Europe

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

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.

EU Held Liable To Pay Damages As a Result of the “Excessive” Length of Judicial Proceedings for an Appeal Against a Cartel Decision

The possibility for a claim to be brought against the European Union (the “EU”) as a result of “damage” caused by its institutions is enshrined in Article 340 of the Treaty on the Functioning of the European Union (“TFEU”).  In a General Court judgment of 10 January 2017, Case T-577/14 Gascogne Sack Deutschland and Gascogne v European Union (EU:T:2017:1), the appellants successfully brought a claim for material and non-material harm suffered as a result of the “excessive” length of the judicial proceedings in the context of an appeal against a European Commission (“Commission”) decision of 30 November 2005.

The timing of the process was as follows. On 23 February 2006, two entities from the Gascogne group filed appeals before the General Court against the Commission decision of 30 November 2005 finding the existence of a cartel in the plastic industrial bags sector in a number of Member States. The written procedure of the General Court proceedings in each of these cases ended in February 2007 and the oral procedure began in December 2010. The appeal was not dismissed by the General Court until 16 November 2011.  READ MORE