Tax ruling results in unlawful advantage. General Court upholds recovery decision (Luxembourg and FIAT v Commission)

In 2015, the European Commission found that a tax ruling provided to FIAT Finance and Trade (FFT, now: Fiat Chrysler Finance Europe, part of the Fiat group) by Luxembourg tax authorities resulted in State aid. The General Court upheld that decision. When national tax law does not distinguish between stand-alone companies and integrated companies, the Commission may use the at arm’s length principle as a tool to determine whether the fiscal burden of an integrated company is comparable to that of a (stand-alone) undertaking acting under market conditions. In doing so, an advantage can only be determined if the variation between the two goes beyond the inaccuracies inherent to the method used to approximate the market-based outcome. After a detailed review of the application of that method, the Court found that the Commission rightly held that Luxembourg wrongly excluded part of FFT’s capital when determining FFT’s remuneration for intra-group financing and treasury activities. The advantage resulting therefrom could not be set off against additional taxation elsewhere in the group, if any, as argued by Luxembourg and FFT. As the decision also provided sufficient information for Luxembourg on how to recalculate taxable profit and, hence, the recoverable amount, the General Court saw no reason to annul the decision.