Tax pact between Luxembourg and FCA unit may be illegal state aid

Article by Andrew Christian, on October 3, 2014

The European Commission said that a tax concession granted by the Luxembourg government to a subsidiary of Fiat Chrysler Automobiles may constitute illegal state aid. In a 33-page letter to Luxembourg, European Union Competition Commissioner Joaquin Almunia, outlined the Commission's reasons for probe further into a 2012 decision by Luxembourg authorities to green-light a transfer pricing arrangement by Fiat Finance and Trade Ltd.

The Commission has commenced probes into similar tax agreements between Ireland and Apple, as well as the Netherlands and Starbucks. The executive arm of the European Union has panned Luxembourg authorities for providing insufficient information to investigators.

It said that its preliminary view was that Luxembourg's decision in favor of Fiat amounted to illegal state aid, saying that the country’s arrangement with Fiat seemed to have cut the charges Fiat would typically pay "and that it must consequently be considered as operating aid."

The Commission said that operating aid would not be in line with the EU's internal market. According to the regulators, the Luxembourg pact provided an advantage to the Fiat unit and did not respect the EU's principles of full competition.

Almunia disclosed that should Luxembourg fail to provide all the requested information within a month of receiving the letter, the Commission may request Fiat to provide the data. In a statement, the Luxembourg government said it had fully cooperated with the Commission.

It also expressed confidence that the allegations were unfounded. Interested parties will be given a month to provide comments once a formal notice of the investigation is published in the EU's Official Journal.

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