The implications of today’s Judgment in Cases C-20/15 and C-21/15 P (World Duty Free, Santander and Santusa)
This morning the ECJ annulled the General Court’s Judgments which in turn had quashed the Commission’ decisions in the Spanish financial goodwill cases. As some readers may know, my firm represents the parties that prevailed in first instance.
We had commented on this case before (most recently here) and Pablo’s statistical analysis predicted the outcome (actually, some of the comments in my last post could also be read in conjunction with today’s news).
We are getting a pretty significant number of calls and emails asking about the implications of this Judgment, so here go my personal main comments in this regard:
–The implications for the specific cases considered in the Judgment are actually limited. The cases now go back to the General Court, which (as acknowledged in para. 123 of today’s Judgment) had only examined the first part of only one of the four pleas presented to it. It is therefore pretty evident that the Judgment has in no way”fully upheld the two Commission decisions” as surprisingly claimed in the Commission’s Press release. The game is still on.
–The implications for the Apple cases and other cases concerning tax rulings are not evident, and most likely non-existent. Whereas establishing links can be good for headlines and the Commission may have had an interest in linking these cases to raise the stakes before the ECJ, the cases share little more than a wide interpretation of the notion of selectivity.
-The implications for State aid aw and tax law, and for institutional equilibrium between the Commission and Member States are simply huge:
The Judgment creates the concept of “behavioural selectivity” and thus places us in a brave new world.
From now onwards any tax measure conditioned on a behaviour (e.g an investment; i.e most tax measures) will automatically be considered as meeting the first of the three step test. In practice, this means that the European Commission becomes a tax co-legislator (some Member States did note that at the hearing and so did AG Kokott in the parallel Finanzlamt case), a role which it may nevertheless not want to assume (or at least not always, or not regarding every Member State).
Pablo is putting pressure on me to write an article on selectivity during the holidays, so perhaps we’ll develop our thoughts there.
-For law firms specialized in State aid, this means tons of new work…
–For the general interest, well, the news are perhaps not so great.
Chillin'Competition 
You do not mention that the measure has to constitute an exception to a general rule.
Does this change anything? When is a measure an exception and not a general rule?
Jan
21 December 2016 at 9:45 pm
Yes, I guess the standard corporate tax rate would certainly not be selective 😉 To me, an “exception” that is open to all was perhaps not an exception, but it is now clear that I was wrong. In any case, a very large chunk of fiscal measures in every Member State are today (unlike yesterday) in principle selective. Now that this specific issue has been settled and is only of doctrinal interest we will be able to write something and explore the potential consequences of the Judgment. Stay tuned!
Alfonso Lamadrid
21 December 2016 at 10:00 pm
This judgment changes everything. Any rule that gives an advantageous treatment to a particular behaviour (think of almost everything in the corporate tax code) is now selective, as only the undertakings perforkming such behaviour would benefit (obviously…).
Katja
21 December 2016 at 10:03 pm
One funny thing is that exactly the same companies could benefit from the general rule and the exception. What would be in that case the “undertakings in a position that is more favourable than that of other undertakings” (p. 79)?
Tim
21 December 2016 at 10:16 pm
Good point, Tim. But let’s be more precise. Only companies X, Y and Z benefit from the “exceptional” rule (cross-border operations). And only the same three companies happen to take advantage of the general rules (only them make domestic operations). Are companies X, Y and Z in a more favorable position than companies X, Y and Z? Does not this unlikely example show that the test of the court cannot be right? That it should not be about advantages to certain behaviours but to certain undertakings?
Laura
22 December 2016 at 10:48 am
From where did you get that fact? (cause it’s mentioned nowhere in the Court’s ruling, unless I’m wrong…)
anonymous lawyer
22 December 2016 at 1:26 pm
This is not a fact. We do not know (and do not need to know as this is a scheme) who the beneficiaries are. It is just an hypothesis that shows that the Court’s reasoning is flawed.
Laura
22 December 2016 at 4:46 pm
The Judgment is extremely interesting and I would note how subtle it is in re-writing previously settled case law (in that regard Wathelet’s Opinion was a complete disaster; one of the worst Opinions seen in a long time). There is a problem with the ECJ: I understand and even share the idea that “il faut aider la Commission”, but not at any cost. The Commission had to win even if this meant turning the system upside down; really? Protecting someone does not mean letting them get away with everything. That Pablo Ibañez Colomo was able to anticipate that this would happen is worrying.
Laurent
21 December 2016 at 10:27 pm
Huge victory for the Commission. Almost any rule is now prima facie selective (that step becomes mostly irrelevant). The analysis is moved to the third step (justification by nature or general structure of the system), where the burden of proof is on the Member States. The Comission will hereafter have the final word on any tax advantage.
Xavier
21 December 2016 at 10:41 pm
Xavier is right. As a matter of fact, in an article written by Koen Lenaerts (President of the ECJ) on “State aid and direct business taxation” he referred to the third step as a “probatio diabollica”. Reading that now is rather interesting. The article was published in this book:
http://www.bloomsbury.com/au/eu-competition-law-in-context-9781849460347/
Bart
21 December 2016 at 10:58 pm
It would be interesting to apply the brand new test in all the judgements (and Commission decisions) where it was concluded that the measure was general. Not to mention the (never notified) thousands of national tax rules that (as we have learnt today) are selective…
David
21 December 2016 at 10:55 pm
Selectivity is not any more about finding a group of undertakings that is advantaged, but only about finding a rule that treats some behavior differently. Much easier!
Koen
22 December 2016 at 7:34 am
Until yesterday nobody knew for sure when a tax rule was selective. Now we learn that any tax rule is prima facie selective. At least the Court has provided some legal certainty… The question is how the Commission will use these exorbitant powers. Do not forget that Junker announced a more political Commission. I just cannot imagine the Commission rigorously applying this new test to the thousands of tax rules in Europe. Guess small member states should be worried….
Practitioner
22 December 2016 at 8:03 am
I wonder to what extent this (to put it mildly) very extensive interpretation of the concept of selectivity is caused by the tax scheme at stake, which seems so obviously contrary to the internal market. The objective of striking down this vicious scheme is understandable. But was it necessary to bend the concept of selectivity and thus alter the balance of powers between the Member States and the Commission?
Laura
22 December 2016 at 10:38 am
I think you miss the main point of this judgment: the Court did not say that a measure is selective because of some behaviour of its beneficiaries, but rather because it is discriminatory (it treates differently undertakings in a comparable situation) So unless you tell me that companies having participations abroad are not in a comparable situation to those taking such participations in Spain, I don’t see how this measure could not be considered prima facie selective. There is nothing revloutionary about that, quite the opposite, the General Court’s approach was revolutionary and based on a wrong reading of the Court’s case-law, in my opinion…
anonymous lawyer
22 December 2016 at 11:15 am
I have a test to check whether the General Court’s approach was really revolutionary: can you mention an example of a single State aid identified by the Commission in the past 60 years that would have escaped State aid control under the test applied by the General Court in these cases?
Alfonso Lamadrid
22 December 2016 at 1:13 pm
Sure, take the two examples quoted at para. 80 of the judgment (C-409/00 and C-279/08 P). I doubt these cases would be judged the same way applying the GC’s selectivity test…
anonymous lawyer
22 December 2016 at 1:41 pm
I’m about to fly on holidays now, but happy to discuss those in the coming days. Thanks again everybody for the very interesting comments!
Alfonso Lamadrid
22 December 2016 at 1:45 pm
You (like the Court) seem to assume without much thought (or at least no explanation at all) that the beneficiaries (the companies that make cross-border operations) and the comparable companies (the ones that make domestic operations) are different. But we do not know that. In any case, what matters is that the fact that companies could be the same or not shows that the Court’s approach has nothing to do with “favouring undertakings” but “favouring a certain behaviour”.
Laura
22 December 2016 at 4:52 pm
@Anonymous lawyer: frankly, the two judgments you mention have nothing to do with this discussion and would have been judged exactly the same way applying the GC’s test:
– C-409/00 (Spanish aid scheme for the purchase of commercial vehicle): as pointed out in p. 49 of the judgment the scheme “does in fact favour, natural persons and SMEs carrying on transport operations on their own account or for another”. In p. 50 the Court adds that the scheme “expressly excludes large undertakings”. So, the precise category is clearly identified, in line with the GC’s judgment.
– C-279/08 P (NOx): as the Court points out in p. 63: “the undertakings participating in the ‘dynamic cap’ systems fall within a specific group of large industrial undertakings engaged in trade between the Member States and enjoy an advantage which is not available to other undertakings”. SMEs were thus excluded. Again, a clear category….
Laura
22 December 2016 at 5:04 pm
@Laura: ok lets say then that it amounts to favouring “certain undertakings doing certain operations”… what’s the difference with export aid for example?
anonymous lawyer
26 December 2016 at 5:40 pm
Where the top court rewrites Art 107 and gives the commission powers the treaty did not foresee, should we be surprised that people show less enthusiasm for this European integration?
James
22 December 2016 at 11:18 am
maybe read article 107 again “any measure (…) favouring certain undertakings or the production of certain goods”… you may not agree with the Court’s judgment but stating that it misapplied the Treaty is a bit far-fetched…
anonymous lawyer
22 December 2016 at 11:20 am
That is precisely the problem. It says measures favouring “certain” undertakings; and not measures that treat some behaviour more favourably. The Court interpretation implies that any rule that treats a particular situation or behaviour more favourably is prima facie selective as there will always be some undertakings that follow such behaviour and some others that do not.
Piet
22 December 2016 at 12:32 pm
“there will always be some undertakings that follow such behaviour and some others that do not”
sure… but the point is precisely whether this ‘behaviour’ as you call it is part of the general tax regime or not.
If not, you need to check wether it treats differently companies which are in a comparable situation. This is the classical test for selectivity for more than 20 years. Even if the rule at stake is ‘open to all undertakings’ it is in fact a derogation from the normal rule according to which such participations are not deductible.
So unless you argue that those companies investing in Spain and companies investing abroad are not in a comparable situation I don’t see how you could reach a different conclusion (without reinventing the case-law as the GC did…)
anonymous lawyer
22 December 2016 at 12:51 pm
please read again paras 59 and 60 of the judgment :
59 Further, it must be recalled that the fact that only taxpayers satisfying the conditions for the application of a measure can benefit from the measure cannot, in itself, make it into a selective measure (judgment of 29 March 2012, 3M Italia, C‑417/10, EU:C:2012:184, paragraph 42).
60 It follows from all the foregoing that the appropriate criterion for establishing the selectivity of the measure at issue consists in determining whether that measure introduces, between operators that are, in the light of the objective pursued by the general tax system concerned, in a comparable factual and legal situation, a distinction that is not justified by the nature and general structure of that system (see, to that effect, judgment of 4 June 2015, Commission v MOL, C‑15/14 P, EU:C:2015:362, paragraph 61).
anonymous lawyer
22 December 2016 at 1:43 pm
This judgment indeed implies a very broad understanding of the concept of fiscal selectivity. But how does one reconcile it with another Grand Chamber case delivered on the same day, namely Commission v Hansestadt Lübeck, where the Court entirely rejected the Commission’s appeal and, in doing so, had recourse to a restricted reading of that concept? Bear in mind that the very same panel of judges heard both cases on the same day.
JD
22 December 2016 at 12:08 pm
I think it is quite clear if you read the two judments; in Lübeck the reference framework was the airport itself so the companies benefiting from favourable airport charges were not in a comparabale situation with other companies using other airports; In Banco Santander, to the contrary, the Court deemed the situation of companies investing in Spain and those investing abroad to be comparable, hence, any difference of treatment between the two was deemed to be prima facie selective.
anonymous lawyer
22 December 2016 at 12:18 pm
Anonymous lawyer, your views and comments on these issues are always interesting. One important nuance regarding the reference framework:The Judgment does not say that those companies are in a comparable situation but rather that this is an issue that was not sufficiently dealt with by both the General Court and the Commission (para 94). That is why in para. 123 it orders the General Court to examine it.
Alfonso Lamadrid
22 December 2016 at 12:52 pm
point taken 😉
anonymous lawyer
22 December 2016 at 12:57 pm
The judgment is based on the premise that, if the undertakings are in a comparable situation (which remains to be determined by the GC as you point out), the measure is prima facie selective
anonymous lawyer
22 December 2016 at 12:59 pm