Hogan Lovells secures key victory at European Court of Justice in Engie’s challenge against European Commission’s order to recover €120 million in unpaid tax

The Court of Justice of the EU annulled the Commission’s decision, which had found in 2018 that two sets of tax rulings granted by Luxembourg to the Engie group on intra-group financing transactions constituted a selective advantage, and thus an illegal State aid. The Commission decision had been upheld by the General Court.

The Court found that the Commission failed in its review of the “selectivity” criteria, where the Commission found that the tax ruling granted in favour of Engie conferred a special advantage on the group, that was not the general rule. 

The dispute centred on the interpretation of Luxembourg law related to the exemption of income from participations at the parent company level. The Court criticised the Commission for departing from Luxembourg's interpretation without sufficient justification and highlighted that the Commission is required to accept a Member State's interpretation if it aligns with the wording of the law. Additionally, the Court considered that the General Court erred in holding that the Commission was not required to take into account the administrative practice of the Luxembourg tax authorities relating to a national provision on abuse of law.  

The Court explained that the Commission's failure to account for Member States' fiscal competence and autonomy, especially in unharmonized areas, undermined the whole of its selectivity analysis. 

This Court’s decision highlights the importance of considering national tax autonomy and national practices when assessing State aid issues, as well as the fundamental principle of legality of taxation which prevents the Commission to substitute itself to the national legislators and tax authorities and add criteria that do not exist under national law. This judgement is a great victory for Engie, and should lead the Commission to reassess its position when it comes to dealing with tax and State aid cases. 

The Hogan Lovells team advising Engie was led by State aid experts, partner Michel Struys and counsel Francesco Pili, tow former clerks at the CJEU. Years ago, Michel Struys had already forced the Commission to back paddle in the context of its investigation against Mc Donald’s. The team is also involved in representing multinational companies in a variety of State aid cases, which should be of high relevance for the purpose of the application of the Foreign Subsidy Regulation, since its key principles reflect EU internal State aid rules.