The European Commission vs. Ireland, December 2021, European Court of Justice Case, AG Opinion, No C-898/19 P (ECLI:EU:C:2021:1029)

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At issue in this case is whether the arm’s length principle as described in the OECD Transfer Pricing Guidelines can be applied by the EU in determining if state aid had been granted.

In 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg.

In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT.

FFT brought an action before the General Court for annulment of the Commission’s decision.

In it’s Judgement of September 2019 Union , the General Court dismissed the actions brought by FFT and confirmed the validity of the Commission’s decision.

This decision was then appealed to the European Court of Justice by FFT.

At the same time, Ireland filed an appeal in regards of application of the arm’s length principle in state aid cases. According to Ireland, applying the arm’s length principle in these cases was in breach of the principle of legal certainty.

AG Opinion from the European Court of Justice

The Advocate General proposes that the Court dismiss the appeal brought by Ireland in its entirety.

The Advocate General considers in particular that the General Court correctly held that the Commission was not required to take account of the intra-group and cross-border dimension of the effects of the tax ruling at issue when determining whether that ruling conferred an economic advantage, and that the three errors made, according to the Commission, in the calculation of the remuneration of the treasury and financing services provided by FFT prevented an arm’s length outcome from being obtained and could therefore form the basis for a finding of economic advantage.

“178. The principle of legal certainty, which is a general principle of EU law and thus applies to the acts of the institutions, bodies, offices and agencies of the European Union, requires, according to settled case-law, that rules of law must be clear and precise and that they must be foreseeable. (81) More specifically, that principle requires an assessment of whether an EU legal act enables those concerned to know precisely and unequivocally the extent of their rights and obligations and to take steps accordingly. (82) This requirement must be observed all the more strictly in the case of an act liable to have financial consequences. (83)
179. It is apparent from the case-law of the Court of Justice that the principle of legal certainty is intrinsically linked to the development of legal standards by the European Union, and by national authorities when they implement EU law, and that it permits judicial review of flaws liable to result in unpredictable application of the legal act in question. (84)
180. The principle of legal certainty is narrower in scope with regard to an administrative decision, as is apparent from the case-law on State aid. In that area, the Court of Justice has found the principle of legal certainty to have been infringed only where the conduct in question had been engaged in by the Commission before or during the procedure leading to the adoption of a decision to recover State aid. (85)
181. In the present case, the principle of legal certainty is relied on in opposition to the use, for the purposes of determining whether the requirement for an advantage was fulfilled, of the arm’s length principle, on the ground that the scope of that principle was not defined. In other words, what is challenged is the substantive validity of an assessment made by the Commission in relation to the characterisation of a State measure as State aid. However, the substantive validity of such an assessment cannot be challenged on the basis of conformity with the principle of legal certainty. To hold otherwise would be to prohibit the Commission from conceiving new approaches in the application of rules of law, leaving it frozen in its current position. In particular, such an interpretation would mean that the Commission is prevented from using any novel benchmark to guide its assessment of whether there is an advantage for the purposes of Article 107(1) TFEU.
182. Having regard to the case-law referred to above and to the fact that FFT’s criticism relates, ultimately, to the finding of advantage made for the purposes of characterising the tax ruling at issue as State aid, I must conclude that the principle of legal certainty cannot be legitimately relied on in the present case. Thus, no error of law can be attributed to the General Court on the basis that it did not disapprove the characterisation of the scope of the arm’s length principle which emerges from the decision at issue. I therefore consider that the first part of the third ground of appeal must be rejected.
183. In any event, the General Court was right to hold, in response to the arguments advanced respectively by FFT and the Grand Duchy of Luxembourg and set out in paragraphs 155 and 176 of the judgment under appeal, that the Commission had sufficiently defined the scope and content of the arm’s length principle applied in the decision at issue, and that that definition was thus not open to criticism on the basis that the discretion left to the Commission in applying that principle was overly broad. I am thinking particularly of the General Court’s observations that the arm’s length principle is ‘a tool for checking that intra-group transactions are remunerated as though they had been negotiated between independent undertakings’ and that the examination in the light of that principle ‘consists … in examining whether the methodology for the determination of transfer pricing accepted in the tax ruling at issue can result in a reliable approximation of a market-based outcome’.”

Click here for English Version of the Opinion

No C-885-19 P ORG

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