Opinion Backs EU Commission in Crucial ‘State Aid' Tax Cases

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By Joe Kirwin

July 28 — The European Union's high-profile state aid tax cases involving companies such as Apple, Amazon and Starbucks received a boost when the EU's top legal adviser insisted the tax breaks are “selective” and therefore illegal, even if they are available to other companies.

The highly anticipated opinion from Court of Justice Advocate General (AG) Melchior Wathelet backed an appeal by the European Commission to overturn a lower court's ruling. The lower court had rejected the EU executive body's arguments that a Spanish law allowing a tax break for Spanish companies investing in foreign companies was illegal state aid.

While the AG opinion in European Commission v. World Duty Free Group Holdings (C-20/15 and C-21/15 isn't binding on the Court of Justice, it's rare that the final judgment, which is due by the end of 2016, would vary from Wathelet's legal arguments.

The European Commission opened its investigation of the tax measures at issue in 2007. Finding that companies had received illegal state aid in the form of tax breaks for investments in non-Spanish companies, it called on the Spanish government to retrieve the amounts.

The companies appealed the ruling and the European General Court backed their arguments that the tax breaks weren't “selective” and therefore weren't illegal state aid because they were available to all companies.

Selectivity Definition

It's widely recognized that the definition of “selectivity” is also crucial in the European Commission's investigations of Apple Inc. and Amazon.com Inc.—so much that many experts believe the EU executive body is waiting for the ECJ ruling on the Spanish tax breaks before issuing decisions involving the U.S.-based multinationals (135 ITM, 7/14/16).

Wathelet's opinion said “once a tax measure derogates from the ‘normal’ or reference tax regime and benefits undertakings performing the transactions in question to the detriment of others that perform similar transactions and are therefore in a comparable situation that measure is by definition discriminatory or selective unless the differentiation created by the measure is justified by the nature or general scheme of the system of which it forms a part.”

The ECJ advocate general added that “the fact that the conditions attached to the transactions covered by the derogatory tax measure are relatively easy to fulfill and that, for that reason, the benefits that measure offers are available to a large number of undertakings does not call into question its selective nature—only the degree of selectivity.”

Scope Broadened

Kai Struckmann, a Brussels-based competition lawyer with White & Case LLP who previously worked as an antitrust lawyer with the European Commission, told Bloomberg BNA July 28 that the ECJ case involving the Spanish tax breaks “is important for the interpretation of the selectivity criterion applied in tax cases.” He added that “if the ECJ high court follows the AG's opinion, this would significantly broaden the scope of this criterion for these types of cases.”

Jacques Bourgeois, a Brussels-based competition lawyer for Sidley Austin LLP, went further. He said that if the AG opinion is backed by the ECJ, it “significantly strengthens the hand of the European Commission in the cases such as those involving Apple, Amazon.com, Starbucks and others.” He added that it would also likely pave the way to further European Commission illegal state cases based on tax rulings.

“The AG is basically saying that if a tax measure or any other by which member states assist a company financially makes a distinction between the beneficiary company and others that are in a comparable situation, then this is state aid,” Bourgeois told Bloomberg BNA July 28. “Based on this argument you can say that the Apples, the Amazons and the Starbucks received a tax advantage that is not granted to national companies. Everything turns on the national companies in the same situation.”

Tax Rulings for All

The Irish government and other defenders of the tax breaks for Apple argue that the commission hasn't proved they are selective because other companies could request their own tax rulings.

“If the tax rulings Apple and the Irish government are referring to are available to all companies, the argument could hold up,” Bourgeois said. “But the tax rulings being available to all companies may not mean the tax break Apple is benefiting from is available to all companies that are in a comparable situation.”

The European Commission refused official comment on the AG opinion and said it won't have anything to say on the case until the ECJ judgment is released.

A high-level official at the commission, who spoke to Bloomberg BNA on the condition of anonymity July 28, said the AG opinion is “very much welcomed. We are hopeful that the ECJ will follow these arguments in its judgment.”

The official wouldn't say whether the EU executive body plans to hold off until after the ECJ rules before releasing decisions involving Apple as well as the case pending against Amazon.com Inc., which involves a tax ruling issued by Luxembourg (99 ITM, 5/23/16).

EC Should Wait for ECJ

Bourgeois said the ECJ ruling will be pivotal to European Commission state aid tax cases. “If they are not going to wait for the ECJ ruling, then I would certainly advise them to do so,” he said.

Besides pending decisions involving Apple and Amazon.com, the commission currently is probing more than 300 other tax rulings offered by Luxembourg to multinational companies that were brought to light by the LuxLeaks scandal that erupted in 2014 (185 ITM, 9/18/15).

European Commission President Jean-Claude Juncker served as Luxembourg's prime minister and finance minister when the tax rulings to multinational companies under investigation were awarded by the Luxembourg government.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor on this story: Rita McWilliams at rmcwilliams@bna.com

For More Information

The advocate general's opinion in C-20/15 and C-21/15 is at http://src.bna.com/hd3.

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