Luxembourg: Finding of illegal State aid involving application of arm’s length principle set aside (CJEU judgment)
The General Court of the EU was wrong to confirm an illegal State aid analysis by the European Commission (EC)
Involving application of arm’s length principle set aside (CJEU judgment)
The Court of Justice of the European Union (CJEU) today issued a judgment that the General Court of the EU was wrong to confirm an illegal State aid analysis by the European Commission (EC), involving application of the arm’s length principle to integrated companies in Luxembourg, that failed to take into account the specific rules implementing that principle in Luxembourg.
The case is: Fiat Chrysler Finance Europe v. Commission (C-885/19)*
Background
As explained in a release [PDF 117 KB] from the CJEU:
- The Luxembourg tax authority on 3 September 2012 granted the taxpayer a tax ruling that approved a methodology for determining the taxpayer’s remuneration for treasury services it provided to other companies in its group.
- The European Commission (EC) found on 21 October 2015 that that tax ruling constituted illegal State aid.
- Luxembourg and the taxpayer both lodged appeals before the General Court of the EU, which the court dismissed on 24 September 2019.
CJEU judgment
The CJEU first recalled that in order to classify a national tax measure as illegal State aid, four conditions must be fulfilled:
- There must be an intervention by the State or through State resources.
- The intervention must be liable to affect trade between Member States.
- It must confer a selective advantage on the beneficiary.
- It must distort or threaten to distort competition.
The CJEU then stated that in examining the condition relating to selective advantage, the “reference system” (i.e., the normal tax system applicable in the Member State concerned) must first be identified. The CJEU found that the General Court committed an error in endorsing the approach of the EC that failed to take account the arm’s length principle as defined by Luxembourg law, and instead was confined to the abstract expression of that principle. Accordingly, the CJEU set aside both the 24 September 2019 judgment of the General Court and the 21 October 2015 illegal State aid determination of the EC.
Read a November 2022 report prepared by the KPMG EU Tax Centre
Read a November 2022 report prepared by the KPMG member firm in the Netherlands
*The case was joined with Ireland v. Commission (C-898/19)
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