UK and International Tax news
EU General Court Confirms EC Decision On State Aid Investigation Into Fiat In Luxembourg
Thursday 26th September 2019
In 2015, following State aid investigations into Fiat Chrysler Finance Europe, the EC decided that Luxembourg had granted selective tax advantages to the company which were illegal under EU state aid rules. The EC ordered Luxembourg to recover the unpaid tax from Fiat in order to remove the unfair competitive advantage it had enjoyed and to restore equal treatment with other companies in similar situations.
Luxembourg and Fiat each brought actions before the EU General Court for annulment of the EC decision, and in particular criticised the EC for:
- having adopted an analysis leading to tax harmonisation in disguise;
- having found that the tax ruling at issue conferred an advantage, notably on the ground that it did not comply with the arm’s length principle, contrary to Art 107 TFEU and to the obligation to state reasons and in breach of the principles of legal certainty and protection of legitimate expectations;
- having found that the advantage was selective, contrary to Art 107 TFEU;
- having found that the measure restricted competition and distorted trade between Member States, contrary to Art 107 TFEU and to the obligation to state reasons.
The General Court has now dismissed the actions and confirmed the validity of the EC decision and specifically rejected the contention that it was engaged in tax harmonization but exercised the power conferred on it by EU law by verifying whether the tax ruling conferred on its beneficiary an advantage as compared to ‘normal taxation’.
The Court also confirmed that the EC was entitled to apply the arm’s length principle to ascertain whether the ruling under review granted an advantage to its beneficiary. It examined whether the adjustments to the taxable base endorsed by the ruling were justified and concluded that the amount of capital to be remunerated at the level of the Luxembourg subsidiary had been underestimated, thereby giving a tax advantage to the group.
It is noted that the Court confirmed that the fact that the corresponding advantage would be taxed in Italy at the level of another group entity was irrelevant.
Finally, the Court endorsed EC findings that the contested ruling gave a selective and unjustified advantage to the taxpayer, likely to distort competition within the EU.
The Court also rejected the pleas advanced by Luxembourg and Fiat to the effect that the EC had failed to establish that there was a restriction of competition.
An appeal, limited to points of law only, may be brought before the ECJ against the decision of the General Court within two months and ten days of notification of the decision.
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