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 the measure.

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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