Luxembourg: EC investigation of tax rulings | KPMG | BE
Share with your friends

Luxembourg: EC investigation of tax rulings, issued to US multinational

Luxembourg: EC investigation of tax rulings

The European Commission today announced its decision to launch a “state aid” investigation into tax rulings granted by the tax authorities in Luxembourg to a company that is a member of a U.S.-based multinational taxpayer group.


Related content


According to a February 2015 report, in 2008-2009, the group transferred its European intellectual property and franchising rights to a Luxembourg entity—a company with branches in both Switzerland and the United States. The Luxembourg company received €3,708 million royalties during the period 2009-2013 and paid what has been described as “hardly any corporate income tax” in Luxembourg for that same period.

A first tax ruling granted by the Luxembourg authorities in 2009 confirmed that the Luxembourg company was not liable for corporate tax in Luxembourg on the grounds that the profits were to be subject to taxation in the United States. This position was justified by reference to the Luxembourg-United States income tax treaty. However, according to the EC, the profits were not subject to tax in the United States. 

A second tax ruling granted later in 2009 provided that income of the Luxembourg company was not subject to tax in Luxembourg even if it were confirmed that the income was not subject to tax in the United States. According to the EC, the Luxembourg tax authorities, thus, exempted almost all of the Luxembourg company’s income from taxation in Luxembourg. 

The EC found the royalties received by the Luxembourg company were transferred internally to the U.S. branch—a branch that did not have any real activities. 

KPMG observation

The focus of the EC investigation, thus, appears to be about the mismatch in the tax treatment of the U.S. branch of the Luxembourg company by Luxembourg and the United States (and not so much on the justification for the allocation, of the royalties received, to the U.S. branch). However, it appears that transfer pricing and profit allocation within the taxpayer group could ultimately become relevant for the state aid investigation.

This taxpayer is the fourth U.S. multinational whose tax rulings with an EU Member State have become the subject of an EU state aid investigation, reflecting the EC’s interpretation and application of the transfer pricing principle for state aid cases.


Read a December 2015 report prepared by the KPMG member firm in the Netherlands: The European Commission launches another State Aid investigation into Luxembourg tax rulings

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal