The CJEU Fiat ruling paves the way for state assistance conflicts with Apple and Amazon
According to tax experts, the decision should reassure multinational corporations, but it is not the final word on state aid.
According to analysts, the Court of Justice of the EU could be headed for bruising conflicts in transfer pricing-related state aid cases involving big corporations like Amazon and Apple.
It follows a ruling by Europe's highest court on November 8 that the European Commission erroneously determined Luxembourg to have violated EU state assistance standards.
The Commission said that the European nation had incorrectly used the arm's-length principle (ALP) when approving an advance TP agreement with Fiat Chrysler Finance Europe, formerly known as Fiat Finance and Trade.
Niels Baeten, an associate at the legal firm Skadden in Brussels, asserts that the CJEU's decision indicates that the Commission cannot just invent its own version of the ALP and apply it to any case it chooses.
He suggests that the Commission should instead depend on the national tax law of the relevant member state to evaluate whether a tax judgement constitutes state aid.
“If it [the Commission] establishes that the member state has chosen to apply the ALP, the Commission should still prove that the tax ruling is manifestly inconsistent with such a principle, which suggests a higher standard.”
Tax experts saw the Fiat verdict as a significant victory for multinational corporations and national tax policymakers.
Regarding state assistance cases involving TP arrangements, Baeten states, "This is a really devastating blow to the Commission's enforcement capabilities for future tax judgements."
According to Vikram Chand, a law expert at the University of Lausanne in Switzerland, this decision is a significant boost for the legal clarity of EU TP arrangements.
“The key message from this judgment is that the CJEU has upheld the principle of legal certainty and legitimate expectations,” says Chand.
This means that enterprises may trust on the validity of their TP arrangements with national governments without concern that the Commission would overturn them, unless they violate EU state assistance standards.
Differences of opinion
In pursuing state assistance cases utilising TP arrangements, one of the Commission's first objectives was to combat the proliferation of unilateral tax judgements in the EU. Several member nations diverged from ALP.
According to Harmen van Dam, a lawyer and tax advisor at the Rotterdam law firm Loyens and Loeff, the Commission had suggested that it would target so-called "champagne rulings." In these instances, taxpayers were granted substantial tax reductions through unilateral decisions.
“But the Fiat case was not one of these cases, it was merely an attempt by the taxpayer to approach the capital markets in an efficient manner,” says van Dam.
Baeten argues that the Commission attempted to take the path of least resistance by asserting that the ALP is an independent principle of EU law entrenched in Article 107 of the Treaty on the Functioning of the European Union.
“Their argument for that has always been rather doubtful,” he adds.
According to him, the Commission's contention that an independent ALP was embedded in EU law based on a single paragraph of a CJEU ruling from over 15 years ago in the Belgium and Forum 187 case (C-217/03). In that case, the CJEU clarified that Belgium had adopted the OECD cost-plus method into its national law, allowing the Commission to rely on it.
In the Fiat case, the Commission also contended that Luxembourg's national law was incompatible with globally recognised ALP norms.
This reference framework between national and international ALP norms, according to Chand, was one of the most contentious issues.
“In this Fiat case, it should have been the national law rather than principles that are accepted internationally or at an EU-level,” says Chand.
Chand asserts that each member state is responsible for direct taxes. This means that national governments are permitted to give national guidelines regarding how they interpret the ALP in specific circumstances.
This interpretation of the reference framework was the deciding factor in the CJEU's decision.
The focus is on Apple
The Fiat case is anticipated to have a significant impact on ongoing and future case decisions.
The Commission has cases pending before European courts where decisions have not yet been rendered or where enforcement proceedings are ongoing. Apple and Amazon are defendants in legal proceedings.
Nike and IKEA are two such companies whose cases are still in the inquiry phase.