On 8 November 2022, the Court of Justice of the European Union (the "ECJ") ruled that the Advance Pricing Agreement ("APA") granted by Luxembourg tax authorities to Fiat Finance & Trade Ltd ("FFT") is not an illegal State aid.
Facts of the case
In 2014, the European Commission opened an investigation on the APA that was granted by Luxembourg tax authorities to FFT because the Commission deemed this APA to be an illegal tax advantage as defined by EU State aid laws. The Commission argued that this tax ruling was unjustifiably reducing FFT’s tax burden and therefore resulted in a selective tax advantage.
In 2015, both the Luxembourg State and FFT made an appeal of this decision and sought its cancellation before the General Court. In 2019, the General Court confirmed the Commission’s arguments and thus upheld the aforesaid decision: the APA granted by Luxembourg to FFT constituted a selective advantage. An appeal was then filed by FFT before the ECJ.
Notion of State aid
As a reminder, Article 107 of TFEU aims at situations in which companies are unjustifiably granted financial State aid. In the context of taxation, State aid usually consists of a "selective advantage" that only benefits to one specific entity, therefore implying competition risks on the market. Four conditions have to be met in order for a national measure to qualify as State aid:
- There must be an intervention by the State or through State resources;
- The intervention must be liable to affect trade between the Member States;
- It must confer a selective advantage on the beneficiary;
- It must distort or threaten to distort competition.
ECJ’s decision
In the case at hand, the Court concluded there was no illegal State aid involved in the matter. The ECJ proceeded to apply the conditions required by Article 107 (1) TFEU in order to qualify a national measure as a State aid, as previously exposed.
According to the ECJ, an error of law was committed in the previous decision regarding the determination of the "normal tax system" used to underline the existence of a "selective advantage". The Court considered that “in dismissing the relevance of Article 164(3) of the Tax Code and Circular No. 164/2, the Commission applied an arm’s length principle different from that defined by Luxembourg law.” In addition, she stated that by endorsing such an approach, the General Court failed to take account of the requirement provided by Article 107 (1) TFEU.
In the future, the European Commission will have to make sure that, when performing a State aid investigation in tax cases, the determination of the reference system or "normal tax system", that is a key element in this process, must be based on the domestic tax legislation of the Member State concerned.
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