrangement appears “to treat the same financial transaction between companies of GDF Suez in an inconsistent way, both as debt and as equity,” it said.

“Financial transactions can be taxed differently depending on the type of transaction, equity or debt -- but a single company cannot have the best of two worlds for one and the same transaction,” Vestager said. The tax rulings in this case “seem to contradict national taxation rules and allow GDF Suez to pay less tax than other companies.”

Luxembourg said in a statement that that no special tax treatment or selective advantage had been awarded to any Engie unit in Luxembourg.

Special Deals

Engie spokeswoman Patricia Marie said the company “is fully cooperating with” the EU. Engie, which is 33 percent owned by the French government, has had operations in Luxembourg since 1933, and employs about 300 people there in energy services, gas trading and other units, she said.

The EU antitrust regulator three years ago embarked on a crusade to rein in governments that woo big companies with special deals, usually known as tax rulings, allowing them to reduce their fiscal liability by booking profits abroad. Amazon’s deal with Luxembourg is seen as next in the firing line, after the Apple decision concerning Ireland.

Monday’s announcement comes after Vestager was criticized by U.S. officials and Business Roundtable, a group that says it represents chief executive officers of U.S. companies, including General Electric Co. and JPMorgan Chase & Co., with $7 trillion in annual revenues.

Business Roundtable said the EU’s decision to recover 13 billion euros from Apple for alleged illegal state aid “must not be allowed to stand” as it undercuts the ability of the member nations to control their own tax affairs.

Convertible Loan

Vestager appeared to confirm on Twitter that probes may be launched against companies associated with the Business Roundtable, which on Sept. 16 sent a letter to the heads of 28 EU member states.

Starting in September 2008, Luxembourg issued several tax rulings concerning the treatment of two similar financial transactions between four companies of the GDF Suez group, all based in Luxembourg. One convertible loan was granted in 2009 by GDF Suez LNG to GDF Suez LNG Supply and the other in 2011 by Electrabel Invest Luxembourg to GDF Suez Treasury Management. GDF was a forerunner of Engie.

According to the EU, the country’s tax authorities allows the borrowing companies to significantly reduce their taxable profits in Luxembourg by deducting the provisioned interest payments of the transaction as expenses. At the same time, lending units avoid paying any tax on the profits the transactions generate for them, because Luxembourg tax rules exempt income from equity investments from taxation.

With so many American companies in “the pipeline,” the next decision “will most likely again concern a U.S. company,” Vestager told Euractiv in an interview Sept. 16, adding “I don’t have much choice.”

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