The European Commission has launched under EC Treaty state aid rules a formal investigation into Luxembourg's 1929 legislation exempting holdings and financial companies from corporate taxation.

According to the Commission statement, it is concerned that Luxembourgish legislation, dating back to 1929, “creates significant distortions to competition and market efficiency particularly in the financial sector, without contributing to any significant extent to economic development.”

The legislation in question provides an exemption from tax for certain earnings from financial services activities, including dividends, interest and royalties. It appears that examination of the measures by the EU has been ongoing for a number of years under procedures for review of arrangements which were in force in Member States prior to the entry into force of the EC Treaty. The full text of the statement is reproduced at 2.04 below.