Luxembourg needs to recover unpaid taxes from French energy company ENGIE because tax rulings gave it an unfair market advantage, the European Commission said.

Margrethe Vestager, the European commissioner in charge of competition, said tax measures from Luxembourg reduced the tax bills for the French energy company for about a decade, giving it an unfair market advantage. Under state aid rules from the European Union, member states are prohibited from giving an edge to particular companies.

"That is why Luxembourg must now recover about $140 million in unpaid tax from ENGIE, plus interest," she said in a statement. "And ENGIE must start paying taxes on its profits in Luxembourg like any other company."

Vestager outlined "very complex" ways in which ENGIE and its group of companies avoided taxes on profits in Luxembourg. The holding company for ENGIE's LNG Supply company, which trades liquefied natural gas, made investments in return for shares. Because of the way Luxembourg tax laws are structured, the European Commission said ENGIE's LNG business only paid taxes on less than 1 percent of its profits as a result.

A similar arrangement was implemented for another company in Luxembourg, ENGIE Treasury Management.

Vestager said it was incumbent upon Luxembourg to bring its take codes more in line with European laws.

"Our ultimate goal is that all companies, big or small, pay their fair share of tax where their profits are earned," she said. "Because only then, companies can compete on equal terms, and not at the expense of European citizens and companies that do pay their fair share of tax."

ENGIE countered the commission's decision, saying it fully complied with tax laws in a way that leveled the playing field.

"ENGIE will assert all its rights to challenge the state aid classification considering that the Commission did not demonstrate that a selective tax advantage was granted," the company responded. "Therefore, ENGIE will apply for annulment of this Commission's decision before the competent courts."

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