On September 24, 2019, the EU General Court (General Court) issued its long-awaited judgments in relation to the appeals brought against two European Commission (EC) decisions of 2015 concluding that tax rulings granted by The Netherlands and Luxembourg conferred illegal state aid on Starbucks and Fiat, respectively.1 This follows the General Court's decision earlier this year to annul the EC's decision that the Belgian excess profit ruling regime amounted to a state aid scheme. That judgment was based on the purely procedural ground that the EC should have analyzed each individual excess profit ruling and could not rely on a holistic analysis at the level of the scheme.2 This week's judgments, in contrast, for the first time clarify the court's thinking on the substantive state aid assessment of tax rulings, which has given rise to controversy in recent years.
Key Points of the Starbucks and Fiat Judgments
The General Court confirmed the EC's powers to examine whether tax rulings by member states confer state aid. While member states have autonomy in direct taxation matters, national tax laws should still comply with EU law, including state aid law. The EC is entitled to use the arm's length principle as a tool or benchmark to investigate whether a tax ruling gives rise to a selective advantage under state aid rules. The EC has the burden of proof that a tax ruling gives rise to an advantage, i.e., that the tax ruling resulted in a reduction of the tax burden compared to the situation absent the ruling. The EC cannot merely point at methodological deficiencies regarding the grant of the ruling, but must also demonstrate that the alleged error by the member state led to an outcome outside an arm's length range. The EC had failed this test in its Starbucks decision, which was annulled, while the Fiat decision was upheld. These judgments significantly raise the bar for the EC to prove the existence of an advantage granted to a tax ruling beneficiary. They also give further arguments to companies currently involved in appeal or investigation proceedings. The judgments may still be overturned by the Court of Justice (CJEU). It may therefore take a few more years for additional legal certainty to emerge on these issues. The 2015 EC Decisions
In its decisions, both issued in October 2015, the EC concluded that Luxembourg and The Netherlands granted a selective advantage in favor, respectively, of Starbucks and Fiat, by issuing tax rulings which artificially lowered the corporate tax that the two companies paid as compared with the liability calculated under the ordinary rules. The EC viewed the tax rulings as state aid because...