UK and International Tax news

EC Opens Investigation Into Tax Treatment Of Huhtamaki In Luxembourg

Friday 22nd March 2019

The European Commission has opened an in-depth investigation to examine whether tax rulings granted by Luxembourg tax authorities to Finnish food and drink packaging company Huhtamaki may have given the company an unfair advantage over its competitors, in breach of EU State aid rules.

The EC’s formal investigation concerns three tax rulings issued by Luxembourg to the Luxembourg-based company Huhtalux Sàrl. in 2009, 2012 and 2013. The 2009 tax ruling was disclosed as part of the Luxleaks investigation led by the International Consortium of Investigative Journalists in 2014.

Huhtalux is part of the Huhtamäki group, which is headquartered in Finland. Huhtamäki is a company active in consumer packaging, notably in food and food service packaging and is a major converter of plastics and paperboard into rigid thin-walled food and beverage cups and containers in Europe, Asia and Australia.

Huhtalux carries out intra-group financing activities, receiving interest-free loans from another company of the Huhtamäki group based in Ireland. These funds are then used by Huhtalux to finance other Huhtamäki group companies through interest-bearing loans.

The three tax rulings issued by Luxembourg allow Huhtalux to unilaterally deduct from its taxable base fictitious interest payments for the interest-free loans it receives. According to Luxembourg, these fictitious expenses correspond to interest payments that an independent third party in the market would have demanded for the loans that Huhtalux receives. However, Huhtalux does not pay any interest. These deductions reduce Huhtalux’s taxable base and, as a result, the company is taxed on a substantially smaller profit.

At this stage, the EC has doubts that this tax treatment, as endorsed in the tax rulings, can be justified. The EC is concerned that Luxembourg has accepted a unilateral downward adjustment of Huhtalux’s taxable base that may grant the company a selective advantage and, in particular, allowing the group to pay less tax than other stand alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal State aid.

The opening of an in-depth investigation gives Luxembourg and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.


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