2023-05-12-KPMG_s_EU_Tax_Centre-Euro_Tax_Flash_from_KPMG_s_EU_Tax_Centre_4页_311kb

KPMG Euro Tax Flash Summary: Advocate General Opinion on Luxembourg Tax Rulings

Core Content

The document provides a summary of the Advocate General (AG) opinion delivered on May 4, 2023, in the cases C-451/21 P and C-454/21 P, concerning tax rulings issued by Luxembourg for intra-group financing structures. The opinion addresses the potential violation of EU State aid rules and the role of the European Commission (EC) and the General Court in assessing these rulings.

Main Points and Key Information

Background

• EC Decision (2018): The European Commission ruled that two tax rulings granted by Luxembourg to a French group constituted illegal State aid.
• Tax Structure: The rulings involved a structure with three companies: a holding company, a subsidiary, and an intermediary.
• Key Issue: Under the rulings, only the subsidiary was taxed on a margin agreed with Luxembourg tax authorities, leading to the EC's claim that the Luxembourg tax system allowed double non-taxation of profits.
• Judicial Proceedings: The taxpayer and Luxembourg appealed the General Court’s judgment, which upheld the EC’s decision in 2021.

Advocate General Opinion

• Tax Rulings and State Aid: The AG emphasized that tax rulings themselves do not constitute illegal State aid unless they are manifestly incorrect under national law.
• Reference Framework: The AG noted that the EC and the General Court used an incorrect reference framework in their selectivity analysis. According to settled case-law, the national law of the relevant Member State is the sole reference framework.
• Correspondence Principle: The AG stated that the correspondence principle (which requires that distributed profits be taxed at the subsidiary level) was not clearly evident from the Luxembourg tax law. Therefore, the EC and the General Court’s reliance on this principle was flawed.
• Anti-Abuse Rules (GAAR): The AG also highlighted that the General Anti-Abuse Rule (GAAR) is difficult to interpret, and thus, the standard of review should be limited to a plausibility check. The EC would need to demonstrate a clear non-application of GAAR in similar factual and legal situations.
• Conclusion: The AG concluded that the disputed tax rulings did not represent a selective advantage and recommended that the CJEU set aside the General Court’s judgment and annul the EC’s decision.

ETC Comment

• Significance of the Case: This case is part of a series involving the EC's investigations into individual tax rulings. It differs from other cases by focusing on internal mismatches and national law inconsistency.
• Limited Standard of Review: The AG's opinion suggests a limited standard of review for tax rulings, which would reduce the EC's and EU courts' role in scrutinizing such rulings.
• Impact on Future Cases: If the CJEU adopts the AG’s recommendations, the EC will face a higher burden of proof in demonstrating that tax authorities failed to apply anti-abuse rules.
• Uncertainty: The AG’s opinion is non-binding, and it remains uncertain whether the CJEU will follow it.

Summary of Key Arguments

• Tax Rulings are not inherently State aid. They are tools for legal certainty and should not be subject to excessive scrutiny.
• Selectivity Analysis must use national law as the reference framework. The AG criticized the EC and General Court for using an incorrect framework.
• Correspondence principle is not clearly defined in Luxembourg law. Therefore, its application in the case was questionable.
• GAAR application should be assessed with a plausibility check. The EC must show a clear failure in applying GAAR to similar situations.
• CJEU should be cautious in overturning previous judgments. The AG's opinion may influence the Court’s approach to future State aid cases.

Conclusion

The AG opinion represents a shift in the approach to evaluating tax rulings for State aid compliance, emphasizing fiscal autonomy and limited judicial review. It challenges the EC's and EU courts' role in scrutinizing national tax practices and may lead to a more nuanced interpretation of the TFEU in future cases. The outcome of the CJEU’s decision will have significant implications for how State aid investigations are conducted in relation to individual tax rulings.