Brussels has challenged Luxembourg over a tax ruling offering potentially illicit support to a Fiat subsidiary, opening a highly sensitive in-depth investigation just as the Grand Duchy’s former premier prepares to take the helm of the EU executive.
In a decision outlining its initial conclusions from the first stage of its state aid probe, the European Commission argues that the Fiat finance subsidiary received favourable treatment in calculating its taxable income. It warns that illicit subsidies given to Fiat may need to be clawed back.
The case is one of three – Irish tax deals with Apple, Fiat’s arrangements with Luxembourg and Starbucks’ tax treatment in the Netherlands – that are currently under in-depth investigation by the commission.
Brussels’ case against Luxembourg rests on whether a complex transfer pricing report, which relates to transactions between corporate subsidiaries, effectively gave Fiat an artificially fixed tax base.
Attempts by investigators to access information has also prompted a tense dispute between the Grand Duchy and Brussels, which is still playing out in court.
It comes Jean-Claude Juncker, the former Luxembourg premier, prepares to take over as European Commission president. He has in the past angrily denied suggestions that Luxembourg is a tax haven.
In a statement, Luxembourg said it was “fully co-operating with the commission in the investigation” and was “confident” that the allegations of state aid are “unsubstantiated”.
In its decision, the commission said the tax treatment given to Fiat had the effect of “reducing the charges the entity should normally bear in the performance of its business”. It added that “at this stage, the commission has no indication that the measure in question could be considered compatible with the internal market”.