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Illumina vs European Commission: the EU General Court endorses the Commission’s new approach to Article 22 EUMR allowing the capture of mergers below the thresholds

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In a judgment dated 13 July 2022 (T-227/21), the General Court of the European Union (the “General Court” or the “Court”) upheld the decision of the European Commission (the “Commission”) whereby the latter accepted to assert its (merger control) jurisdiction over the “below-the-thresholds” acquisition of Grail by Illumina (the “Transaction”), following referrals from EU and EFTA member states based on Article 22 of the EU Merger Regulation (“EUMR”)[1].

In addition to its direct and almost immediate implications for Illumina and Grail (see below), this judgment paves the way for new cases that capture concentrations below the thresholds (i.e., not triggering merger control requirements based on the numerical thresholds) while leaving a few questions open.

It was indeed the first time, since the announcement by Margrethe Vestager of the Commission’s willingness to use Article 22 EUMR to tackle potentially problematic “below the thresholds” mergers, that the General Court was given the opportunity to have its say on this new approach.

Background

Pursuant to Article 22 EUMR, national competition authorities (“NCAs”) may refer to the Commission any concentration that does not have a European dimension, but (i) which affects trade between Member States and (ii) threatens to significantly affect competition in the territory of the Member State concerned (see our previous Blog post on the Commission’s guidance published on 26 March 2021).

This provision was long conceived as a tool designed for EU Member States lacking national merger control regimes. Over recent years, however, there had been increasingly clear messages that the Commission wanted to use it for other purposes, namely to extend its jurisdiction to catch the so-called killer acquisitions, or more generally potentially problematic concentrations below the thresholds. But, before the issuance of the Commission’s guidance regarding the application of Article 22 EUMR on 26 March 2021, the rules of the game were not clear at all.

Made public in September 2020, before the release of the aforementioned guidance, the Illumina/Grail Transaction was not notified to any NCAs within the EU or to the Commission, as it did not cross any relevant thresholds. However, a complainant, as well as the Commission, has considered it a textbook case of a “killer acquisition.”

In this case, Grail is a start-up, not yet generating any turnover, developing innovative blood-based cancer tests based on genomic sequencing and data science tools. Reportedly, the alleged concern would be that the purchaser, Illumina, a U.S. major biotechnology company supplying sequencing and array-based solutions for genetic and genomic analysis, could post-transaction restrict access to or increase prices of next generation sequencers and reagents to the detriment of Grail’s rivals active in genomic cancer tests.

Likely informed of the Transaction by the complaint, the Commission reached the preliminary conclusion that the Transaction satisfied the necessary conditions for a referral. In accordance with Article 22(5) EUMR, the Commission informed the EU and EFTA Member States of the Transaction and invited them to request a referral (through a so-called “Invitation Letter”), and on 9 March 2021, the French competition authority sent a request (joined by the Dutch, Belgian, Norwegian, and Icelandic competition authorities). By decisions of 19 April 2021, the Commission accepted the referral request and associated requests to join (the “Decisions”).

Subsequently, Illumina, supported by Grail, initiated an action for annulment against both the Invitation Letter and the Decisions before the General Court of the EU, competent to rule on such annulments for acts of the institutions of the European Union that are contrary to European Union law.

The judgment at hand was much awaited as, by contrast with traditional guidelines which build upon a long decisional practice, the Commission’s guidance develops a new untested approach to Article 22 EUMR and has generated much debate amongst academics and practitioners about its legality.

Findings of the General Court

First ruling on the admissibility of the case, the General Court confirmed that the Commission’s Decisions constituted challengeable acts within the meaning of Article 263 of the Treaty on the Functioning of the European Union (“TFEU”), notably as each were considered to produce binding legal effects vis-à-vis Illumina and were thus capable of affecting its interests by bringing about a distinct change in its legal situation.

The Court thus rejected the European Commission’s position that its Decisions were merely preparatory acts, the illegalities of which could be raised in an action brought against the final decision on the concentration at issue. On the contrary, the Invitation Letter was considered to constitute only an intermediate step in the context of the referral procedure so that the Court held Illumina’s action against such letter to be inadmissible.

On the substance of the case, Illumina challenged the Commission’s Decisions on three points, essentially alleging: 1) a lack of competence on the part of the Commission, 2) that the referral request of France was late and 3) that the Decisions violated the principle of protection of legitimate expectations.

1° Article 22 EUMR is an adequate legal basis for the Commission to exercise its jurisdiction over the Transaction

Illumina argued that the Commission did not have a valid legal basis to review the transaction at issue, since the referral request was made by a competition authority which was not itself competent, under its own national legislation, to review the transaction. For Illumina, the residual purpose of Article 22 EUMR only enables a Member State that does not have a merger control legislation to submit a referral request in order to prevent a concentration affecting its territory from not being subject to any scrutiny.

Following a holistic review, through a literal, contextual, teleological and historical interpretation of the provision at issue, the Court concluded that the Commission was right to accept the referral request and the requests to join under Article 22 EUMR, thus confirming with a particular strength, the validity of this recent and major change in the Commission’s merger control policy.

Relying on the wording of Article 22(1) EUMR, and in particular the use of the expression “any concentration,” the Court took the view that a concentration could be the subject of a referral, regardless of the existence or scope of national merger control rule. Interpreting Article 22(1) EUMR otherwise, as Illumina and Grail advocated, would in fact add a condition for a referral that is not apparent from its wording, the Court added.

It also considered that although the referral mechanism was originally conceived, under the previous merger regulation 4064/89, primarily for Member States which did not have their own merger control system (in practice, the Kingdom of the Netherlands), it did not, however, preclude other Member States from also having recourse to that mechanism. For the Court, nothing in that regulation indicates that the EU legislature intended at the time to reserve that mechanism for those aforementioned States.

For the Court, while the scope of the EUMR depends primarily on the exceeding of the turnover thresholds defining the European dimension, it also depends, alternatively, on the referral mechanisms provided for in Article 4(5) and Article 22 of that regulation, which supplement those thresholds by authorising the examination, by the Commission, of certain concentrations that do not have such a European dimension. It further emphasized the distinction that was operated between the referral mechanism set forth under Article 4(5) EUMR, the “one-stop shop” threshold, which specifically requires 3 Member States having competence to review a transaction for it to be referred to the Commission, and the referral mechanism of Article 22, which does not provide such a condition.

Eventually, the Court found that referral mechanisms are an instrument necessary to remedy the control gaps inherent to a rigid system solely based on turnover thresholds. It considered that the use of the expression “effective corrective mechanism” in recital 11 of the EUMR, to describe referrals, shows that such mechanisms create a subsidiary power of the Commission which confers on it the flexibility necessary to achieve the objective of the regulation, namely, to allow for the control of concentrations that are likely to significantly impede effective competition in the internal market.

Accordingly, the General Court concluded that the Commission was right to accept the referral request at issue and that neither a legislative amendment nor a revision of the EU thresholds were necessary, contrary to what Illumina claimed.

2° The Transaction was lawfully referred to the Commission as the referral request was not late

Beyond the much-anticipated conclusion on the overall lawfulness of the referral request made by a non-competent NCA, the General Court’s judgment also provides clarifications as regards the deadline to be complied with by Member States to submit such a referral request, which, if helpful, still leaves open a number of questions.

As a reminder, the second subparagraph of Article 22(1) EUMR provides that a referral request “shall be made at most within 15 working days of the date on which the concentration was notified, or if no notification is required, otherwise made known to the Member State concerned.”

Illumina, supported by Grail, argued that the referral request was submitted after the expiry of the time limit, since the Transaction was announced publicly through a press release and the CMA and the FTC had already started investigating the deal, which therefore was necessarily known to the French NCA.

The General Court rejected the argument and held that the concept of a concentration being “made known” within the meaning of the second subparagraph of Article 22(1) EUMR must, as regards its form, consist of the active transmission of relevant information to the Member State concerned and, as regards its content, contain sufficient information to enable that Member State to carry out a preliminary assessment.

According to that interpretation, the Court followed, the period of 15 working days laid down in that provision starts to run from the time when that information was transmitted, and in the present case, the information was transmitted through the Invitation Letter sent by the Commission, which eventually enabled the NCAs concerned to carry out a preliminary assessment of the required conditions. In consequence, the Court found that the referral request at issue was made on time since it was rightly made within 15 working days from receipt of the Invitation Letter.

The Court did note, however, that the Invitation Letter itself was sent within an unreasonable period of time as a period of 47 working days elapsed between receipt of the original complaint by the Commission and the sending of the Invitation Letter to the NCAs, a delay which the Court found to be unjustified. Nevertheless, the Court ruled that such an infringement of the reasonable time principle could not in the present situation justify the annulment of the Commission’s Decisions as it did not adversely affect the ability of Illumina or Grail to defend themselves effectively, such adverse effect being the legal standard to call into question the validity of an administrative procedure.

3° The recent shift in the Commission’s approach towards Article 22 EUMR does not violate the principle of protection of legitimate expectation

Finally, Illumina argued that the recent shift in the commission’s guidance on Article 22 violated its legitimate expectations since, at the time it agreed on the concentration with Grail, the Commission did not accept referral requests for concentrations that did not fall within the scope of national merger control rules. To that end, it pointed out to a specific speech made by Margrethe Vestager in September 2020 in which she confirmed that, at the time, the Commission was discouraging Member States to make use of such referral requests and that a change of approach would take place in the future. Illumina and Grail emphasized the clear and unconditional nature of that speech, as regards the process and timing of the implementation of the new referral policy. They also reminded that the Commission’s guidance on the application of the referral mechanism of Article 22 was adopted after the Invitation Letter was sent, without public consultation.

However, the Court dismissed such argumentation, reminding that a party’s right to rely on the principle of the protection of legitimate expectations presupposes the fulfilment of certain conditions set by the case law, notably that “precise, unconditional and consistent assurances originating from authorised, reliable sources have been given to the person concerned by the competent authorities of the European Union” and “has led him or her to entertain well-founded expectations.” In the present case, the Court held that Illumina failed to demonstrate the existence of such assurances. In particular, with regard to Margrethe Vestager’s speech that Illumina relied upon, the Court found that the Vice-President of the Commission simply stated in her general policy speech that it was time to change that past practice but did not make any commentary on the transaction. And since the speech occurred months before the transaction was even publicly announced, that speech could not contain precise, unconditional and consistent assurances in relation to the treatment of that specific concentration.

Furthermore, the Court noted that the fact that the Commission has a practice of discouraging NCAs from referring cases to it that they do not have the power to review themselves does not, in itself, precluded such referrals.

The Court added that because the contested Decisions were based on a correct interpretation of the scope of Article 22 EUMR (as developed supra in section 1°), Illumina could not rely on the reorientation of the Commission’s decision-making practice to claim any violation of the principle of legitimate expectation.

The General Court thus concluded by dismissing Illumina’s action in its entirety.

Conclusion

Given the novelty of the Article 22 doctrine and the absence of guidance thereof at the time of the contemplated Transaction, this is arguably a particularly harsh ruling against Illumina, with serious consequences. The Commission, which had temporarily halted its in-depth probe into the Transaction last February while waiting for the General Court’s ruling, may now resume its work. As for now, Illumina and Grail remain subject to the interim measures imposed by the Commission in October 2021 requiring, in particular, that Grail be kept separate, be run by independent managers and that the parties implement Chinese walls in order to avoid sharing confidential and strategic information. In parallel of the in-depth review and the interim measures, the Commission, just six days after the judgment, sent a statement of objections to Illumina alleging unlawful gun-jumping (i.e., violation of the standstill obligation). The latter had indeed publicly announced that it had completed its acquisition of Grail while the Commission’s in-depth investigation was still ongoing. What’s next? Illumina made public its intention to appeal the judgment almost immediately after its issuance. It may hence not be the end of the story.

About the impact of the ruling beyond the Illumina/Grail transaction, it vigorously reinforces the Commission’s expansion of jurisdiction over mergers below the thresholds and confirms the need, for companies, whatever the activities concerned, to adapt to this new legal framework and take into account the clear uncertainty that derives from a potential Article 22 referral.

This is even truer as Margrethe Vestager, commenting upon the judgment, declared “We have a few acquisitions within our sights that might be relevant candidates.” So, there are clearly more cases to come.

In this context, our recommendations made a few months back (see here) remain all the more relevant after this confirmation’s judgment.

Finally, one can only hope that in the future the Commission and the NCAs will use this new Article 22 approach sparingly, focusing on the highest risks’ cases.

[1] Article 22 EUMR provides that « one or more Member States may request the Commission to examine any concentration as defined in Article 3 that does not have a Community dimension within the meaning of Article 1 but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request. »

Good News for Clients From Germany: Increased German Merger Control Thresholds in Force

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In a Nutshell

  • What’s new?
    • Significantly increased turnover thresholds for German merger control.
  • The good
    • Many transactions will no longer be subject to German merger control.
    • This will lead to a much smoother process for lots of transactions, specifically for our clients in the tech sector and start-up companies that have not generated more than 17.5 mn in Germany.
  • The ugly
    • Transactions can still be subject to German merger control even if the increased thresholds are not triggered.
    • The Federal Cartel Office can require filings from a company after having conducted a market inquiry.
    • The review period for so-called phase 2 proceedings was extended from four to five months.
    • In 2017, consideration of the transaction threshold with the requirement of the rather vague criterion “substantial domestic operations” was introduced and is still in effect.
  • Action items for our clients
    • Check transactions that are currently being negotiated or that have already been signed – they might benefit from the increased thresholds of not requiring merger clearance in Germany anymore.
    • Going forward: Have a look at the Federal Cartel Office’s approach on the “vague thresholds” and sector inquiries – we will keep you posted.

In Detail

The 10th amendment of the German Act against Restraints of Competition (ARC) does not only introduce a new enforcement tool concerning the control of abusive practices. The amendment also brings a significant increase of the turnover thresholds in merger control. This will lead to a significant reduction of merger control filing requirements – good news for transactions!

New Thresholds

Most transactions in Germany are only subject to a notification if the companies involved achieve certain minimum turnover worldwide and in Germany. With respect to the turnover threshold, from now on, transactions will only be subject to merger control if, among other things, one of the companies involved has annual sales of at least 50 million euros in Germany (instead of 25 million previously) and, in addition, another company involved has annual sales in Germany of at least 17.5 million euros (instead of five million previously). Officially, this increase is intended to ease the bureaucratic burden on companies. However, the fact that the Federal Cartel Office received around 1,200 merger notifications in 2020 and opened in-depth investigations (phase II) in only 7 cases indicates that the Federal Cartel Office intends to focus its resources more efficiently on problematic cases. This is accompanied by the extension from four to five months of the review period for in-depth investigations.

For our business clients dealing with unproblematic transactions from an antitrust perspective, this is certainly good news as there will be no delay due to a merger control filing. However, besides these mere turnover thresholds, there is another threshold that takes into account the value of the transaction and competitive potential that has been in force since 2017 and is particularly important to our tech clients. We will keep you posted if the Federal Cartel Office focuses on this threshold in the future.

Further, the Federal Cartel Office is now able to require companies in certain sectors of the economy to notify mergers even if the companies involved in the transaction do not meet turnover thresholds mentioned above. According to the newly introduced section 39a ARC, the Federal Cartel Office can request notifications from a company if the following conditions are met:

  1. The acquirer must generate a worldwide turnover of more than 500 million euros;
  2. There must be objectively verifiable indications demonstrating that future acquisitions by the acquirer may significantly impede effective competition in Germany in the specified sectors;
  3. The acquirer holds at least a 15% market share in Germany in the specified sector; and
  4. The Federal Cartel Office must have carried out a sector inquiry of the industry in question.

Once a company is subject to such a notification obligation, it is obliged to notify the Federal Cartel Office about any acquisition in the specified sector(s), provided that

  1. the target’s global turnover exceeded 2 million euros in its last fiscal year, and
  2. more than two-thirds of the target’s turnover were generated in Germany.

Sector inquiries are investigations by the Federal Cartel Office of a specific sector of the economy if certain circumstances give rise to the assumption that competition of such a specific sector may be restricted or distorted. In the course of a sector inquiry, the supply and demand structures as well as aspects of market activity which have an impact on competition are analyzed by the Federal Cartel Office. A sector inquiry is not a procedure against specific companies. However, proceedings by the Federal Cartel Office are often a follow-up to a sector inquiry if the sector inquiry raises sufficient initial suspicion of a violation of competition regulations.

Andreas Mundt, President of the Federal Cartel Office, indicated the ambivalence of the new thresholds from an enforcement point of view:

“So far, we have controlled around 1,200 mergers year after year; including many cases that are not really relevant from a competition point of view. That is a considerable number, and one that is accompanied by a very heavy workload. In principle, we therefore welcome an increase in the thresholds. However, at the level now selected, one or two questionable cases are likely to disappear. With the resources freed up, we will be able to focus even better on the really critical cases.“

This shows the shift in the way the Federal Cartel Office obtains information on critical cases and markets. The previous approach relied heavily on a large number of “unproblematic” merger notifications, which provided the Federal Cartel Office with the parties’ view on markets and competition.

In the future, the Federal Cartel Office will put an emphasis on gaining information through sector inquiries. This shift also results in the elimination of the obligation to inform the Federal Cartel Office about the successful closing of a transaction. Previously, such a notification had to be submitted to the Federal Cartel Office for statistical purposes.

Takeaways

From a company’s point of view, the significant increase of the thresholds is welcomed as it will relieve companies from “pro forma” notifications. This applies, in particular, to PE funds. The new thresholds refer to the last completed business year prior to closing. Thus, transactions that are currently being negotiated or have already been signed but not yet closed could benefit from these new thresholds as well.

The increased thresholds will also free resources at the Federal Cartel Office, which will likely be used to conduct more sector inquiries and, subsequently, to prepare decisions under the new sections 39a and 19a GWB. Companies that are affected by such a sector inquiry and interested third parties will have the opportunity to provide the Federal Cartel Office with their views and arguments on the competitive environment in their market(s) and may highlight potentially controversial market conduct of (rival) market participants. This might be seen as a good opportunity to shine the spotlight in the right direction.

Background

The 10th amendment became necessary due to the implementation of the ECNplus Directive. The implementation of the so-called ECNplus Directive will strengthen the effectiveness of antitrust prosecution. In conjunction with the system in place at the EU level, companies and their employees are now obliged to cooperate by clarifying these facts.

The amendment also contains various innovations in the area of fine regulations. For example, “reasonable and effective precautions taken in advance to avoid and detect infringements” (i.e., compliance measures) can be considered mitigating circumstances in the future assessment of fines. In addition, the leniency program has now been codified into law. The Federal Cartel Office will adapt its announcements in this regard. Leniency applications can of course still be submitted at any time.

After Almost Two Decades the EU Commission Finally Revived Interim Measures

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On June 26, 2019, the EU Commission opened a formal investigation into U.S. chipmaker Broadcom’s alleged abuse of dominance. In a rather unexpected move, the EU Commission informed the company, on the same day, of its intention to impose interim measures, a long-forgotten tool.

Broadcom, which is a major supplier of components for TV and modem chipsets, is being suspected of having put in place contractual restrictions to exclude its competitors from the market.

Hearings were held in late August.

On October 16, 2019, the EU Commission, likely unconvinced by Broadcom’s arguments, ordered Broadcom to unilaterally cease applying exclusivity clauses contained in its agreements with six manufacturers of TV set-top boxes and modems, withhold commercial advantages granted to some of its customers, and refrain from agreeing to the same provisions or like provisions for the time being.

The investigation on the merits is still ongoing.

Commenting on the October decision, Commissioner Vestager justified the recourse to interim measures, which had not been used for almost two decades, by saying that DG COMP had “strong indications” of Broadcom having engaged in exclusive or quasi-exclusive dealings with key customers and that “in the absence of intervention, Broadcom’s behavior [was] likely to create serious and irreversible harm to competition.”

In her official statement about the Broadcom case, Commissioner Vestager made it clear that it would not remain a one-off case and that she was “committed to making the best possible use of this important tool,” whose advantages (efficiency, quickness) seemed to have been “re-discovered” on this occasion.

So, why such a change?

Interim measures, a tool long neglected by the EU Commission

The EU Commission’s power to impose interim measures was first recognized by the EU judge in 1980 in the Camera Care case. In this case, the judge ruled that the EU Commission had the power “to take interim measures which are indispensable for the effective exercise of its functions and, in particular, for ensuring the effectiveness of any decisions requiring undertakings to bring to an end infringements which it has found to exist.”

The conditions to impose such interim measures were further clarified by subsequent caselaw.

Regulation 1/2003 later codified them as follows: “In cases of urgency due to the risk of serious and irreparable harm to competition, the Commission, acting on its own initiative may by decision, on the basis of a prima facie finding of infringement, order interim measures” (Article 8).

This codification, which could have been viewed as an opportunity to develop the use of this tool, has, instead, discouraged the EU Commission from doing so.

The conditions set forth in Article 8 of Regulation 1/2003 were indeed perceived as significantly harder to fulfill than the caselaw conditions until then applicable. The risk of a false positive (or Type 1 errors) was another reason for the EU Commission’s reluctance to use interim measures.

Thus, while decisions imposing such measures were already rare, there have simply been none since the entry into force of Regulation 1/2003.

The Commission is regularly asked to revisit its overly cautious approach to interim measures to no avail – until the Broadcom case.

Interim measures is a tool already used with some success by EU national competition authorities and is intended to be further developed at a national level

The EU Commission’s status quo contrasted with the dynamism of certain EU Member States’ competition authorities.

With an impressive track record of 27 cases of interim measures imposed between 2002 and 2019, the French Competition Authority (“FrCA”) has been by far one of the most active. While the greater use of interim measures by the FrCA may be explained by a lower burden of proof (condition of “likelihood of competition infringement” for the FrCA versus “prima facie finding of infringement” for the EU Commission; condition of “serious and immediate harm” construed broadly for the FrCA versus serious and irreparable damage to competition as a whole for the EU Commission), it is also the result of a greater interventionism.

The fact that certain national competition authorities, like the FrCA, have used interim measures for years, with some success (including in the high-tech industry), has necessarily inspired the EU Commission.

It may also well be that, with the upcoming implementation of the ECN+ Directive that requires all Member States to enable their competition authorities to resort to interim measures, the EU Commission felt increased pressure to lead by example.

Dusted off tools for new challenges

The development of fast-moving markets and the hot debate as to whether the traditional tools of antitrust law are sufficient to tackle the issues posed by some big tech companies also explain the timely resurgence of interim measures.

While, around the world, legislators, academics, practitioners and competition authorities themselves continue to devise the best possible answer(s), competition authorities must find solutions to address everyday concerns voiced by consumers, clients and competitors confronted with potentially unlawful conduct adopted by big tech companies.

Dusting off some tools from the existing toolbox clearly forms part of the solution. It has been the case with the notion of exploitative abuse, voluntarily left aside from the Commission’s enforcement priorities back in 2009, and now revived.

It may now be the case with interim measures.

Conclusion

The EU Commission’s change of approach to interim measures is good news: certain circumstances do require prompt action to preserve competition on the markets and avoid irreversible harm to consumers, something which can only be achieved by interim measures given the long duration of the investigation on the merits.

This renewed interest for interim measures should not however make the EU Commission forget too quickly what it has long feared, namely Type 1 errors. Interim measures are prone to these errors which are very costly for the companies concerned and the economy in general. They can discourage companies from innovating and have the power to adversely affect public opinion for years to the detriment of the investigated companies even if the companies are cleared at the end of the day.

We can, of course, count on companies facing such measures to remind the EU Commission of these limits, as necessary.

In any event, to know whether this tool has definitively found its place in the EU Commission’s arsenal, one will have to wait for the EU judge’s reaction either in the Broadcom case, if Broadcom appeals the October decision (which seems highly likely), or in the following case of appeal against interim measures. If the EU Judge sets the bar too high in terms of the standard of proof required from the EU Commission, it will probably consign interim measures to oblivion. If the EU Judge is less demanding, it will open a rift that the EU Commission is sure to rush into.

EU State Aid Tax Ruling Cases: Not Yet the End of It?

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More than a couple of years ago, a lot of fuss was made around the first string of State Aid tax rulings cases of the European Commission (Starbucks, Fiat, Apple, the Belgian scheme relating to the excess profit of multinational companies). Everyone has indeed heard about the massive amounts of State Aid, sometimes wrongly qualified by journalists as “fines”, that the European Commission ordered various EU Member States to recover from companies having benefitted of reportedly special and preferential tax treatment (e.g., up to €13 billion from Apple in the Irish tax ruling case).

At the time, some pretended that the approach taken by the European Commission was totally unheard of and that it was just another way for the European Commission to harass large U.S. companies.

They were not quite right.

The approach taken by the European Commission undoubtedly hinges on old precedents and on the European Commission guidance on the application of the State Aid rules to measures relating to direct business taxation (1998). What seems true however is that the European Commission, experiencing political pressure from the European Parliament in the aftermath of LuxLeaks, may have sometimes acted in haste at the cost of a lack of robustness of the underlying legal reasoning. The first setback suffered by the European Commission before the EU judge (annulment of the decision against the Belgian scheme relating to the excess profit of multinational companies) or the early closure by the European Commission (without any in-depth investigation) of the case against the Luxembourg tax ruling in favor of McDonald’s, tend to illustrate this point. But these findings do not equally apply to all tax ruling cases (about ten cases). It goes without saying that not all the tax rulings cases will come to a happy ending for beneficiaries. The case against Gibraltar which decided not to appeal the European Commission’s decision ordering recovery of €100 million of unpaid taxes from multinational companies is a good counter-example.

To see the bright side, the refined analytical grid which will soon emerge from those cases will at least help the EU Member States and (actual or potential) beneficiaries of tax rulings within the EU to better assess their own risks.

Why is it important to keep an eye on these developments?

  • There may still be a few more State Aid cases to come regarding tax rulings. Since the beginning of 2019, no less than two new investigations have been launched by the European Commission (Nike, Huhtamäki). They signal that some rulings are still under review;
  • The financial stakes may be high;
  • The time limitation period for the European Commission to order recovery of the aid is 10 years; and
  • Should the aid be deemed unlawful and incompatible, State Aid recipients bear in fine the risk of recovery.

That said, it remains difficult to predict what the next cases will be. Part of the answer probably lies with the statements of Commission’s officials who suggested that the European Commission would prioritize what it would perceive as the most caricatural cases.

It would however be surprising if this was to remain at the heart of the European Commission’s State Aid priorities once it has exhausted its current stock of rulings (those made known in the context of LuxLeaks, Panama Papers or Paradise Papers or those requested from the EU Member States in the years 2013-2014). With the State Aid cases that prompted changes of practices from EU Member States and the new legislative safeguards (e.g., EU Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market to be transposed by EU Member States this year), one may indeed reasonably think that the State Aid tax rulings subject will gradually lose its topicality…at least until the next tax scandal.