There are further developments in two important state aid cases involving the Netherlands and Luxembourg.
On 24 September 2019, the EU General Court published its judgments on the alleged state aid measures afforded to two multinationals by the Netherlands and Luxembourg. In 2015, The EC had separately found that an advanced pricing agreement (APA) concluded between the Netherlands and the taxpayer, as well as a tax ruling issued by the Luxembourg tax authorities to another multinational, were unlawful and incompatible state aid. In a turn of events, the Court has now annulled the EC’s decision on the aid measure implemented by the Netherlands. It has, however, confirmed the validity of the EC’s decision on the illegal state aid granted by Luxembourg. These are important developments that continue to shape the EU state aid landscape; an area increasingly under the spotlight from a tax perspective over the past few years.
The Dutch decision (case T‑760/15 and T‑636/16) and the Luxembourg decision (case T-755/15 and T-759/15) provide significant insight into the Court’s position on transfer pricing analyses and the arm’s length principle.
Both judgments focus, amongst other things, on the taxpayers’ pleas that the APA (in the Dutch case) or tax ruling (in the Luxembourg case) did not confer an advantage, on the basis that the transfer price considered therein complied with the arm’s length principle. The judgments state that the EC was in a position to verify whether the pricing for intra-group transactions accepted by the APA and the tax ruling corresponded to prices that would have been negotiated under market conditions.
In the Luxembourg case, the Court found that the chosen transfer pricing method agreed upon in the ruling for the calculation of the taxable basis of a Luxembourg subsidiary performing intra-group financing and treasury activities resulted in a lower taxable base. This constituted a selective and unjustified advantage to the taxpayer.
However, in the Dutch case, the Court found that the EC was unable to demonstrate that the transfer pricing methodology and the transfer prices agreed upon resulted in an inappropriate reduction of the tax payable in the Netherlands. The contested ruling therefore did not give an undue advantage to the taxpayer.
It is pertinent to note that appeals to the Court of Justice of the EU are still possible and it remains to be seen how things will develop as all interested parties begin to take stock of the outcome of these important developments. The implications (if any) that these decisions will have in other state aid investigations, and/or cases, currently underway involving different taxpayers should also serve as a hot topic of discussion over the coming weeks.
For more information on these developments please refer to the Euro Tax Flash published by KPMG’s EU Tax Centre and do not hesitate to reach out to us should you wish to discuss these developments in more detail.
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