CJEU bins Commission state aid case on Fiat TP
The Commission and EU General Court had said a Luxembourg ruling on Fiat's TP breached state aid laws
Europe’s highest court threw out decisions on state aid that went against the Fiat-Chrysler group in a potentially landmark decision today, November 8.
The Court of Justice of the EU (CJEU) said the European Commission and EU General Court had incorrectly ruled that Luxembourg breached state aid rules in approving an advance transfer pricing (TP) agreement for Fiat Chrysler Finance Europe, formerly known as Fiat Finance and Trade (FFT).
The case dates to 2012, when FFT – which provided financing to the Fiat-Chrysler group – asked the Luxembourg tax authorities to approve the TP agreement. The authorities later endorsed the deal, saying the analysis within it respected the arm's-length principle (ALP).
Two years later, after asking the Luxembourg government to provide information on its national practice regarding tax rulings, the Commission launched a formal investigation under Article 108(2) of the Treaty on the Functioning of the European Union.
That provision covers the legality of state aid.
In a 2015 decision, the Commission found that Luxembourg had unlawfully granted state aid to FFT and the Fiat group.
The Luxembourg ruling and associated TP analysis had unfairly allowed the company to lower its tax liability “by deviating from the tax which FFT would have been liable to pay under the ordinary corporate income tax system”.
FFT and Luxembourg appealed to the General Court, with the Irish government intervening in support of the two parties. The court, which had joined the cases, dismissed all pleas in their entirety.
On appeal to the CJEU, the justices found fault in several areas, including that the Commission – later supported by the General Court – had applied an ALP different to that defined under Luxembourg law.
“It thus confined itself to identifying, in the objective pursued by the general corporate income tax system in Luxembourg, the abstract expression of that principle and to examining the tax ruling at issue without taking into account the way in which the said principle has actually been incorporated into that law with regard to integrated companies in particular.”
It added: “The decision at issue must be annulled in so far as the Commission erred in law in finding that there was a selective advantage in the light of a reference framework comprising an arm’s-length principle which does not derive from a full examination of the relevant national tax law.”
The CJEU thereby set aside the General Court’s ruling and annulled the Commission’s decision.
According to law firm Loyens Loeff, the CJEU ruling may affect the Commission’s position in several pending cases, including those against Apple and Amazon.
“As the Commission has used a similar approach and reference framework … and has compared the tax position of the beneficiary of the tax ruling with the tax position of any other taxpayer for purposes of assessing the existence of a selective advantage, the CJEU judgment may further weaken the European Commission’s stance in these other cases,” it said in an announcement.