The General Court of the European Union validates the principle of the Commission's approach in the fight against tax advantages to multinationals but orders it to be rigorous

By two decisions, Starbucks and Fiat, of September 24, 2019, the General Court of the European Union has validated the principle of the Commission's approach in its fight against the tax advantages granted to multinationals by some Member States, in the context of tax advance rulings under state aid rules. However, in the first of these decisions, the Court condemned the Commission for its lack of rigor in demonstrating the illegal aid.

The principle is established: although direct taxation falls under the sovereignty of Member States, the Commission is entitled to check that the latter do not take measures conferring any undue advantage to a company. Thus, if domestic tax legislation does not make any distinction in the treatment of the taxation of companies integrated in a group compared to that of stand-alone companies, the Commission is entitled to compare the situation of an integrated company having negotiated an advance tax ruling with the tax authorities, with the "normal" taxation of a stand-alone company in a comparable factual situation and operating its activities under market conditions.

In the first case, the Commission focused on the tax agreement concluded between the Dutch tax authorities and Starbucks Manufacturing Emea BV, an entity of the Starbucks group in charge of coffee roasting activities. The second case concerns the tax agreement negotiated between the Luxembourg tax authorities and Fiat Chrysler Finance Europe, a company of the Fiat group in charge of the group's cash and financing services. In both cases, the Commission found that these measures, each providing an advantage of approximately €30 million, were illegal under state aid rules and had ordered their recovery by the Member States. Therefore, the Court had to analyze the appeal of the Member States and companies in issue against the Commission's decisions.

Regarding Starbucks, the Court decided to annul the Commission's decision, considering that finding an error in methodology alone is not sufficient to demonstrate that the agreement concluded between the Dutch tax authorities and Starbucks had conferred an advantage to the latter and, consequently, established the existence of a State aid. To put in plainly, the Commission was unable to establish that the errors in methodology identified resulted in a reduction of the tax burden in favor of Starbucks.

On the other hand, the Court confirmed that the tax agreement concluded with Fiat conferred on it a selective advantage by unduly reducing its tax burden, an advantage that the other competing companies did not have and which therefore reinforced its financial position on the market.

These decisions follow from the Commission's decisions concerning Apple (€13 billion), Amazon (€250 million) and Engie (€120 million) that invalidated the Irish and Luxembourg measures in favor of these major groups. McDonald's, for its part, escaped, as its advantage resulted not from a favor of the Luxembourg tax authorities but from an issue of incompatibility between Luxembourg and US tax legislation. In any event, these decisions show that the Commission is committed to pursuing undue tax advantages since, as Commissioner Vestager stated, aside from the fact that they go against free competition on the merits, the tax giveaways granted to major multinationals are revenues lost that could have been used to fight against global warming, the financing of infrastructure or innovation.

Durogesic case: the Paris Court of Appeal reduces the fine but reasserts the anticompetitive nature of Janssen-Cilag's practices

On July 11, 2019, the Paris Court of Appeal reduced from €25 million to €21 million the fine imposed on Janssen-Cilag and its parent company Johnson & Johnson by the French Competition Authority for delaying the arrival on the market of generics of its brand name drug Durogesic and thereafter holding back its development.

It should be recalled that, at the end of 2017, following a complaint from the generics manufacturer Ratiopharm (now Teva), the French Competition Authority sanctioned the laboratory Janssen-Cilag and its parent company for implementing over 16 months two practices intended to prevent then limit the penetration of generics competing with the brand name drug upon the opening up to competition of its active ingredient. To delay the launch of the generic, the laboratory is criticized for intervening repeatedly and without basis with the AFSSAPS (now ANSM) to convince the French Health Authority not to register the generic, whereas it had obtained this status at European level. The second practice, aimed at slowing down the development of the generic after registration, consisted of a widespread smear campaign with health care professionals to create doubt as to its effectiveness and safety.

Sanctioned for abuse of a dominant position, Janssen-Cilag and its parent company appealed the decision, contesting in particular the French Competition Authority's jurisdiction to assess the interventions of the laboratory with the AFSSAPS. Janssen-Cilag contested the jurisdiction of the competition policing authority to rule on the legitimacy of its interventions with the French Health Authority, considering that this exclusively fell under the mission assigned by regulations to the AFSSAPS.

The Paris Court of Appeal dismissed Janssen-Cilag's arguments making a distinction between the – legitimate – interventions of Janssen-Cilag's pharmacist with the AFSSAPS and the – restrictive – interventions of the laboratory directly with the AFSSAPS that had an essentially dilatory purpose. It thus rejected the argument taken from the French Competition Authority's lack of jurisdiction. The Court further noted the illegitimacy of the laboratory's intervention with the AFSSAPS, as the latter did not have any leeway for the registration of the generic and was in fact bound by the European Commission's decision to register transdermal fentanyl on the directory of generic groups.

On the other hand, the Court considers that the French Competition Authority made an erroneous interpretation of Janssen-Cilag's intervention with the AFSSAPS since it concerned not an MA refusal (prohibiting any competition since the product could not then be marketed), but a refusal to register on the directory of generics that would allow for minimal competition. As the Authority overestimated the seriousness of this practice, the Court reduced the sanction imposed on the laboratory.

Invoicing: new rules for companies

From October 1st, new rules for invoicing are applicable. They are aimed at reducing delays by facilitating the processing of invoices.

First, the rules on invoicing of the French Commercial Code and the French Tax Code have been harmonized. Now, a seller will be required to issue an invoice upon completion of the delivery or service as provided for in the tax legislation. Thus, the provision of the French Commercial Code requiring the issuance of the invoice at the time when the agreement was concluded, which could lead a company having to pay an invoice when the delivery had not been completed, has been deleted.

Furthermore, companies are required to add two new mandatory mentions when drawing up their invoices. A seller must now add to the invoice i) the invoicing address when it is different from the registered office and ii) the order number when it has been established beforehand by the purchaser.

Lack of these mentions on invoices exposes companies to an administrative fine that can go up to €375,000.

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