Commission Decision (EU) 2025/2404of 28 November 2024on tax ruling SA.38375 (2014/C) (ex 2014/NN) – Luxembourg, alleged aid to FFT(notified under document C(2024) 8564)(Only the English text is authentic)(Text with EEA relevance)

Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards A Revised Framework, June 2004 (hereinafter: Basel II framework).

, to which the transfer pricing report made explicit reference, was 8 %.

(61) As regards the level of remuneration applied to that capital, the Commission expressed doubts on the determination of the beta as it seemed too low compared to other comparable companies performing financial services. The Commission also expressed doubts on the tax advisor’s choice of the 25th percentile and not the median for the calculation of the beta.

(62) Fourth, as regards the expected return on equity on the capital considered as excess capital, the Commission expressed doubts on the fact that the contested tax ruling agreed to the use of a very low rate of 0,87 % without any justification.

(63) In light of these doubts, in its Opening Decision, the Commission came to the provisional conclusion that the contested tax ruling conferred a selective advantage to FFT as the remuneration deviated from an arm’s length outcome. Since all the other conditions of Article 107(1) of the Treaty appeared to have been fulfilled and there was no apparent compatibility basis pursuant to Article 107(2) or (3) of the Treaty, the Commission came to the provisional conclusion that the contested tax ruling constituted State aid incompatible with the internal market.

1. COMMENTS FROM LUXEMBOURG ON THE OPENING DECISION

5.1.

On the Commission’s procedure

(64) As regards the procedure, Luxembourg alleged that the proper procedure for issuing the information injunction had not been followed in this case, in that Regulation (EC) No 659/1999 did not allow the Commission to issue injunctions in a decision to initiate the formal investigation procedure. Before such an injunction could be issued, the procedure provided for in Article 10 of Regulation (EC) No 659/1999 should have been followed.

(65) Luxembourg further claimed that, as regards the information requested under the injunction decision, the Commission did not explain why the disclosure of the name of the beneficiary was necessary to assess the measure under State aid rules. Luxembourg explained that it could not disclose the name at that stage. Luxembourg further claimed that there was lack of clarification on the requested information, whereas the Commission’s own Manual of Procedure required such clarification.

(66) Luxembourg alleged that, as the Opening Decision did not explain how the contested tax ruling constituted aid, it was impossible for it to implement the standstill obligation, hence it approved the submitted tax return of FFT based on the methodology in the contested tax ruling.

(67) Luxembourg further argued that the Commission infringed the principles of sincere cooperation, impartiality, and good administration by, for instance, not responding to its offers to meet so as to allow it to explain the methodology used in the contested tax ruling.

(68) Luxembourg contested the decision by the Commission to split the procedure relating to FFT (with a new case number SA.38375) from the general investigation into the tax ruling practices of Luxembourg under case number SA.37267. Given that Luxembourg had appealed the information injunction adopted by the Commission in the latter case before the General Court, the Commission could thereby artificially circumvent an annulment of the information injunction under SA.37267 by opening a new case.

(69) Finally, Luxembourg claimed that the Commission misused its powers by confusing the exercise of discretion with the mere interpretation of a rule of ordinary law. In particular, the contested tax ruling did not constitute an exercise of discretion by the Luxembourg tax administration but was in line with Article 164(3) L.I.R. and the Circular. According to Luxembourg, when applying those provisions, it was inevitable to interpret them in light of the facts of each case to arrive at solutions that were determined by and based on their specific circumstances. The Commission ignored that distinction between discretion, on the one hand, and the interpretation of rules that included abstract legal terms and that subsequently needed to be applied to the case at issue, on the other. Moreover, by substituting the interpretation of Luxembourg law put forward by the national authorities, the Commission infringed the competence of the Member States in the field of direct taxation.

(70) According to Luxembourg, given that its tax administration did not exercise discretion in the case of FFT, the Commission failed to prove that the contested tax ruling derogated from normal administrative practice. Luxembourg explained that its administrative action was based on the principles of legality and equality, thereby ensuring the same treatment for all taxpayers whose situations were essentially the same. Luxembourg contended that the Opening Decision was based on the OECD Guidelines and not on Luxembourg’s administrative practice.

5.2.

On substantive errors in the Opening Decision

(71) As a general matter, Luxembourg claimed that the Commission committed a substantive error by taking as the reference system, against which to find a selective advantage, an arm’s length principle not enshrined in its national law and practice.

(72) Furthermore, Luxembourg criticised the Commission for not applying the relevant national law provision, namely Article 164(3) L.I.R. and the resulting administrative practice, to the case at hand, but instead taking as a reference only the OECD Guidelines. In doing so, the Commission decided on the calculation method it considered most appropriate, whereas Luxembourg law precisely did not provide for the use of specific transfer pricing methods. The Commission therefore entirely disregarded Luxembourg’s legal framework and administrative practice in this area.

(73) In addition, Luxembourg claimed that the Commission misinterpreted the OECD Guidelines by establishing a hierarchy of transfer pricing methods. Luxembourg claimed that the choice of the TNMM was justified and compatible with Article 164 L.I.R.

(74) As regards the doubts expressed in the Opening Decision, Luxembourg criticised the Commission for focusing too much and one-sidedly on the alleged tax strategy of Fiat at group level, without considering that Fiat, being a group, may have had other reasons for setting up its structure in the manner it did.

(75) First, the Luxembourg tax administration did not agree to a fixed tax base as alleged by the Commission. FFT’s taxable revenue depended on the amount of loans granted and the transfer pricing report only established a bracket in terms of basis points for the margin to be achieved.

(76) Second, with respect to the amount of equity required and the Commission’s doubts in that respect, Luxembourg considered the choice of the Basel II framework to constitute a reasonable choice, as did the choice to exclude holdings. As holdings were paid through dividends from subsidiaries, the amount of which could vary according to the results of the subsidiaries and their reinvestment requirements, the notion of a margin to be applied to that flow of revenue made no commercial sense.

(77) Third, Luxembourg claimed that the exclusion of intra-group debts from the calculation was also justified given that FFT’s debts were backed by an explicit guarantee for FFT lenders.

(78) Fourth, Luxembourg criticised the Commission for calling into question the way in which the beta was calculated for the determination of the risk premium.

(79) Finally, Luxembourg claimed that given that the tax ruling practice in Luxembourg had been explicitly confirmed by the Code of Conduct Group (Business Taxation) to be consistent with the OECD Code of Conduct and Guidelines, the principle of legitimate expectations meant that FFT should have been able to rely on the contested tax ruling for its full period of validity, namely five years.

1. COMMENTS FROM INTERESTED PARTIES ON THE OPENING DECISION

(80) FFT submitted its comments to the Opening Decision on 30 October 2014, in two separate documents.

6.1.

FFT’s first set of comments

(81) FFT’s first set of comments related to (i) the purported misapplication of the OECD transfer pricing principles by the Commission and (ii) the alleged failure to meet the required legal standard to establish selectivity under Article 107(1) of the Treaty.

6.1.1.

Misapplication of the OECD principles

(82) First, FFT submitted that there was no agreement with the Luxembourg tax administration on a fixed taxable income, but rather an agreement related only to a method to remunerate the treasury functions performed by FFT.

(83) Second, FFT put forward arguments in support of the selection of TNMM as the most appropriate method. FFT explained that the absence of internal comparable transactions precluded the possibility to apply the CUP method. FFT further claimed that if it had used the pricing of its bonds, in the application of the CUP method, to set the transfer prices applied to the loans to group companies, it would have incurred losses.

(84) FFT also noted that although transfer pricing is not an exact science, it had used its best efforts to estimate an arm’s length remuneration for the activities.

(85) Third, as regards the adequacy of FFT’s equity, in absence of specific guidance in the Circular, to determine the appropriate level of equity at risk, FFT decided to analyse its equity to ascertain what proportion of capital was necessary to perform its activities and to bear its risks. For this purpose, FFT referred to the Basel II framework. FFT further explained that, as holding activities were not considered for the purpose of the contested tax ruling, it was justified to exclude FFT’s shareholdings from its equity at risk. Besides, the amount of equity equivalent to the investment in FFT’s subsidiaries had been excluded since it reflected non-portfolio investments in affiliates that were remunerated through dividends. However, dividends were not subject to transfer pricing analyses, which was consistent with the Basel II framework and Article 57 of Directive 2006/48/EC of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions (the Capital Requirement Directive, hereinafter referred to as CRD III)

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ L 177, 30.6.2006, p. 1, as amended).

.

(86) Fourth, with respect to the Commission’s analysis of the treatment of intra-group receivables and the fact that the FFT APA disregarded all assets other than third-party assets, FFT submitted that the group credit rating was already incorporated in the group cost of funding sourced by FFT. As FFT and all associated group companies had a credit rating equivalent to Fiat S.p.A., there was no additional credit risk to FFT from lending to its associated group companies. In light of the above, FFT further clarified how the interest rate charged by FFT was set.

(87) Fifth, according to FFT, it was justified to use the 6 % coefficient applied to its risk weighted assets as it corresponded to FFT’s understanding of the Basel II framework transposed to non-bank financial institutions in certain EU jurisdictions (for instance, Italy) by local regulatory authorities in accordance with the CRD. FFT further claimed that risk weighting for asset exposure and operational risk were in line with the Basel II framework. As regards any possible change of the regulatory framework, FFT submitted that also under the Basel III framework

Basel Committee on Banking Supervision, International regulatory framework for banks (Basel III).

and Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

(CRD IV), the relevant criteria were still valid.

(88) Sixth, as regards the Commission’s doubt on the beta used, FFT submitted that even when excluding certain comparable undertakings (such as national banks), the arm’s length range stayed almost exactly the same. Since FFT acted as a treasury company, betas of financing companies were considered by FFT to be the most appropriate comparable. Moreover, the Circular made a clear reference to financial service providers. With respect to the adoption of the 25th percentile of the arm’s length range, this was in line with the OECD Guidelines.

(89) Seventh, FFT contested the Commission’s doubt that the 0,87 % return on equity was too low. The excess capital, i.e. the capital that was not necessary to cover the risks assumed by FFT on its financing activity, was either on-lent in case another group company needed additional funding or used to fund operating expenses incurred by FFT while rendering financial services. As such, it should have been remunerated in line with short-term liquidity investments.

6.1.2.

The Commission’s selectivity analysis

(90) FFT submitted that even if the Commission’s analysis of the compliance with the arm’s length principle was correct, the Opening Decision provided no evidence of FFT being treated more advantageously than any other Luxembourg taxpayer in a comparable legal and factual situation. The Opening Decision did not contain any comparison of the position of FFT with other Luxembourg taxpayers, such as the 21 other taxpayers whose APAs had been reviewed by the Commission. FFT had been entitled to an APA from the Luxembourg tax administration, like any other Luxembourg taxpayer having a real presence in Luxembourg.

(91) Moreover, given that the aggregate Luxembourg corporate income tax rate for FFT was 28,8 % (for the financial year 2011), while in Italy the headline corporate tax rate was approximately 33 %, a higher profit earned by FFT would have resulted in higher deductible costs in Italy, since the majority of the FFT loans were to Fiat Finance S.p.A. Hence, it was not clear what kind of aid the group as a whole obtained if FFT reported a lower profit in Luxembourg and was thus entitled to lower interest deductions in Italy.

6.2.

FFT’s second set of comments

6.2.1.

The APA did not confer an advantage

(92) FFT’s second set comments started off by explaining the importance of APAs in general and their acceptance both as a part of the general tax system, as well as their endorsement by the Luxembourg tax system. The FFT APA followed the guidance contained in the Circular and did not depart from the Luxembourg general tax system.

(93) Luxembourg transfer pricing rules, which were the basis on which the Circular had been issued, were part of the general tax system. Luxembourg transfer pricing rules did not derogate from that general tax system, as they respected in practice the OECD Guidelines and were aimed at identifying an arm’s length profit.

(94) As regards the doubt of the Commission expressed in the Opening Decision on the choice of the transfer pricing methodology, FFT submitted that the TNMM was a generally accepted OECD-approved methodology that was consistent with the general tax system in Luxembourg.

(95) According to FFT, tax authorities should be allowed a certain margin of appreciation when applying the TNMM, which, as far as the determination of the taxable profit was concerned, never leads to one single outcome, but to the identification of a range of valid results. Accordingly, the difference between the taxable income obtained by FFT (and accepted by the Luxembourg tax administration) and the alleged taxable income calculated by the Commission should not have been considered an advantage for State aid purposes. Such an advantage would only arise where the measure amounted to a flagrant departure from standard transfer pricing rules and went beyond the margin of appreciation of the tax administration. Otherwise, the Commission would interfere with the taxing powers of a Member State.

(96) Finally, when assessing whether an advantage existed, FFT alleged that the Commission should have considered the overall group effect. In that regard, no advantage existed for the Fiat group because any increase of the taxable base in Luxembourg was offset in full by an increased tax deduction in other European countries (in the latest years mainly in Italy).

6.2.2.

Lack of selectivity

(97) According to FFT, the reference system to assess selectivity could only include companies being subject to transfer pricing rules, i.e. dealing exclusively with related parties. This was recognised in the Commission decision on Groepsrentebox

Commission Decision 2009/809/EC of 8 July 2009 on the groepsrentebox scheme which the Netherlands is planning to implement (C 4/07 (ex N 465/06)) (OJ L 288, 4.11.2009, p. 26) (hereinafter Groepsrentebox decision).

, which stated, with respect to debt financing activities, that related companies were not in a legal and factual situation comparable to that of unrelated companies. Thus, to demonstrate selectivity, the Commission would have had to prove that FFT obtained an APA under conditions which were different from those of other Luxembourg group entities engaged in financing activities. However, the Circular explained that APAs were available to all finance group companies. Therefore, there was no selectivity.

(98) According to FFT, tax rulings issued by the Luxembourg tax administration were not discretionary, since they followed the principles of the Circular, which specifically referred to the arm’s length principle as defined in Article 9 of the OECD Model Tax Convention. Thus, the margin of appreciation of the Luxembourg tax administration, if any, was limited by the guidance offered in the Circular. In addition, this limited margin of appreciation left to the tax administration was inherent to the application of the OECD Guidelines. This, in itself, could not trigger the presence of State aid. Furthermore, the FFT APA was subject to periodical review.

(99) FFT further argued that the Commission had not demonstrated that the application of the TNMM method in the FFT APA diverged from other rulings concluded by companies in situations comparable to FFT. According to FFT, there was no doubt that a comparable undertaking in a similar situation to FFT would have been able to request a ruling and to determine its taxable profits on the basis of the TNMM. Since FFT and comparable undertakings were subject to the same tax regime, it also became immaterial to establish whether the transfer pricing methodology applied to FFT was compliant with the OECD Guidelines (which, according to FFT, it was in any event).

6.2.3.

FFT’s factual situation differed substantially from the decisions on Coordination Centres

(100) According to FFT, the Opening Decision illustrated a number of noteworthy differences vis-à-vis previous decisions in which the Commission challenged the application of a transfer pricing methodology (namely the cost plus method) as being the tax measure that gave rise to the selective advantage

Commission Decision [2003] on the aid scheme implemented by Belgium – Tax ruling system for United States foreign sales corporations, OJ L 23, 28.1.2004, p. 14; Commission Decision [2003] on the aid scheme implemented by Belgium for coordination centres established in Belgium, OJ L 282, 30.10.2003, p. 25; Commission Decision [2002] on the State aid scheme C 49/2001 (ex NN 46/2000) – Coordination Centres – implemented by Luxembourg, OJ L 170, 9.7.2003, p. 20; Commission Decision [2003] on the aid scheme implemented by France for headquarters and logistics centres, OJ L 23, 28.1.2004, p. 1; Commission Decision [2002] on the aid scheme implemented by Germany for control and coordination centres, OJ L 177, 16.7.2003, p. 17.

. In those decisions, the regime was available only to those taxpayers that met certain requirements, whereas in the Opening Decision the Commission challenged solely the application of the TNMM, i.e., the specific determination of the taxable profits, in the context of an APA procedure available to all Luxembourg taxpayers engaged in related-party financing.

(101) Moreover, in those decisions, the income determined under the cost plus method could depart substantially from the statutory profit, which was not the case for FFT. Unlike in the case of FFT, the application of the transfer pricing methodology in the earlier decisions manifestly deviates from the OECD Guidelines. There was also no clear transfer pricing guidance in the OECD Guidelines about some of the activities performed by FFT (such as financial and treasury activities).

(102) FFT further alleged that the Commission also did not consider that the FFT APA was based on an economic study in line with the OECD Guidelines, which showed that the profit determination was not arbitrary, and that the Luxembourg tax administration did not exercise any discretion.

1. COMMENTS FROM LUXEMBOURG ON THIRD PARTY COMMENTS

(103) By letter of 5 January 2015, Luxembourg expressed its agreement with FFT’s observations.

1. ASSESSMENT

(104) According to Article 107(1) of the Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the provision of certain goods is incompatible with the internal market, in so far as it affects trade between Member States.

(105) As held by the Union Court

Case C-399/08 P Commission v Deutsche Post, ECLI:EU:C:2010:481, paragraph 39.

, the qualification of a measure as aid within the meaning of Article 107(1) of the Treaty therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and have the potential to affect trade between Member States.

(106) For the purposes of this decision, it is in particular necessary to further examine the presence of a selective advantage.

(107) According to settled case-law, the condition relating to a selective advantage, ‘requires a determination as to whether, under a particular legal regime, the national measure at issue is such as to favour certain undertakings or the production of certain goods’ over other undertakings which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation and which accordingly suffer different treatment that can, in essence, be classified as discriminatory

Joined Cases C-451/21 P and C-454/21 P Luxembourg and Others v Commission, ECLI:EU:C:2023:948, paragraph 106. See also C-172/03 Heiser, ECLI:EU:C:2005:130, paragraph 40.

.

(108) More specifically, the Court of Justice has developed a three-step analysis to determine whether a particular tax measure is selective

Joined Cases C-78/08 to C-80/08 Paint Graphos, ECLI:EU:C:2009:417, paragraphs 49 and 64-65. That three-step method of analysing the selectivity of aid was designed in order to reveal the concealed selectivity of advantageous tax measures that are apparently available to any undertaking: see Joined Cases C-649/20 P, C-658/20 P, C-662/20 P Spain and Others v Commission, ECLI:EU:C:2023:60, paragraph 48.

. First, the common or normal tax regime applicable in the Member State is identified. This constitutes the reference system. Second, it is determined whether the tax measure in question constitutes a derogation from that system, in so far as it differentiates between economic operators who, in light of the objectives intrinsic to the system, are in a comparable factual and legal situation. If the measure constitutes a derogation from the reference system, it is then established, in the third step of the analysis, whether that measure is justified by the nature or the general scheme of the reference system. A tax measure which constitutes a derogation from the application of the reference system may be justified if the Member State concerned can show that that measure results directly from the basic or guiding principles of that tax system

Joined Cases C-78/08 to C-80/08 Paint Graphos, ECLI:EU:C:2009:417, paragraph 65.

. If that is the case, the tax measure is not selective. The burden of proof in that third step lies with the Member State.

(109) In the FIAT judgment

Joined Cases C-885/19 P and C-898/19 P Commission v Fiat Chrysler Finance Europe, ECLI:EU:C:2022:859.

, the Court of Justice further clarified how to identify the relevant reference system. The Court of Justice indicated that the Commission should not consider parameters and rules that are external to the national tax system when determining the reference system. More specifically, in paragraph 96 of the FIAT judgment, the Court of Justice considered that [p]arameters and rules external to the national tax system at issue cannot therefore be taken into account in the examination of the existence of a selective tax advantage within the meaning of Article 107(1) of the Treaty and for the purposes of establishing the tax burden that should normally be borne by an undertaking, unless that national tax system makes explicit reference to them.

(110) In light of those principles, the Court of Justice concluded, in paragraph 117 of the FIAT judgment

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859. See also the reasoning set out at paragraphs 81 to 112 of the judgment.

, that the Closing Decision in that case had to be annulled in so far as the Commission had erred in law in finding that there was a selective advantage in the light of a reference framework comprising an arm’s length principle which did not derive from a full examination of the relevant national tax law.

(111) Pursuant to Article 266 of the Treaty, it is therefore incumbent on the Commission to take the necessary measures to comply with the FIAT judgment of the Court of Justice.

(112) In that regard, the Commission recognises that, in the Opening Decision it had based its assessment of the selective advantage criterion on the assumption that the reference framework included an arm’s length principle. It derived this principle both from prior Commission decisions

Commission Decision [2003] on the aid scheme implemented by Belgium – Tax ruling system for United States foreign sales corporations, OJ L 23, 28.1.2004, p. 14; Commission Decision [2003] on the aid scheme implemented by Belgium for coordination centres established in Belgium, OJ L 282, 30.10.2003, p. 25; Commission Decision [2002] on the State aid scheme C 49/2001 (ex NN 46/2000) – Coordination Centres – implemented by Luxembourg, OJ L 170, 9.7.2003, p. 20; Commission Decision [2003] on the aid scheme implemented by France for headquarters and logistics centres, OJ L 23, 28.1.2004, p. 1; Commission Decision [2002] on the aid scheme implemented by Germany for control and coordination centres, OJ L 177, 16.7.2003, p. 17.

and the case-law of the Court of Justice

Joined Cases C-182/03 and C-217/03 Belgium and Forum 187 v Commission, ECLI:EU:C:2006:416 (hereinafter Forum 187 case-law).

, interpreted in accordance with the OECD Guidelines, as detailed in recitals 53 to 56 of the this Decision.

(113) Accordingly, the four specific doubts outlined in recitals 63 to 80 of the Opening Decision and referenced above in section 4 were based on the existence of an autonomous arm’s length principle

See Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 104.

. In other words, the preliminary conclusion on the State aid character of the contested tax ruling, as laid down in the Opening Decision, stemmed from a deviation from or misapplication of an arm’s length principle and rules which did not derive from a full examination of Luxembourg law.

(114) The Commission acknowledges however, that in the FIAT judgment, the Court of Justice held that the Commission had not established, in the Closing Decision, the existence of a selective advantage for the benefit of FFT, within the meaning of Article 107(1) of the Treaty because, when establishing the reference system: the Commission applied an arm’s length principle different from that defined by Luxembourg law. It thus confined itself to identifying, in the objective pursued by the general corporate tax system in Luxembourg, the abstract expression of that principle and to examining the tax ruling at issue without taking into account the way in which the said principle has actually been incorporated into that law with regard to integrated companies in particular

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 91.

. That conclusion is also relevant for the analysis set out in the Opening Decision.

(115) As regards the taxation of integrated companies, the Court of Justice further observed that, while Luxembourg’s national law applicable to companies aims to achieve a reliable approximation of market prices – and that objective corresponds, in general terms, to that of the arm’s length principle – it remains that, in the absence of harmonisation at EU level, the specific detailed rules for applying that principle are determined by national law and it is those national rules that must be considered when identifying the reference framework

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 93.

. However, in the Opening Decision the Commission did not refer to an arm’s length principle, as essentially enshrined in Article 164(3) L.I.R.

(116) The Court of Justice also noted that it cannot be inferred from the Forum 187 case-law that the Court intended to establish an autonomous arm’s length principle applicable independently of its incorporation into national law when assessing tax measures under Article 107(1) of the Treaty

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 104.

.

(117) Moreover, the Court of Justice stated that even assuming that there is an international consensus on the arm’s length principle, and that many national tax authorities are guided by the OECD Guidelines in the preparation and control of transfer prices, it is only the national provisions that are relevant for the purposes of analysing whether particular transactions must be examined in the light of the arm’s length principle and, if so, whether or not transfer prices, which form the basis of a taxpayer’s taxable income and its allocation among the States concerned, deviate from an arm’s length outcome

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 96.

.

(118) In light of those findings and conclusions of the Court of Justice in the FIAT judgment, it must be concluded that the reference system as defined in recitals 59 to 63 of the Opening Decision, which is based exclusively on an autonomous arm’s length principle, derived from the Commission’s decisions and Forum 187 case-law as interpreted by the OECD Guidelines, cannot constitute an appropriate starting point for the State aid analysis of the existence of a selective advantage in the present case. Moreover, the Opening Decision did not express doubts based on Article 164(3) L.I.R and the Circular.

(119) As recalled in the FIAT judgment, generally an error in determining the rules actually applicable under the relevant national law and, therefore, in identifying the reference system in the light of which the tax ruling at issue had to be assessed necessarily invalidates the entirety of the reasoning relating to the existence of a selective advantage

Joined Cases C-885/19 P and C-898/19 P Fiat Chrysler Finance Europe and Ireland v European Commission, ECLI:EU:C:2022:859, paragraph 118.

.

(120) As a result, neither the specific doubts raised in the Opening Decision, nor the underlying reasoning set out therein on the definition of reference system, allow the Commission to establish that, by the contested tax ruling, Luxembourg granted a selective advantage to FFT. Furthermore, in the Opening Decision, the Commission did not assess the presence of a derogation by the contested tax ruling in light of any other reference system nor did it raise doubts concerning the existence of aid on other grounds related to the presence of a selective advantage.

(121) In the present Decision, therefore, the Commission must set aside the doubts expressed in the Opening Decision as to the existence of a selective advantage. As the criteria for finding the existence of State aid pursuant to Article 107(1) of the Treaty are cumulative, there is no need to assess the other criteria set out in that provision.

1. CONCLUSION

(122) In light of the foregoing, the Commission concludes that the contested tax ruling issued by Luxembourg in favour of FFT does not constitute State aid within the meaning of Article 107(1) of the Treaty.

HAS ADOPTED THIS DECISION:

Article 1

The contested tax ruling of 3 September 2012 of the Grand Duchy of Luxembourg in favour of FFT does not constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union.

Article 2

This Decision is addressed to the Grand Duchy of Luxembourg.

Done at Brussels, 28 November 2024.

For the Commission

Margrethe Vestager

Executive Vice-President