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EU court rulings a 'real disappointment' to multinationals in state aid cases, says expert

A Spanish tax break that was only available to Spanish companies acquiring foreign companies constituted a 'selective' tax advantage in breach of EU state aid rules, the Court of Justice of the European Union (CJEU) said in two cases, overturning previous decisions of the EU General Court. 21 Dec 2016

Caroline Ramsay, a competition law expert at Pinsent Masons, the law firm behind Out-law.com, said: “These decisions will come as a real disappointment to the other tax ruling appellants such as Apple, Starbucks and Fiat, as the point on selectivity of the individual tax rulings in questions is a key issue to be considered in the appeals.”

Over the last few years the Commission has decided that tax rulings given by Ireland to Apple, Netherlands to Starbucks and Luxembourg to Fiat Finance and Trade constitute selective advantages and therefore unlawful state aid. Ireland is arguing that the Commission exceeded its powers in an appeal before the EU's General Court seeking to overturn a ruling that it must recover up to €13 billion in unpaid taxes from Apple. Ireland and Apple published their legal arguments this week as the Commission published its full decision in the Apple case.

The decisions in relation to the rulings given to Starbucks and Fiat are also being appealed. The Commission is also in the process of investigating rulings given by Luxembourg to Amazon and McDonald's.

This week's decisions by the CJEU concern 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.

In 2009 and 2011, the Commission decided that the tax relief constituted state aid, which was contrary to EU law 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 decisions on the basis that the Commission had not established the selectivity of the Spanish scheme.

The CJEU has now overturned the decisions of the General Court on the basis that the General Court erred in law in finding that selectivity had not been established. 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 CJEU said the tax benefits of the Spanish regime were selective because the relief was only available to Spanish companies acquiring a shareholding in a foreign company and not to Spanish companies acquiring a shareholding in a Spanish company.

The court said that the fact that the conditions that a company needed to fulfil were not strict, and the benefits were therefore available to many companies, did not call into question the selective nature of the measure, but only its degree of selectivity.

The CJEU said in its judgment "according to the Court’s settled case-law, the fact that the number of undertakings able to claim entitlement under a national measure is very large, or that those undertakings belong to various economic sectors, is not sufficient to call into question the selective nature of that measure and, therefore, to rule out its classification as state aid".

The decision followed an opinion in August from advocate general Melchior Wathelet that the tax break was selective and that the General Court's decision should be overturned.

The Commission welcomed the decision. It said: "The judgment is important because it confirms that a measure may be selective, if it benefits only those companies that carry out certain transactions".