On 8 November 2022, the Court of Justice of the EU (CJEU) annulled the judgment of the General Court held on 24 September 2019, which rejected the action brought by the Grand Duchy of Luxembourg and Fiat Chrysler Finance Europe for the annulment of the Commission's decision of 21 October 2015, on the illegal and incompatible State aid granted by Luxembourg in favour of Fiat in the context of a tax ruling.

Competition Commissioner Margrethe Vestager had highlighted as one of her top priorities the application of State aid rules to taxation. In this context, all Member States were asked in 2014 to provide information about their tax ruling practice and the legal framework underlying that practice, as well as a list of tax rulings issued in the years 2010 to 2012 and part of 2013. On the basis of this information, the Commission launched investigations on specific tax rulings. At the end of those investigations, the Commission adopted several decisions on tax rulings in favour of Amazon and Engie in Luxembourg, Starbucks in the Netherlands and about 40 multinational groups in Belgium. In 2016, the Commission published a working paper on State aid and tax rulings to provide a short summary of its preliminary orientations.

In the case at hand, the European Commission had considered in its decision of 21 October 2015 that the adoption of a tax ruling by the Luxembourg fiscal authorities approving a transfer pricing agreement in favour of Fiat Finance and Trade Ltf (FFT) constituted incompatible and illegal State aid estimated between EUR 20 million to EUR 30 million.

The European Commission's decision:

On 19 June 2013, the European Commission sent the Grand Duchy of Luxembourg a first request for information concerning detailed information on national practices regarding advance tax rulings following its general tax investigation of Member States.

Following its preliminary investigation, the Commission opened the formal investigation procedure on 11 June 2014, regarding the advance ruling adopted by the Grand Duchy of Luxembourg in favour of FFT.

On 21 October 2015, the Commission concluded that this tax ruling constituted State aid within the meaning of Article 107(1) TFEU, which is incompatible with the internal market and unlawfully put into effect by Luxembourg in breach of Article 108(3) TFEU.

Regarding the condition of selective advantage, the Commission considered that the arm's length principle was an integral part of its assessment. It held that the advance ruling, which constitutes a tax measure leading a company belonging to a group to charge transfer prices that do not reflect those that would be charged under conditions of free competition, confers an advantage on the company in that it results in a reduction in its tax base under the ordinary corporate tax system.

On 24 September 2019, the General Court issued a judgment following the Commission's reasoning and rejected the arguments of the Grand Duchy of Luxembourg and FFT. At the same time, the General Court annulled the Commission's decision in the Starbucks case.

The ruling of the CJEU

FFT and Ireland appealed the judgment of the General Court.

In its judgment of 8 November 2022, the CJEU annulled the judgment of the General Court and the Commission's decision on the grounds of error of law without referring the case back to the General Court.

The argument put forward by the CJEU concerned the reference system chosen by the Commission, which did not wish to consider the arm's length principle provided for in article 164(3) of the Luxembourg tax code and specified in circular n°164/2.

Indeed, the Commission had limited itself to identifying, in the objective pursued by the general system of corporate taxation in Luxembourg, the abstract expression of this principle, and to examining the advance ruling independently of the question of whether a Member State had incorporated this principle into its national legal system, and had therefore completely disregarded the national provisions providing for specific rules relating to the calculation of transfer prices for group financing companies, such as FFT, and the implementation of the arm's length principle in Luxembourg law.

In its assessment, the CJEU found that the Commission's reasoning, which was upheld by the General Court, was therefore vitiated by an error of law insofar as it found the existence of a selective advantage based on a reference framework including an arm's length principle, which did not result from a full examination of the relevant national tax law, in specie, Luxembourg law.

Therefore, the Commission and the General Court disregarded the provisions relating to the adoption by the EU of measures for the approximation of the laws of the Member States relating to direct taxation laid down in Articles 114(2) and 115 TFEU.


This judgment demonstrates the complexity, for both the Commission and the General Court, of the choice of methods and criteria for determining an "arm's length" result, which is a matter for the discretion of the Member State in the absence of harmonisation on the subject.

Most of the Commission's emblematic decisions on tax rulings in the Starbucks, Amazon and multinational groups in Belgium cases were annulled by the General Court or the CJEU. While both the General Court and the CJEU have confirmed the application of State aid rules to Stat taxation, these cases demonstrate the difficulty in establishing the existence of a selective advantage in the context of these complex tax arrangements.

Some procedures are still pending before the CJEU but this recent judgment may spell the end of the extensive control of tax rulings by the Commission under State aid rules.

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