The Court of Justice of the European Union has set aside the EU General Court’s judgment and annulled the Commission’s decision in the Fiat Chrysler Finance Europe (C-885/19 P) state aid case. The CJEU found that the General Court had been wrong in its adoption of an objective ‘reference framework’ against which any selective tax advantage had been assessed. Instead, state aid should have been judged solely by reference to the national tax system. This means that, when deciding whether or not the Luxembourg tax ruling constituted unlawful state aid, the Commission should have looked only at the tax rules and guidance on transfer pricing which would normally apply in Luxembourg.
The Commission was wrong to apply an arm’s length principle different from that defined in Luxembourg law, as the CJEU confirmed in its decision:
‘After having observed that a member state has chosen to apply the arm’s length principle in order to establish the transfer prices of integrated companies, the Commission must … be able to establish that the parameters laid down by national law are manifestly inconsistent with the objective of non-discriminatory taxation of all resident companies, whether integrated or not, pursued by the national tax system, by systematically leading to an undervaluation of the transfer prices applicable to integrated companies or to certain of them, such as finance companies, as compared to market prices for comparable transactions carried out by non-integrated companies.’
‘As the Commission has used a similar approach and reference framework in other still pending cases and has compared the tax position of the beneficiary of the tax ruling with the tax position of any other taxpayer for purposes of assessing the existence of a selective advantage, the CJEU judgment may further weaken the European Commission’s stance in these other cases.’
The Court of Justice of the European Union has set aside the EU General Court’s judgment and annulled the Commission’s decision in the Fiat Chrysler Finance Europe (C-885/19 P) state aid case. The CJEU found that the General Court had been wrong in its adoption of an objective ‘reference framework’ against which any selective tax advantage had been assessed. Instead, state aid should have been judged solely by reference to the national tax system. This means that, when deciding whether or not the Luxembourg tax ruling constituted unlawful state aid, the Commission should have looked only at the tax rules and guidance on transfer pricing which would normally apply in Luxembourg.
The Commission was wrong to apply an arm’s length principle different from that defined in Luxembourg law, as the CJEU confirmed in its decision:
‘After having observed that a member state has chosen to apply the arm’s length principle in order to establish the transfer prices of integrated companies, the Commission must … be able to establish that the parameters laid down by national law are manifestly inconsistent with the objective of non-discriminatory taxation of all resident companies, whether integrated or not, pursued by the national tax system, by systematically leading to an undervaluation of the transfer prices applicable to integrated companies or to certain of them, such as finance companies, as compared to market prices for comparable transactions carried out by non-integrated companies.’
‘As the Commission has used a similar approach and reference framework in other still pending cases and has compared the tax position of the beneficiary of the tax ruling with the tax position of any other taxpayer for purposes of assessing the existence of a selective advantage, the CJEU judgment may further weaken the European Commission’s stance in these other cases.’
