On 21 December 2016, the European Court of Justice
("ECJ") issued a judgment on appeal in the joined cases
C-20/15 P, Commission v World Duty Free Group and C-21/15
P, Commission v Banco Santander SA and Santusa Holding SL.
The ECJ struck down the General Court's judgments annulling a
Commission decision relating to a Spanish tax scheme. In what can
be considered a landmark judgment, the ECJ analysed the scope of
the criterion of selectivity applicable to the assessment of state
aid under Article 107(1) TFEU.
The Spanish law on corporation tax provided that undertakings
which are resident in Spain for tax purposes and acquire a
shareholding of at least 5% in a foreign company could deduct,
through amortisation, the goodwill resulting from that shareholding
from the basis of assessment for the corporation tax for which the
undertaking is liable. By contrast, resident undertakings making
the acquisition of such a shareholding in undertakings taxable in
Spain could not obtain that advantage. By decisions of 28 October
2009 and 12 January 2011, the European Commission found that the
scheme of deduction applicable to the acquisition of shareholdings
in foreign companies constituted state aid, which was incompatible
with the internal market.
Three undertakings established in Spain (World Duty Free Group,
Banco Santander and Santusa Holding) brought actions before the
General Court seeking the annulment of the Commission decision. By
its judgments of 7 November 2014, the General Court
("GC") annulled the two Commission decisions. The GC
ruled that the tax scheme at issue could not be considered as a
state aid measure, since it did not meet the criterion of
selectivity. According to the GC, the advantage conferred on the
undertakings acquiring shareholdings in foreign companies was not
selective, since the tax advantages were accessible, a
priori, to any undertaking. The GC considered that a tax
advantage is not selective if it is directed to a category of
economic transactions rather than a particular category of
undertakings. Since the Commission had failed to identify a
category of undertakings that was exclusively favoured by the tax
measure, the GC annulled the Commission's decision.
The ECJ did not agree with this reasoning. By its judgment of 21
December 2016, the ECJ set aside the GC's judgments. According
to the ECJ, the GC added an additional requirement to the
assessment of aid measures under Article 107(1) TFEU, in
contradiction with the settled case law of the courts. In
particular, the ECJ stated that the only relevant criterion in
order to establish the selectivity of a national tax measure
consists in determining whether that measure is such as to favour
certain undertakings over other undertakings which, in the light of
the objective pursued by the general tax system concerned, are in a
comparable factual and legal situation and who accordingly suffer
different treatment that can, in essence, be classified as
discriminatory. Contrary to the ruling of the GC, the case law of
the courts does not require the Commission to always identify a
particular category of undertakings that exclusively benefit from
Therefore, the ECJ set aside the two judgments of the GC and
referred the cases back to the GC for a ruling on the remaining
grounds invoked by the applicants at first instance.
The judgment of the ECJ is particularly interesting as it
reveals the ECJ's extensive interpretation of the criterion of
selectivity. According to this interpretation, the selectivity
criterion is fulfilled when certain behaviour (such as making an
investment in a foreign company as in the present case), rather
than certain undertakings, benefit from aid. Such extensive
interpretation of the criterion of selectivity potentially covers a
very broad range of tax schemes. Although the ECJ's
interpretation of the criterion of selectivity in the present case
appears to be less relevant for the state aid assessment of
individual tax rulings, the Commission will likely draw strength
from this judgment to pursue each of its investigations into
alleged State aid of a fiscal nature.
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