The CJEU has issued its decision in Santander, and the EC has published the full non-confidential version of its decision in the Apple case. They suggest an uphill struggle for Ireland and Apple in their attempt to overturn the EC’s decision, write Caroline Ramsay & Heather Self (Pinsent Masons).
In the week before Christmas when the thoughts of many may have been more attuned to mince pies and office Christmas parties, there were two developments in the application of state aid principles to tax matters. First, the European Commission published the full non-confidential version of its decision in the Apple case (previously all we had to go on was the Commission’s summary of its decision). Then, in an unwelcome development for Apple and other multinationals trying to challenge the Commission’s application of state aid principles to tax matters, the CJEU published its decision in the joined cases of Santander and World Duty Free (Cases C-20/15 P and C-21/15 P).
The Commission has been using EU state aid rules to challenge tax rulings given by some states to multinationals (such as Starbucks, Fiat, Amazon, Apple and McDonald’s) and tax reliefs in some jurisdictions. A key issue in cases where member states and affected companies are appealing the decisions of the Commission is whether the tax rulings in question constitute a ‘selective advantage’.
The Santander case considered this issue. It concerned a Spanish tax provision which gave a Spanish company acquiring a shareholding of at least 5% in a non-Spanish company a tax deduction for amortisation of goodwill. No such tax relief was available for a Spanish company acquiring a shareholding in another Spanish company.
The Commission decided that the tax relief constituted state aid and directed Spain to recover the benefit of the aid. In 2014, World Duty Free Group (formerly Autogrill España), Banco Santander and Santusa Holding succeeded in getting the General Court of the EU to annul the decision on the basis that the Commission had not established the selectivity of the scheme. The General Court decided that the tax relief was not selective because it did not apply only to any particular category of business or the production of any particular category of goods, but was potentially available to all Spanish companies that wanted to acquire shareholdings of at least 5% in foreign companies. It said that for there to be state aid, the Commission had to identify a particular category of businesses with specific characteristics which were exclusively favoured by the relief.
The CJEU has now overturned the decisions of the General Court and referred the cases back to that court, saying it had erred in law in finding that the Commission had not applied the selectivity test correctly. The CJEU said that a tax measure was selective if it favoured some businesses over other businesses in a comparable factual and legal situation. It said that this was the case even if the measure was in principle open to all companies. The fact that a very large number of businesses could claim a tax relief or that those undertakings belonged to different economic sectors was not sufficient to call into question the selective nature of that measure. The cases have therefore been referred back to the General Court for a further examination of the detailed facts and arguments.
The Apple decision relates to tax rulings concerning the method of allocation of profit to the Irish branches of two Apple companies, which were incorporated in Ireland but, under Irish tax law at the time, regarded as not resident in Ireland, even though they were not tax resident anywhere else. This resulted in a large percentage of the profits being attributed to a US head office, but not being taxed anywhere. In the decision the Commission is bold in looking beyond Ireland and questioning whether the US head office has any substance. The decision also reveals that no profit allocation or transfer pricing report prepared by Apple was available to Irish Revenue when examining the ruling requests. Ireland is contesting the decision. It has published a summary of its arguments (see www.bit.ly/2h2Ixs3): in essence, that the Commission has misunderstood Irish law, exceeded its powers and interfered with national tax sovereignty. However, the apparently lax Irish ruling procedure, as described in the Commission’s decision, and the Santander decision, suggest an uphill struggle for Ireland and Apple in their fight to overturn the decision.
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State aid developments: Santander and Apple
The CJEU has issued its decision in Santander, and the EC has published the full non-confidential version of its decision in the Apple case. They suggest an uphill struggle for Ireland and Apple in their attempt to overturn the EC’s decision, write Caroline Ramsay & Heather Self (Pinsent Masons).
In the week before Christmas when the thoughts of many may have been more attuned to mince pies and office Christmas parties, there were two developments in the application of state aid principles to tax matters. First, the European Commission published the full non-confidential version of its decision in the Apple case (previously all we had to go on was the Commission’s summary of its decision). Then, in an unwelcome development for Apple and other multinationals trying to challenge the Commission’s application of state aid principles to tax matters, the CJEU published its decision in the joined cases of Santander and World Duty Free (Cases C-20/15 P and C-21/15 P).
The Commission has been using EU state aid rules to challenge tax rulings given by some states to multinationals (such as Starbucks, Fiat, Amazon, Apple and McDonald’s) and tax reliefs in some jurisdictions. A key issue in cases where member states and affected companies are appealing the decisions of the Commission is whether the tax rulings in question constitute a ‘selective advantage’.
The Santander case considered this issue. It concerned a Spanish tax provision which gave a Spanish company acquiring a shareholding of at least 5% in a non-Spanish company a tax deduction for amortisation of goodwill. No such tax relief was available for a Spanish company acquiring a shareholding in another Spanish company.
The Commission decided that the tax relief constituted state aid and directed Spain to recover the benefit of the aid. In 2014, World Duty Free Group (formerly Autogrill España), Banco Santander and Santusa Holding succeeded in getting the General Court of the EU to annul the decision on the basis that the Commission had not established the selectivity of the scheme. The General Court decided that the tax relief was not selective because it did not apply only to any particular category of business or the production of any particular category of goods, but was potentially available to all Spanish companies that wanted to acquire shareholdings of at least 5% in foreign companies. It said that for there to be state aid, the Commission had to identify a particular category of businesses with specific characteristics which were exclusively favoured by the relief.
The CJEU has now overturned the decisions of the General Court and referred the cases back to that court, saying it had erred in law in finding that the Commission had not applied the selectivity test correctly. The CJEU said that a tax measure was selective if it favoured some businesses over other businesses in a comparable factual and legal situation. It said that this was the case even if the measure was in principle open to all companies. The fact that a very large number of businesses could claim a tax relief or that those undertakings belonged to different economic sectors was not sufficient to call into question the selective nature of that measure. The cases have therefore been referred back to the General Court for a further examination of the detailed facts and arguments.
The Apple decision relates to tax rulings concerning the method of allocation of profit to the Irish branches of two Apple companies, which were incorporated in Ireland but, under Irish tax law at the time, regarded as not resident in Ireland, even though they were not tax resident anywhere else. This resulted in a large percentage of the profits being attributed to a US head office, but not being taxed anywhere. In the decision the Commission is bold in looking beyond Ireland and questioning whether the US head office has any substance. The decision also reveals that no profit allocation or transfer pricing report prepared by Apple was available to Irish Revenue when examining the ruling requests. Ireland is contesting the decision. It has published a summary of its arguments (see www.bit.ly/2h2Ixs3): in essence, that the Commission has misunderstood Irish law, exceeded its powers and interfered with national tax sovereignty. However, the apparently lax Irish ruling procedure, as described in the Commission’s decision, and the Santander decision, suggest an uphill struggle for Ireland and Apple in their fight to overturn the decision.
