October 2015



On 21 October 2015, the European Commission (“EC”) announced in a press release that the tax rulings issued by Luxembourg and the Netherlands to Fiat and Starbucks, respectively, constitute unlawful State aid, which is prohibited by the Treaty on the Functioning of the European Union (“EU”).

The EC’s approach towards fiscal aid and tax rulings

These decisions form part of a wider spectrum of investigations currently underway, which include the tax rulings issued by Ireland to Apple and by Luxembourg to Amazon, as well as the Belgian excess profit tax scheme. This shows that the EC has made fiscal fairness in the internal market one of its political priorities.

Tax rulings (known as acuerdos previos de valoración in Spain), are ad hoc agreements negotiated between certain tax authorities and multinational groups. In particular, these agreements govern the application of transfer pricing rules to intragroup transactions.

The decisions adopted by the EC do not question the use of tax rulings by Member States. The EC considers tax rulings a useful instrument to improve the transparency and predictability of tax systems. However, these can be questioned when they do not reflect the economic reality underlying the transaction, thus generating an unjustified advantage for the taxpayer.

At present, in the absence of EU harmonisation on tax issues, Member States are free to structure their tax systems as they deem appropriate, even through the use of tax rulings.

However, the EC can, and must intervene, when the design and application of these systems lead to the granting of State aid. State aid may in some circumstances be considered compatible with the internal market. However, State aid granted without the EC’s prior authorisation is usually considered unlawful.

A tax ruling constitutes State aid when it provides a selective advantage in favour of certain undertakings that may distort competition and trade between Member States. The question as to whether a tax ruling gives a “selective advantage” to certain undertakings is particularly complex and controversial and has been the subject of doctrinal and judicial debate.

 back to top

Existence of an advantage in the FIAT and Starbucks cases

According to the EC’s press release (the text of the decisions has not yet been made public) the tax rulings agreed with FIAT and Starbucks provide an advantage to these two companies, since they permit a price for intra-group transactions that does not reflect market conditions. This would allow taxable bases to be transferred to jurisdictions with lower taxation, thereby reducing the total tax burden of the group.

In the FIAT case, the EC held that the net profit generated by the financial services provided by Fiat Finance and Trade (the group company based in Luxembourg) to other group companies, would not reflect market rates. The outcome being that the taxable profits FIAT Finance and Trade declares in Luxembourg are lower than they would be under market circumstances.

In the case of Starbucks, Starbucks Manufacturing (a company based in the Netherlands), would have paid an artificially high price for certain services (coffee supply and know-how) provided by other companies. This would reduce the taxable base that Starbucks Manufacturing declares in the Netherlands and allow it to transfer its taxable profit to companies of the group located in the UK and Switzerland, where they would be subject to more favourable taxation.

 back to top

The selectivity debate

The Commission must also demonstrate that the advantage provided by the tax rulings is selective; in other words, that the same advantage is not available to other companies in a comparable situation (i.e. there needs to be some discrimination).

The key to the tax discrimination element is not determined by comparing the tax treatment in question (in this case in Luxembourg or the Netherlands) with that of other Member States. Rather, it consists of comparing the tax rulings with the tax treatment granted by the same Member State to other companies established in its territory. Thus, if the advantage provided by Luxembourg to FIAT were available to all companies based in Luxembourg in a comparable situation, the tax ruling would not constitute State aid.

In practice, the existence of a selective advantage depends on the criteria used for the comparison. Should the tax ruling issued by Luxembourg or by the Netherlands be compared to the corporate tax applied to all companies established in those countries, to the taxation applicable to other multinational groups, or to tax rulings issued to other companies comparable to FIAT and Starbucks? We will await the publication of the complete text of the decisions to analyse how the EC addressed this issue, which is subject to debate in the EU Courts.

In fact, the General Court (“GC”) has already annulled the EC’s decision declaring the Spanish tax regime applicable to the amortisation of goodwill from the acquisition of shareholdings in foreign entities on the grounds of it being unlawful. The GC held that although the regime provided an advantage, it was not selective, since it was open to any company that acquired shareholdings in foreign companies. This judgment is now pending appeal before the Court of Justice of the European Union (“ECJ”).

 back to top

Consequences of the decisions and implications for other companies

The EC decisions concerning FIAT and Starbucks imply an obligation from Luxembourg and the Netherlands to recover the unlawful State aid granted. According to the press release, FIAT and Starbucks will each have to pay between EUR 20 million and EUR 30 million (plus interest). This is not a fine, but rather the full payment by both companies of the amount of tax they should have paid in the absence of the tax rulings that have now been declared illegal. The decisions are subject to appeal before the ECJ, which means that the criteria could change.

The application of State aid rules to the tax rulings creates a series of concerns and uncertainties for other companies. It is a novel and extremely complex issue, which the EC and the EU Courts have yet to adopt a clear stance on. The difference between a lawful regime and an unlawful one can at times be extremely subtle. Neither the EC, nor the ECJ, have established clear and objective criteria for Member States and companies to rely on.

In addition, taxpayers lack the necessary resources and information to verify whether a specific tax ruling is lawful. In fact it will be difficult to determine its selective nature without having access to the content of all the other tax rulings issued by the same tax authority or to the cases in which the tax ruling has been rejected.

Member States also lack incentives to ensure their tax rulings are legal or are notified in advance to the EC. Decisions such as those in the FIAT and Starbucks cases do not entail any negative economic consequences for the Member States concerned. The amounts paid by companies will instead go towards public funds.

In short, companies negotiating these types of tax rulings may at times find themselves in a legal limbo, which is contrary to the necessary transparency and predictability of the tax rulings. In the absence of further harmonisation of national tax provisions in the EU, it is a matter of urgency for the EC to clarify the criteria and limits that must be respected to ensure the tax rulings and other tax measures are compatible with State aid rules.

 back to top


Guillermo Canalejo

Partner. Madrid office
guillermo.canalejo@uria.com /

Edurne Navarro

Partner. Brussels, Madrid office
edurne.navarro@uria.com /

The information contained in this Newsletter is of a general nature and does not constitute legal advice