This landmark judgment on the European Commission’s investigations of tax rulings, confirms the limits on the European Commission’s use of State aid rules to challenge such rulings already outlined in the Fiat judgment (November 2022).

Factual background

The European Commission investigated two Luxembourg financing structures set up by ENGIE. The tax rulings confirmed the deductibility of accrued, but unpaid, charges connected with a convertible loan, without (corresponding) taxable income at the level of the holder of the convertible loan. Upon conversion of the loan into shares, there was no taxation at the level of the holder of the conversion shares.

The European Commission considered that the resulting “deduction without inclusion” outcome was not in line with Luxembourg tax rules and that ENGIE had received a selective advantage:

  • In a first line of reasoning, the European Commission claimed that Luxembourg law did not permit to deduct expenses to the extent they give rise to a corresponding exempt income at the level of the recipient (or, conversely, to exempt income that gave rise to a corresponding deduction at the level of the payer). As a result, the parent entities that were not taxed upon their disposal of the conversion shares had received an unlawful selective advantage.
  • In a second line of reasoning, which resembles to a large extent the first one, the European Commission sought to demonstrate a selective advantage at group level.
  • In a third line of reasoning, the European Commission argued that Luxembourg should have applied its general anti-abuse rule to reject the ruling requests and prevent the selective advantage.

The General Court upheld the European Commission’s decision.

Judgement of the CJEU

The CJEU set aside the General Court’s judgment and annulled the European Commission’s decision, rejecting all lines of reasoning.

It found the decision wrongly defined the reference framework, which is the first step in assessing the existence of a selective advantage. The first line of reasoning was set aside by the CJEU on the ground that the European Commission misinterpreted Luxembourg law and adopted a wrong reference framework by referring to the general purpose of taxing all resident companies without properly assessing the wording of Luxembourg law.

As regards abuse of law, the CJEU found the General Court and the European Commission were wrong to dismiss the administrative practice of the Luxembourg tax authorities in applying this provision. It is against that benchmark that the existence of abuse should have been assessed, and not by adopting an abstract reading of the general anti-abuse rule.


The CJEU judgment is in line with the outcome proposed by Advocate General Kokott in her earlier non-binding opinion and reconfirms key lessons from the Fiat judgment, this time in a context other than transfer pricing.

We will keep you informed about further developments, including the upcoming CJEU judgment due on 14 December 2023 in the pending Amazon case.

Should you have any question, please contact an author of this flash or your trusted Loyens & Loeff adviser.