On November 8, 2022, in joint cases 885/19 and 898/19 (appeal against the judgment of the General Court of the European Union – the “General Court” of September 24, 2019, Luxembourg and Fiat Chrysler Finance Europe v. Commission, Cases T-755/15 and T-759/15) the Court of Justice of the European Union (“CJEU”) annulled the decision of the European Commission (the “Commission”) dated October 21, 2015, which ordered the Grand-Duchy of Luxembourg to claim from the FIAT group an amount of approximately EUR 30 million.
As a reminder, in the context of an advance tax clearance granted by the Grand Duchy of Luxembourg in 2012, the transfer pricing analysis and its compliance with Luxembourg tax laws and administrative circulars of application of a company of the FIAT group had been validated.
The Commission subsequently considered that the granting of the above-mentioned advance tax agreement was to be qualified as state aid within the meaning of Article 107 (1) of the Treaty on the Functioning of the European Union (“TFEU”), which states that “save as otherwise provided in the Treaties, any aid granted by a Member State or through State ressources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market” and that the Grand Duchy of Luxembourg had granted selective tax advantages to the FIAT group.
Following the conclusions of Advocate General Pikamaë, the CJEU considered that the Commission had wrongly not taken into account the Luxembourg rules on the application of the arm’s length principle in transfer pricing and had in a way replaced the analysis of the Luxembourg rules on transfer pricing by a autonomeous European interpretation of said arm’s length principle.
The CJEU thus considered that the General Court had committed an error of law where only the national law applicable in the concerned Member State should have been taken into account for the purposes of assessing the existence of selective taxation (unless the Commission had been able to establish that the parameters provided for by the national law in this area were manifestly inconsistent with the objective of non-discriminatory taxation of all resident companies pursued by the national tax system, “by systematically leading to an undervaluation of the transfer prices applicable to integrated companies or to certain of them, such as finance companies, as compared to market prices for comparable transactions carried out by non-integrated companies” in relation to market prices for comparable transactions (… ) “).
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