EU scrutinizing Huhtamäki group’s Luxembourg tax rulings on intragroup interest-free loans 

The EU Commission today announced that it has opened an in-depth investigation into whether Luxembourg private tax rulings granted to a Huhtamäki group company on the tax treatment of intragroup interest-free loans violate EU restrictions on State aid.

The rulings may have allowed Huhtamäki’s Luxembourg subsidiary, Huhtalux, to inappropriately deduct from its taxable base deemed interest payments on interest-free loans from another Huhtamäki group company based in Ireland, the Commission said.

Today’s action is a result of the 2014 “Lux Leaks” disclosures, where confidential PwC client documents — including 548 Luxembourg advance rulings and corporate tax returns of Luxembourg-based subsidiaries of MNEs — were leaked and published on the internet by the International Consortium of Investigative Journalists (ICIJ).

The EU competition chief, Margrethe Vestager said at the time that the documents were “market information” which the EU would investigate and evaluate for potential State aid violations.

The latest Commission investigation concerns three tax rulings issued by Luxembourg to Huhtamäki’s Luxembourg-based subsidiary, Huhtalux S.à.r.l., in 2009, 2012, and 2013. Huhtamäki is a food and drink packaging company based in Finland.

Huhtalux carried out intra-group financing activities for the Huhtamäki group in Luxembourg. It received interest-free loans from an Ireland-based Huhtamäki group company and then lent the funds to other Huhtamäki group companies using interest-bearing loans.

The three tax rulings issued by Luxembourg allowed Huhtalux to deduct from its taxable base deemed interest payments for the interest-free loans it received.

The Commission said that Luxembourg defended the deductions on the basis that they correspond to interest payments that an independent third party in the market would have demanded for the loans that Huhtalux received.

However, Huhtalux did not pay any such interest, the Commission said. These deductions reduce Huhtalux’s taxable base and, as a result, the company is taxed on a substantially smaller profit, the Commission 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,” Vestager said.

Reacting to today’s decision, a Luxembourg’s Ministry of Finance statement noted that the mere opening of an in-depth investigation by the Commission does not prejudge the outcome of said investigation.