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European Commission - Press release

State aid: Commission opens in-depth investigation into tax treatment of Huhtamäki in Luxembourg

Brussels, 7 March 2019

The European Commission has opened an in-depth investigation to examine whether tax rulings granted by Luxembourg to Finnish food and drink packaging company Huhtamäki may have given the company an unfair advantage over its competitors, in breach of EU State aid rules.

Margrethe Vestager, Commissioner in charge of competition policy, said: "Member States should not allow companies to set up arrangements that unduly reduce their taxable profits and give them an unfair advantage over their competitors. The Commission will carefully investigate Huhtamäki's tax treatment in Luxembourg to assess whether it is in line with EU State aid rules."

The Commission's formal investigation concerns three tax rulings issued by Luxembourg to the Luxembourg-based company Huhtalux S.à.r.l. in 2009, 2012 and 2013. The 2009 tax ruling was disclosed as part of the "Luxleaks" investigation led by the International Consortium of Investigative Journalists in 2014.

Huhtalux is part of the Huhtamäki group, which is headquartered in Finland. Huhtamäki is a company active in consumer packaging, notably in food and food service packaging. It is a major converter of plastics and paperboard into rigid thin-walled food and beverage cups and containers in Europe, Asia and Australia.

Huhtalux carries out intra-group financing activities. It receives interest-free loans from another company of the Huhtamäki group based in Ireland. These funds are then used by Huhtalux to finance other Huhtamäki group companies through interest-bearing loans.

The three tax rulings issued by Luxembourg allow Huhtalux to unilaterally deductfrom its taxable base fictitious interest payments for the interest-free loans it receives. According to Luxembourg, these fictitious expenses correspond to interest payments that an independent third party in the market would have demanded for the loans that Huhtalux receives.

However, Huhtalux does not pay any such interest. These deductions reduce Huhtalux's taxable base and, as a result, the company is taxed on a substantially smaller profit.

At this stage, the Commission has doubts that this tax treatment, as endorsed in the Luxembourg tax rulings, can be justified. The Commission is concerned that Luxembourg has accepted a unilateral downward adjustment of Huhtalux's taxable base that may grant the company a selective advantage. This is because it would allow the group to pay less tax than other stand-alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal State aid.

The opening of an in-depth investigation gives Luxembourg and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

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The infographic is available in high resolution here.

 

Background on the Commission's State aid investigations on tax

Tax rulings as such are not a problem under EU State aid rules if they simply confirm that tax arrangements between companies within the same group comply with the relevant tax legislation. However, tax rulings that confer a selective advantage to specific companies can distort competition within the EU's Single Market, in breach of EU State aid rules.

Since June 2013, the Commission has been investigating individual tax rulings of Member States under EU State aid rules. It extended this information inquiry to all Member States in December 2014.

The following investigations concerning tax rulings have already been concluded by the Commission:

  • In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. As a result of these decisions, Luxembourg recovered €23.1 million from Fiat and the Netherlands recovered €25.7 million from Starbucks.
  • In January 2016, the Commission concluded that selective tax advantages granted by Belgium to at least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU State aid rules. On 14 February 2019, the General Court of the European Union annulled the Commission decision. The Commission is currently reflecting on next steps.
  • In August 2016, the Commission concluded that Ireland granted undue tax benefits to Apple, which led to a recovery by Ireland of €14.3 billion.
  • In October 2017, the Commission concluded that Luxembourg granted undue tax benefits to Amazon, which led to a recovery by Luxembourg of €282.7 million.
  • In June 2018, the Commission concluded that Luxembourg granted undue tax benefits to Engie of around €120 million. The recovery procedure is still ongoing.
  • In September 2018, the Commission found that the non-taxation of certain McDonald's profits in Luxembourg did not lead to illegal State aid, as it is in line with national tax laws and the Luxembourg-US Double Taxation Treaty.
  • In December 2018, the Commission concluded that Gibraltar granted undue tax benefits of around €100 million to several multinational companies, through a corporate tax exemption scheme and through five tax rulings. The recovery procedure is ongoing.

The Commission also has two ongoing in-depth investigations concerning tax rulings issued by the Netherlands in favour of Inter IKEA and Nike and an investigation concerning a tax scheme for multinationals in the United Kingdom.

The non-confidential version of the decision will be made available under the case number SA.50400 in the State aid register on the Commission's Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

 

Background on changes to national tax rules following “Luxleaks”

Of the over 500 files that were disclosed as part of the "Luxleaks" investigation led by the International Consortium of Investigative Journalists in 2014, about 200 concerned financing companies and intercompany financing.

In January 2017, following discussions with the Commission, Luxembourg introduced changes to their national tax rules to make the tax treatment of financing companies more stringent. The new rules, which concern a significant number of “Luxleaks” rulings aim to ensure that financing companies are taxed sufficiently. These changes imply that the rulings regarding certain financing companies issued before 2017, including those from the Luxleaks files no longer bind the tax authorities in Luxembourg.

 

IP/19/1591

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