On 21 December 2016, the Court of Justice of the European Union (CJ) rendered its judgement in the Commission v World Duty Free Group case (Joined cases C-20/15 and C-21/15). The CJ ruled that tax benefits merely available for multinationals and derogating from the ordinary tax system could amount to unlawful State aid. This judgement may have a serious impact on any measure of Member States seeking to provide for preferential tax treatment for multinationals only.
In the EU selective tax benefits could be forbidden under the State aid rules. In the World Duty Free Group-case the CJ confirms a broad application of the selectivity criterion. The CJ embraces a discrimination approach for tax measures which derogate from the normal tax system. For instance, measures which provide for a different treatment of international transactions in comparison to national transactions can be selective, unless justified by the nature and general structure of the tax system (for instance relief for double taxation). So, contrary to the ruling of the General Court, the CJ now clarifies that it cannot be deduced from the CJ’s standing case law that, in order to demonstrate the selectivity of a national measure, it is always required to identify a particular category of undertakings that exclusively benefit from that measure.
This means that tax benefits merely available for multinationals and which form a derogation from the normal tax system could fall within the scope of the State aid provisions.
The cases at hand deal with a Spanish measure introducing a more beneficial amortization regime for financial goodwill arising from foreign acquisitions as compared to domestic acquisitions. The Spanish measure was applicable irrespective of the type of activities or nature of assets of the company. The measure is effectively a subsidy for Spanish companies making certain foreign acquisitions. The crucial question was whether the distinction between national and international transactions makes the measure selective for State aid purposes. The EU General Court decided in November 2014 that the measure was not selective because the Spanish tax benefit was open to every undertaking; i.e., the benefit was not limited to certain undertakings or the production of certain goods. The CJ now reversed this decision and ruled that it is not relevant that the measure is in principle open for every undertaking. The CJ clarified that the mere fact that the tax benefit is a derogation from the normal tax system and discriminates between two taxpayers who are in the same factual and legal situation, is in general enough to be selective under the State aid rules.
This broad application of the selectivity criterion in State aid law may have an effect on any measure in Member States providing for preferential tax treatment for multinationals only, which cannot be justified by the nature or general system of the tax system.
It is likely that the EU Commission will present this judgment as supportive of its reasoning in some pending State aid cases involving multinationals.