CJEU annuls European Commission’s decision in the Fiat State aid case and clarifies the selectivity requirement in cases of tax rulings on non-harmonised taxes

15 November 2022

The Court of Justice of the European Union has annulled a General Court judgment and European Commission decision that considered the tax ruling issued to Fiat as State aid incompatible with the internal market, on the grounds that the Commission erred in analysing the “selective advantage” requirement of the aid. The selectivity criterion requires determining whether the measure constitutes an exception to the “normal” national tax system or de facto generates discrimination. For tax measures in non-harmonised matters, such as those in the Fiat tax ruling, the identification of the “normal” tax system must be based exclusively on national tax rules. The Commission ignored the national tax rules and independently defined what it considered should be “normal” taxation, taking into account the free-competition (“arm’s-length”) taxation principle set out in the OECD guidelines for determining transfer prices, although the Luxembourg rules took the principle into account in a different way. The CJEU has ruled that the Commission lacked authority to make this independent interpretation.