Tax Rulings and State Aid after the Starbucks/Fiat judgments of the General Court
On 24 September 2019, the General Court handed down two long-awaited sets of judgments concerning the application of EU/EEA State aid rules to tax decisions. In its judgment in Cases T-760/15 Netherlands v Commission and T-636/16 Starbucks v Commission, the General Court annulled Commission Decision (EU) 2017/502 of 21 October 2015, while in the judgment in Cases T-755/15 Luxembourg v Commission and T-759/15 Fiat Chrysler v Commission, the General Court confirmed Commission Decision (EU) 2016/2326 of 21 October 2015. Despite the difference in outcomes of the cases, the reasoning still enables remarks that are relevant to the topic of tax rulings as such to be made.
First and foremost, the General Court acknowledged that in order to establish the presence of an economic advantage, the Commission was entitled to analyse the tax decisions in light of the arm’s length principle (ALP) as defined by the Commission in the contested Decisions. This is an important clarification. This is because the Commission argues that the ALP is a principle that is inherent in Article 107(1) TFEU, and therefore applies independently of whether the Member States at issue have incorporated it into its national law. The Commission thus relies on a self-defined interpretation of ALP, rather than the ALP as set out in the OECD Model Tax Convention.
As the General Court recalled, in the case of tax measures, the existence of an advantage may be established only when compared with ‘normal’ taxation. In order to determine whether there is a tax advantage, the position of the recipient as a result of the application of the measure at issue must be compared with his position in the absence of the measure at issue and under the normal rules of taxation. It further observed that the pricing of intra-group transactions is not determined under market conditions. When national tax law does not make a distinction between integrated undertakings and stand-alone undertakings for the purposes of corporate income tax liability, that law is intended to tax the profit arising from the economic activity of an integrated undertaking as though it had arisen from transactions carried out at market price. The General Court thus ruled that when examining a fiscal measure granted to such an integrated undertaking, the Commission may compare the fiscal burden of such an integrated undertaking resulting from the application of that fiscal measure with the fiscal burden resulting from the application of the normal rules of taxation under the national law of an undertaking in a comparable factual situation, carrying out its activities under market conditions.
Yet, the Commission succeeded in demonstrating the actual existence of an advantage in Fiat, but failed in Starbucks. Consequently, the tax decision in Starbucks was annulled. In this respect, the complexity of the facts requires a lengthier discussion than can´t be dedicated to in this blog post. Still, given the clarification concerning the use of the Commission’s definition/interpretation of the ALP as well as the rejection of the plea relating to ‘tax harmonisation in disguise’, the Commission has reason to be satisfied with the judgments.