Opinion of the Advocate General — ECLI:EU:C:2023:466
Date: 2023-06-08
Language of the case: English
Subject matter: State aids;Competition
Procedure: Action for annulment;Appeal - unfounded
Origin: Luxembourg

Summary regarding the first ground of appeal 102. It remains the case, therefore, that the Commission’s first ground of appeal cannot succeed from any perspective. It has emerged that the General Court judgment under appeal is correct in its outcome because the Commission relied on an erroneous reference system in the decision at issue and was therefore unable to demonstrate a selective advantage. 103. Even if the reference system erroneously relied on (the OECD Transfer Pricing Guidelines of 1995, 2010 and possibly even 2017) were taken as the starting point, the CUP method selected in the Luxembourg tax ruling would not have been manifestly the incorrect method, nor was it manifestly misapplied. For that reason, the Commission was also unable to demonstrate via the primary findings (recitals 409 to 561) of the decision at issue that the tax ruling had conferred a selective advantage in favour of Amazon. B. The second ground of appeal: incorrect standard of proof in relation to the existence of an advantage and misapplication of the arm’s length principle 104. By its second ground of appeal, the Commission challenges the rejection, in paragraphs 314 to 538 of the judgment under appeal, of the advantage which it sought to demonstrate in the alternative and via three different routes in the decision. It contends, first, that the General Court erred in the standard of proof in relation to a finding of advantage. Second, it submits that the General Court misapplied the arm’s length principle and failed to state sufficient reasons for its ruling. 1. Findings of the General Court 105. In paragraph 308 of the judgment under appeal, the General Court held that the Commission must demonstrate that an advance tax ruling used to calculate an undertaking’s remuneration confers an economic advantage. In order to do so, it must prove that that remuneration deviates from an arm’s length outcome to such an extent that it cannot be regarded as remuneration which would have been received on the market under competitive conditions. 106. In that regard, it found (see paragraph 310 of the judgment under appeal) that although it was for the Commission to demonstrate specifically that the methodological error resulted in a reduction in the tax burden of the recipient of the advance tax ruling, the General Court did not rule out that, in some cases, a methodological error may be such as to make it impossible to arrive at an approximation of an arm’s length outcome and may necessarily lead to an undervaluation of the remuneration that would have been received under market conditions. 107. In paragraph 312 of the judgment under appeal, however, the General Court held that the Commission had confined itself to identifying errors in the transfer pricing analysis. It found that that was, in principle, insufficient to establish that there was in fact a reduction in LuxOpCo’s tax burden. That was, it held, due to the absence of a comparison in the decision at issue between the result that would have been obtained using the transfer pricing method advocated by the Commission and the result obtained pursuant to the tax ruling at issue. 108. As regards the first subsidiary finding of an economic advantage, the General Court held in paragraph 520 of the judgment under appeal that the Commission had not demonstrated the existence of an advantage, but had, at most, demonstrated the probability of the existence of an advantage. 109. The Commission – as the General Court stated in paragraph 530 of the judgment under appeal – had not succeeded in establishing that, had the profit split method on the basis of the contribution analysis been applied, LuxOpCo’s remuneration would have been greater. Accordingly, it held that the first subsidiary finding did not support the conclusion that the tax ruling at issue conferred an economic advantage on LuxOpCo. In the General Court’s view, apart from the fact that the Commission had not sought to determine what LuxOpCo’s arm’s length remuneration would have been in the light of the functions identified by the Commission in its own functional analysis, the first subsidiary finding contained no specific evidence to establish to the requisite legal standard that the errors in the functional analysis and the methodological error identified by the Commission, relating to the choice of method itself, had actually led to a reduction in LuxOpCo’s tax burden. 110. In addition, as the General Court noted with regard to the second subsidiary finding of an economic advantage (paragraph 547 of the judgment under appeal), it should be held that the Commission had not sought to ascertain that it was arm’s length remuneration or, a fortiori, whether LuxOpCo’s remuneration, endorsed by the tax ruling at issue, was lower than the remuneration that LuxOpCo would have received under arm’s length conditions. 111. Moreover, the General Court held in paragraph 585 of the judgment under appeal with regard to the third subsidiary finding that, as inappropriate as the ceiling mechanism may have been, and although it was not provided for in the 1995 version of the OECD Guidelines, the Commission had not demonstrated that that mechanism had an impact on the arm’s length nature of the royalty paid by LuxOpCo to LuxSCS. 112. Overall, the General Court concluded that the Commission had not succeeded in demonstrating the existence of an advantage through any of its three subsidiary findings (paragraphs 537, 548 and 586 of the judgment under appeal). 2. Assessment 113. The second ground of appeal is also unfounded, as the General Court’s judgment also proves to be correct on that point, albeit for different reasons. As is apparent from the explanations in point 53 et seq. of this Opinion, the decision at issue ought to be annulled because, apart from anything else, the reference system relied on had been determined incorrectly. Instead of Luxembourg law (Article 164(3) of the LIR), only the 1995 OECD Transfer Pricing Guidelines, in use in the years before the tax ruling was issued in 2003, and the 2010 and 2017 OECD Transfer Pricing Guidelines, published after that date, were applied. 114. Only in the event that the Court of Justice were to consider itself bound by the choice of the incorrect reference system, because Luxembourg and Amazon failed expressly to dispute that choice in their actions, would it be necessary to examine the second ground of appeal in more detail. 115. However, even in that situation, the Commission’s argument would have no prospect of success, since in the decision at issue – as the General Court correctly found – the Commission did not demonstrate that the tax ruling manifestly departed from the reference system and thereby conferred a selective advantage on Amazon. 116. The first two autonomous findings demonstrated no manifest infringement of the arm’s length principle under the OECD Transfer Pricing Guidelines. By contrast, the Commission pointed out – correctly, in my view – in the decision at issue (recital 575 et seq.), in the context of the third supplementary finding, that limiting the licence holder’s returns by including a ceiling of 0.55% of annual turnover was incompatible with the determination of appropriate remuneration by means of transfer pricing. Since unconnected independent entities do not usually arrange royalty payments between themselves in such a way that the licence holder never has to pay tax on more than a certain amount (0.55% of annual turnover in the present case), that element – indeed in my view manifestly – does not satisfy the arm’s length principle. 117. That is also what the General Court found in paragraph 575 et seq. of the judgment under appeal. As the General Court also correctly found (paragraph 578), that methodological error (even if manifest) was not sufficient to establish the existence of an advantage, since, even after the ceiling mechanism was applied, the remuneration remained within an arm’s length range. Consequently, the General Court held that the Commission had not succeeded in demonstrating the existence of an advantage. 118. Those remarks are not vitiated by any error of law. In accordance with settled case-law of the Court of Justice, it is for the Commission to prove the existence of ‘State aid’ as provided for in Article 107(1) TFEU and thus also to prove that the condition of granting an advantage to the beneficiaries is fulfilled. (42) That requires the Commission, in the present case, to demonstrate that Amazon received an advantage. However, the selective advantage only arises from the tax ruling conferring more favourable treatment compared to normal taxation. The Commission has to demonstrate such more favourable treatment. 119. The Commission must also carry out an overall assessment taking into account every significant element of the case in question which enables it to establish whether the recipient undertaking would not have received such relief already from the normal tax system (reference system). In the area of transfer pricing, that depends on the Commission being in a position to calculate the ‘correct’ transfer price. 120. The Commission is correct in its objection that that is very complex. However, it submits once more that not every misapplication of national tax law can simultaneously constitute a selective advantage, (43) but only manifestly erroneous findings in the tax ruling which affect the amount of tax due. 121. If the calculation of the royalty endorsed in the tax ruling would, in spite of its questionable methodology, have been lower than the usual transfer price, then there has been no more advantageous treatment of Amazon in comparison to normal taxation. After all, a higher normal transfer price would have resulted in an even lower tax burden. The General Court was correct in criticising the absence of such a comparison. In that respect, the second ground of appeal is also unfounded. C. Conclusion 122. In conclusion, both of the Commission’s grounds of appeal are unfounded. It has emerged that the judgment under appeal is correct in its outcome – albeit for reasons other than those on which the General Court relied. Apart from anything else, the decision had to be annulled because the reference system (the OECD Transfer Pricing Guidelines instead of Luxembourg law) relied on by the Commission was incorrect. 123. Moreover, the tax ruling does not contain any manifestly incorrect recognition – too favourable to the taxpayer – of the amount of the royalty payment. Even if the inclusion of a ceiling for the licence holder’s taxable income is manifestly incompatible with the method of calculating royalty payments usual between independent entities, the Commission failed to demonstrate in the decision that that also conferred an advantage. VI. Costs 124. In accordance with Article 184(2) of the Rules of Procedure of the Court of Justice, where the appeal is unfounded, the Court shall make a decision as to the costs. 125. Under Article 138(1) of the Rules of Procedure, which is applicable to appeal proceedings by virtue of Article 184(1) thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. As Amazon and Luxembourg did apply for costs in their pleadings, the Commission must be ordered to pay the costs incurred by Amazon and Luxembourg in the present appeal. 126. Article 184(4) of the Rules of Procedure of the Court of Justice provides that, where, without having brought the appeal itself, an intervener at first instance has participated in the written or oral part of the proceedings before the Court of Justice, the latter may decide that it is to bear its own costs. In the present case, Ireland, intervener at first instance, without being the appellant, participated in the oral procedure before the Court but has not applied for the Commission to be ordered to pay the costs. In those circumstances, it must be held that it is to bear its own costs relating to the appeal proceedings. (44) VII. Conclusion 127. In the light of the foregoing, I propose that the Court of Justice should: (1) Dismiss the appeal. (2) Order the European Commission to bear its own costs and to pay the costs incurred by the Grand Duchy of Luxembourg, Amazon EU Sàrl and Amazon.com, Inc. (3) Order Ireland to bear its own costs. 1 Original language: German. 2 In that regard, see in particular, as the most recent cases, judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859); the Opinion of Advocate-General Pikamäe in Ireland v Commission (C‑898/19 P, EU:C:2021:1029); and my Opinion in Luxembourg v Commission and Engie Global LNG Holding and Others v Commission (C‑454/21 P and C‑451/21 P, EU:C:2023:383). 3 See, in that respect, judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859); of 15 July 2020, Ireland and Others v Commission (T‑778/16 and T‑892/16, EU:T:2020:338 – pending under C‑465/20 P); and of 24 September 2019, Netherlands and Others v Commission (T‑760/15, EU:T:2019:669). 4 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859). 5 See Article 58 of the Statute of the Court of Justice of the European Union. 6 OJ 2018 L 153, p. 1. 7 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859). 8 Judgments of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraph 27); of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraph 82); of 21 December 2016, Commission v World Duty Free Group and Others (C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 53); and of 21 December 2016, Commission v Hansestadt Lübeck (C‑524/14 P, EU:C:2016:971, paragraph 40). 9 Judgments of 21 December 2016, Commission v World Duty Free Group and Others (C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 57), and of 21 December 2016, Commission v Hansestadt Lübeck (C‑524/14 P, EU:C:2016:971, paragraphs 53 and 55). 10 Judgments of 19 December 2018, A-Brauerei (C‑374/17, EU:C:2018:1024, paragraph 36); of 21 December 2016, Commission v World Duty Free Group and Others (C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 57); and of 8 September 2011, Paint Graphos (C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49). 11 Opinion of Advocate General Pikamäe in Ireland v Commission (C‑898/19 P, EU:C:2021:1029, point 60 et seq.); see also my Opinions in Fossil (Gibraltar) (C‑705/20, EU:C:2022:181, point 57); in Commission v Poland (C‑562/19 P, EU:C:2020:834, point 39); and in Commission v Hungary (C‑596/19 P, EU:C:2020:835, point 43). Confirmed by judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 73); of 15 September 2022, Fossil (Gibraltar) (C‑705/20, EU:C:2022:680, paragraph 59); of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraphs 38 and 39); and of 16 March 2021, Commission v Hungary (C‑596/19 P, EU:C:2021:202, paragraphs 44 and 45). 12 Opinion of Advocate General Pikamäe in Ireland v Commission (C‑898/19 P, EU:C:2021:1029, point 64). See also, in that sense, judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 74 – it follows that only the national law applicable in the Member State concerned must be taken into account in order to identify the reference system for direct taxation). 13 See, to that effect, judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 73); of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraphs 38 and 39); and of 16 March 2021, Commission v Hungary (C‑596/19 P, EU:C:2021:202, paragraphs 44 and 45). 14 Judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 71), and of 6 October 2021, World Duty Free Group and Spain v Commission (C‑51/19 P and C‑64/19 P, EU:C:2021:793, paragraph 61 and the case-law cited). 15 Judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 71), and of 6 October 2021, World Duty Free Group and Spain v Commission (C‑51/19 P and C‑64/19 P, EU:C:2021:793, paragraph 61 and the case-law cited). 16 Paragraph 24 of the written pleading of 22 February 2023. 17 Judgment of 9 June 2011, Comitato “Venezia vuole vivere” and Others v Commission (C‑71/09 P, C‑73/09 P and C‑76/09 P, EU:C:2011:368, paragraph 65). 18 See, expressly, judgment of 9 June 2011, Comitato “Venezia vuole vivere” and Others v Commission (C‑71/09 P, C‑73/09 P and C‑76/09 P, EU:C:2011:368, paragraph 118), and, to that effect, judgment of 9 September 2008, FIAMM and Others v Council and Commission (C‑120/06 P and C‑121/06 P, EU:C:2008:476, paragraph 187 and the case-law cited). See also, in this respect, my Opinion in Telefónica v Commission (C‑274/12 P, EU:C:2013:204, point 16). 19 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 95). 20 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, end of paragraph 96). 21 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 97). 22 See also, to that effect, judgment of 8 May 2019, Związek Gmin Zagłębia Miedziowego (C‑566/17, EU:C:2019:390, paragraph 39). 23 On the relevance of consistent administrative practice to matters of State aid, see only my Opinion in Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2020:990, point 63 et seq.) and judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741, paragraph 71 et seq.). 24 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859). 25 2017 OECD Transfer Pricing Guidelines, Chapter VI, and BEPS Actions 8-10 Final Report, pp. 141-160. The report was published on 5 October 2015 and approved by the OECD Council on 23 July 2016. 26 See judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 82); of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraph 78); of 3 April 2014, France v Commission (C‑559/12 P, EU:C:2014:217, paragraph 79); and of 24 October 2002, Aéroports de Paris v Commission (C‑82/01 P, EU:C:2002:617, paragraph 63). 27 See Article 58 of the Statute of the Court of Justice of the European Union. 28 See judgments of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 82), and of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraph 78 and the case-law cited). 29 See (regarding an arm’s length principle allegedly existing in national law), most recently, judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 85); see, by analogy, judgment of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraphs 80 and 81 regarding the incorrect interpretation of Paragraph 8(c) KStG by the General Court). 30 Judgment of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraph 78); see, to that effect, judgments of 21 December 2016, Commission v Hansestadt Lübeck (C‑524/14 P, EU:C:2016:971, paragraphs 61 to 63), and of 3 April 2014, France v Commission (C‑559/12 P, EU:C:2014:217, paragraph 83). 31 See my Opinion in Luxembourg v Commission and Engie Global LNG Holding and Others v Commission (C‑454/21 P and C‑451/21 P, EU:C:2023:383, point 86 et seq.). 32 Judgment of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraph 37); see, to that effect, regarding the fundamental freedoms, judgments of 3 March 2020, Vodafone Magyarország (C‑75/18, EU:C:2020:139, paragraph 49), and of 3 March 2020, Tesco-Global Áruházak (C‑323/18, EU:C:2020:140, paragraph 69 and the case-law cited). 33 Judgments of 15 September 2022, Fossil (Gibraltar) (C‑705/20, EU:C:2022:680, paragraph 59), and of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraph 37); see, to that effect, inter alia, judgment of 26 April 2018, ANGED (C‑233/16, EU:C:2018:280, paragraph 50 and the case-law cited). 34 See also, in that sense, judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 95 et seq.). 35 Judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom (C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 72). 36 As happened in the case of Gibraltar, for example: judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom (C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 101 et seq.). In that case, the United Kingdom was also unable to explain the purpose of the underlying tax law parameters (paragraph 149). 37 Judgments of 15 September 2022, Fossil (Gibraltar) (C‑705/20, EU:C:2022:680, paragraph 61); of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraph 42 et seq., especially paragraph 44); and of 16 March 2021, Commission v Hungary (C‑596/19 P, EU:C:2021:202, paragraph 48 et seq., especially paragraph 50). In its judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom (C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 101), the Court of Justice already spoke of a legal regime which, ‘it is apparent … in practice discriminates between companies’ (my emphasis). 38 Opinion of Advocate General Pikamäe in Ireland v Commission (C‑898/19 P, EU:C:2021:1029, point 106). 39 Opinion of Advocate General Pikamäe in Fiat Chrysler Finance Europe v Commission (C‑885/19 P, EU:C:2021:1028, point 118). 40 Judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859, paragraph 95). 41 The Commission also made that point in recital 250 of the decision at issue. 42 See, expressly, judgment of 4 March 2021, Commission v Fútbol Club Barcelona (C‑362/19 P, EU:C:2021:169, paragraph 62). See also, to that effect, judgment of 19 September 2018, Commission v France and IFP Énergies nouvelles (C‑438/16 P, EU:C:2018:737, paragraph 110 and the case-law cited). See also judgment of 11 November 2021, Autostrada Wielkopolska v Commission and Poland (C‑933/19 P, EU:C:2021:905, paragraph 108). 43 See, in that regard, point 91 et seq. above. 44 See, to that effect, judgments of 16 March 2021, Commission v Poland (C‑562/19 P, EU:C:2021:201, paragraph 60), and of 28 June 2018, Andres (Insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraphs 113 and 114).