Luxembourg Ordered to Give EU Tax-Deal Detail Amid Aid Probe

European Union competition watchdogs ordered Luxembourg to hand over details of tax breaks for businesses after they said the Grand Duchy was hindering a state-aid probe spanning several EU nations.

Luxembourg refused to deliver details concerning the 100 largest companies benefiting from a special program for companies whose profits stem from intellectual-property rights, the European Commission said in an e-mailed statement. The nation also failed to provide a specific overview of its tax deals with certain companies in 2011 and 2012.

The commission started quizzing Ireland, Luxembourg and the Netherlands last year on their tax practices to determine whether selective advantages were granted amid a global crackdown on tax-avoidance. Lawmakers in the U.S., the U.K., France and Italy have scrutinized companies such as Microsoft Corp., Hewlett-Packard Co., Apple Inc., Google Inc. and Inc.

Amazon’s Luxembourg-based European unit paid tax of 8.2 million euros ($11.3 million) on European-wide sales of 9.1 billion euros in 2011, according to information it supplied to a U.K. House of Commons committee.

“Against a background of lack of political consensus on how to deal with harmful tax competition, the commission is keen on being seen as a proactive authority,” said Alfonso Lamadrid, a lawyer at Garrigues in Brussels. “There is however a limit to what can be achieved with state aid rules,” he said. It’s “doubtful” that the probe “will yield any meaningful results.”

Most government support, including specific tax breaks, that enable companies to gain an unfair advantage over competitors is illegal under EU rules.

Patent Boxes

Several EU nations have introduced special tax systems for IP rights meant to stimulate innovation and investments in new technologies. Such programs include so-called patent boxes allowing tax reductions on income from patents.

“Patent box regimes have been authorized in several member states, and the commission has consistently accepted that they do not confer the selective advantages that would qualify them as state aid,” Lamadrid said.

The Luxembourg program, started in 2008, allows a tax exemption of 80 percent of profits derived from the use or licensing of IP rights such as patents, trademarks, designs, models, Internet domain names and software copyrights, according to the commission statement.

Antitrust Rules

When EU countries “won’t come to the table,” the commission has in the past attempted “to identify some piece of the picture which can be got at under the antitrust rules,” said Alec Burnside, a lawyer at Cadwalader Wickersham & Taft LLP in Brussels.

The regulator said it has indications that special tax regimes seem to mainly benefit highly mobile businesses and do not trigger significant additional research and development activity.

The commission adopted two information injunctions ordering Luxembourg to deliver the requested information within one month’ the EU regulator said. “Should Luxembourg persist in its refusal, the commission may refer the issue to the EU Court of Justice.”

Luxembourg will “examine whether these injunctions dissipate the doubts Luxembourg has had so far regarding the legality of the commission’s request,” the Finance Ministry said in a statement.

“Luxembourg remains committed to fully cooperate with the commission within the cooperative mechanisms foreseen by EU law,” it said.

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