The World Duty Free and Banco Santander cases
23/12/2016

On 21 December 2016, the Court of Justice (hereinafter CoJ or the Court) rendered its long awaited judgment in the World Duty Free and Banco Santander cases9regarding the selectivity criterion in the application of State aid rules to fiscal measures. Indeed, the selectivity criterion, as interpreted by the Commission in its decisions, is currently subject to several actions for annulment10 and this judgment could have a significant impact on the application of State aid rules in tax measures.

Regarding the facts at issue, the Commission11considered as selective a Spanish fiscal measure which allowed undertakings to deduce from their taxe base an acquisition of a shareholding in a ‘foreign company’, if worth at least 5% of the company’s capital and retained for an uninterrupted period of at least one year.

On 7 November 2014, the General Court (hereinafter GC) held that the fiscal advantage was not directed to a particular category of undertakings or production, but was a financial operation. Furthermore, the GC held that the Commission failed to identify what common distinct characteristics the undertakings favoured by the measure derogating from the common regime had compared to undertakings which did not benefit from the measure12. Subsequently, the GC found that the selectivity criterion was not fulfilled and annulled the Commission’s decision. Thus, the court of first instance was more demanding than the Commission regarding the assessment of the selectivity criterion13.

In its judgement, on appeal by Commission, the Court set aside the two judgements and referred the cases back to the GC. The CoJ recalled that the assessments made by the Commission must be carried out rigorously and be sufficiently reasoned in order to enable the Court to exercise its power of judicial review, in particular regarding the situation of operators benefiting from the measure as compared to that of operators excluded from it and the potential justifications held by the Member State. The CoJ stated that the GC erred in law by omitting such verification and found that the GC misapplied the selectivity criterion by requiring the identification of the category of undertakings favoured by the fiscal measure (paragraph 94).

On this latter point, the Court stated that the GC’s approach, requiring the identification of such characteristics, common to all beneficiaries of the fiscal advantage, had the effect of adding a supplementary requirement involving the identification of a particular category of favoured undertakings. According to the CoJ, this requirement cannot be inferred from the Court’s case-law (paragraph 71).

Then, contrary to the findings of the GC, the Court of justice states that the selective nature of the measure is not affected by the fact that the fiscal advantage represented a “purely financial operation”, with no minimum investment required and which is available regardless of the nature of the business of the recipient undertakings (paragraph 81).

It is for the GC to determine whether or not the undertakings, which do not fulfill the conditions to obtain the fiscal advantage at issue, i.e. those acquiring or proceeding to take a shareholding in a national company, are in comparable situation to those who do benefit from the measure in the light of the objective pursued by the tax system concerned.

This judgement came the day after the publication of the Apple decision14, dealing with Irish tax rulings, where the Commission ordered Ireland to recover 13 billion euros from illegal State aid. It is likely that the principles affirmed by the CoJ in World Duty Free and Banco Santander will influence the Commission in its current investigations15as it is likely to be seen by the Commission as a landmark case.

^{[9] Court of Justice, joined cases Commission v World Duty Free Group (C-20/15 P) and Banco Santander and Santusa (C-21/15 P), ECLI:EU:C:2016:981.
[10] For example, T-759/15 Fiat Chrysler Finance Europe v Commissionand T-760/15 Netherlands v Commission 
[11] Commission decision of 28 October 2009  on the tax amortisation of financial goodwill for foreign shareholding acquisitions C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain, 
[12] General Court,T-219/10 Autogrill España v Commission, paragraph 52, ECLI:EU:T:2014:939.
[13] Philippe-Emmanuel PARTSCH, « D’APPLE à AUTOGRILL, la sélectivité au cœur d’un débat entre la Commission et les juridictions européennes », Agefi, Octobre 2016, page 16
[14] Commission decision, SA.38373 Alleged aid to Apple
[15] See Commission, State aid: Commission opens in-depth investigation into Luxembourg's tax treatment of GDF Suez (now Engie), Brussels, 19 September 2016}

Related : Arendt ( Mr. Philippe-Emmanuel Partsch ,  Mr. Thierry Lesage )

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