Judgment of the General Court Second Chamber, Extended Composition of 6 April 2022, Mead Johnson Nutrition Asia Pacific and Others v Commission, T-508/19

• Date: 06 April 2022
• Year: 2022

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III. COMPETITION: STATE AID

Judgment of the General Court (Second Chamber, Extended Composition) of 6 April 2022,

Mead Johnson Nutrition (Asia Pacific) and Others v Commission, T-508/19

Link to the complete text of the judgment

State aid – Aid scheme implemented by the Government of Gibraltar concerning corporation tax – Tax

exemption for interest income and royalties – Advance tax rulings benefiting multinationals – Commission

decision declaring the aid incompatible with the internal market – Obligation to state reasons – Manifest

error of assessment – Selective advantage – Right to submit comments

Between 1 January 2011 and 31 December 2013, under the Income Tax Act 2010 (‘ITA 2010’),

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royalty

income was not included in the categories of income taxable in Gibraltar.

MJN Holdings (Gibraltar) Ltd (‘MJN GibCo’) was a company of the group MeadJohnson established in

Gibraltar holding a 99.99% interest in the capital of the limited partnership under Dutch law Mead

Johnson Three CV (‘MJT CV’), which granted sub-licenses to another company in the group in return for

royalties.

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In 2012, the Gibraltar tax authorities granted MJN GibCo an advance tax ruling confirming,

under the Gibraltar corporate tax regime resulting from the ITA 2010, the non-taxation in respect of

MJN GibCo of MJT CV’s income generated by the royalties.

In October 2013, the European Commission initiated formal investigation proceedings, in order, in

particular, to verify the compatibility of the regime for the taxation of royalty income, provided for by

the ITA 2010, with the European Union’s State aid rules. In October 2014, it decided to extend those

proceedings to include the practice of advance tax rulings in Gibraltar (‘the decision to extend

proceedings’).

By its decision of 19 December 2018 (‘the contested decision’),

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the Commission, first, classified the

non-inclusion of royalty income in the tax base between 1 January 2011 and 31 December 2013 as an

‘implicit exemption’ and considered that that measure constituted an unlawful aid scheme that was

incompatible with the internal market. In the C ommission’s view, the exemptions introduced a

reduction in the tax that the companies concerned would otherwise have had to pay, given the

objective of the ITA 2010 to tax income accruing in or derived from Gibraltar.

Secondly, the Commission considered that the tax treatment granted by the Gibraltar Government in

advance tax rulings to five Gibraltar-based companies holding shares in limited partnerships

incorporated under Dutch law, some of which received royalty income, constituted unlawful individual

State aid incompatible with the internal market. Those decisions, which confirmed the non-taxation of

the royalty income of those companies, continued to apply after the 2013 amendment of the

ITA 2010, under which royalties were included among the categories of taxable income. MJN GibCo

was one of the five companies concerned.

The General Court, hearing an action brought by various companies in the MJN group, upheld the

action in part. It dismissed the action in so far as it sought to challenge the part of the contested

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Gibraltar Income Tax Act 2010.

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MJT CV held licenses to intellectual property rights, which it sub-licensed to Mead Johnson BV, another company incorporated under Dutch

law within the MJN group, in return for royalties. Prior to its dissolution in 2018, MJN GibCo was part of the international Mead Johnson

Nutrition group (‘the MJN group’). Mead Johnson Nutrition (Asia Pacific) Pte Ltd, based in Singapore, was the wholly owned parent company

of MJN GibCo.

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Commission Decision (EU) 2019/700 of 19 December 2018 on the State Aid SA.34914 (2013/C) implemented by the United Kingdom as

regards the Gibraltar Corporate Income Tax Regime (OJ 2019 L 119, p. 151).