The Court of Justice of the European Union (CJEU), in a judgment handed down on Tuesday 5 December (joined cases C-451/21 P and C-454/21 P), annulled the judgment of the General Court of the EU of May 2021 (joined cases T-516/18 and T-525/18 - see EUROPE 12719/15) which confirmed the European Commission’s decision of June 2018 that the tax rulings granted by Luxembourg to Engie in 2008 and 2014 were State aid that was incompatible with the internal market.
On appeal by the Engie group and Luxembourg, the Court points out that, in order to determine whether a national measure constitutes State aid, the Commission must show that it grants a selective advantage to its beneficiary. In order to classify a tax measure as ‘selective’, it must begin by identifying the reference system, that is the ‘normal’ tax system applicable in the State concerned. Next, the Commission must demonstrate that the measure at issue derogates from that reference system because it differentiates between undertakings in a comparable situation.
Based on the opinion of the Advocate General (see EUROPE 13175/26), the General Court should not have confirmed the position of the European Commission, which had rejected Luxembourg’s interpretation of national tax law. According to this Member State, the Luxembourg law in question does not explicitly make the exemption of income from participations at the level of a parent company dependent on the taxation of distributed profit at the level of its subsidiary, whereas the Commission had noted an element of conditionality between these two tax treatments.
Furthermore, the General Court should have held that the Commission had not established that, in the tax rulings at issue, the Luxembourg tax authorities had departed from their own practice in respect of transactions comparable to those at issue.
The Court also considers that the Commission made errors in its various analyses of the reference frameworks defining the normal tax system. According to the Court, the fiscal competence and autonomy of the Member States in areas that have not been harmonised at EU level would be disregarded if the Commission could define a reference framework exclusively on the basis of the general objective pursued by national law of taxing all resident companies, and thus without including in that framework the provisions providing for exemptions.
In the end, the Court annulled the Commission’s decision, ruling that its errors had vitiated its entire analysis.
To see the judgment of the Court of Justice: https://aeur.eu/f/9z8 (Original version in French by Mathieu Bion)