62022CC0555
OPINION OF ADVOCATE GENERAL
MEDINA
delivered on 11 April 2024 (
1
)
Joined Cases C‑555/22 P, C‑556/22 P and C‑564/22 P
United Kingdom of Great Britain and Northern Ireland
v
European Commission (C‑555/22 P),
ITV plc
v
European Commission (C‑556/22 P),
and
LSEGH (Luxembourg) Ltd,
London Stock Exchange Group Holdings (Italy) Ltd
v
European Commission (C‑564/22 P)
(Appeal – State aid – Tax rulings – Aid scheme implemented by the United Kingdom in favour of certain multinational groups – Tax regime relating to the financing of groups and concerning controlled foreign companies (CFCs) – Exemptions – Significant people functions – Artificial diversion of profits – Erosion of the tax base – Decision declaring the aid scheme incompatible with the internal market and unlawful and ordering the recovery of the aid paid – Reference framework – Applicable national law – ‘Normal’ taxation)
1.
By their respective appeals, the United Kingdom of Great Britain and Northern Ireland (C‑555/22 P), ITV plc (C‑556/22 P) and LSEGH (Luxembourg) Ltd and London Stock Exchange Group Holdings (Italy) Ltd (together ‘LSEGH’) (C‑564/22 P) seek to have the judgment of the General Court of 8 June 2022, United Kingdom and ITV v Commission (T‑363/19 and T‑456/19, EU:T:2022:349) (‘the judgment under appeal’) set aside. That judgment dismissed the actions of the United Kingdom and ITV seeking annulment of Commission Decision (EU) 2019/1352. (
2
)
2.
In the United Kingdom (hereinafter referred to as ‘the UK’ given the very large number of occurrences), tax rules in relation to controlled foreign companies (CFCs) are set out in Part 9A of the Taxation (International and Other Provisions) Act 2010 (‘the TIOPA’), (
3
) which contains rules relating to the international aspects of the UK direct tax system, including double taxation relief and various anti-avoidance provisions.
I. Background to the dispute
3.
The background to the dispute is set out in paragraphs 1 to 28 of the judgment under appeal. For the purposes of the present Opinion, it may be summarised as follows.
A. The decision at issue
4.
Following a formal investigation procedure initiated under Article 108(2) TFEU, the European Commission adopted the decision at issue and found that the group financing exemption (GFE) scheme, on account of the exemptions provided for in Chapter 9 of Part 9A of the TIOPA (hereafter ‘Chapter 9’), constituted State aid within the meaning of Article 107(1) TFEU. This was because that scheme applied to non-trading finance profits (NTFP) arising from qualifying loan relationships (QLRs) that fell within section 371EB (like the UK Government, I will refer to ‘sections’ in abbreviated form as ‘S.’) of Chapter 5 of Part 9A of the TIOPA (hereafter ‘Chapter 5’; ‘the contested scheme’ or ‘the exemptions at issue’). The Commission considered that the exemptions at issue formed an ‘aid scheme’ which was incompatible with the internal market and which had been unlawfully put into effect by the UK in breach of Article 108(3) TFEU.
5.
However, the Commission concluded that the contested scheme did not constitute aid when applied to NTFP arising from QLRs that fell within S. 371EC (capital investments from the UK; ‘the UK-connected capital test’) of Chapter 5 and did not fall within S. 371EB (UK activities) of that chapter, based on the fact that the significant people functions (SPFs) (
4
) were carried out in the UK (‘the UK SPFs test’).
6.
In the decision at issue, the Commission focused on the existence of a selective advantage. The Commission thus observed that the exemptions at issue allowed a company established in the UK – which would otherwise have been subject (under Chapter 5) to a CFC charge – to request (under Chapter 9) that that CFC charge be taxed on only 25% of a CFC’s NTFP arising from QLRs, meaning that 75% of those profits were exempt from that charge. Under certain conditions, the latter could be taxed on an even lower percentage, leading to an exemption covering up to 100% of the relevant profits of the CFC.
7.
As regards the selective nature of the exemptions at issue, the Commission considered that the reference framework consisted of the CFC rules and that those exemptions constituted a derogation from that framework.
8.
In that context, the Commission found that the situation of a taxable entity controlling a CFC that earns NTFP arising from QLRs was comparable to the situation of a taxable entity controlling a CFC that made other NTFP, particularly in the context of loans granted by CFCs to related companies resident in the UK, known as ‘upstream loans’, and loans granted by CFCs to third parties, designated by the UK as ‘fictitious loans’.
9.
The Commission recalled that a measure derogating from the reference framework could nevertheless be justified by the nature or overall structure of that framework and that it was for the Member State (
5
) to demonstrate the existence of such a justification. The UK had argued, first, that the exemptions at issue were intended to ensure that the system was manageable and administrable. Second, the exemptions ensured the exercise of the freedom of establishment within the European Union.
10.
In that regard, the Commission accepted that, in so far as the contested scheme covered situations which fell within the scope of Chapter 5, under the UK-connected capital test, that scheme could be regarded as being intended to ensure the ‘administrative manageability’ of the CFC rules. The contested scheme ensured that a CFC charge would be taxed only on profits generated by UK assets that could reasonably be said to be artificially diverted from the UK, without obliging the companies and the tax authorities to carry out an excessively cumbersome exercise to locate the funds, given the fungible nature of capital.
11.
By contrast, the Commission noted that the contested scheme had conferred an a priori selective advantage on companies which were liable to tax in the UK and which controlled a CFC that made NTFP arising from QLRs in situations fulfilling the UK SPFs test. The Commission concluded that such an a priori selective advantage could not be justified by the need to have administrable and manageable anti-avoidance rules or by the need to comply with the freedoms enshrined in the Treaties.
12.
Furthermore, it stated that, following the amendments made to the CFC rules in the context of the transposition of Directive (EU) 2016/1164, (
6
) with effect from 1 January 2019 and by virtue of which it was no longer possible to apply for the exemptions at issue in respect of the profits referred to in the preceding point, the contested scheme had become compliant with State aid rules.
13.
As regards the compatibility of the contested scheme with the internal market, the Commission stated, in essence, that the aid granted under the scheme did not facilitate the development of certain economic activities or of certain economic areas, with the result that it was not covered by Article 107(3)(c) TFEU.
14.
Finally, the Commission ordered the recovery of the aid granted under the contested scheme from its beneficiaries.
II. The judgment under appeal
15.
The General Court dismissed the actions brought respectively by the UK Government and ITV. It held, inter alia, that the condition relating to the existence of a selective advantage was satisfied. In that context, it carried out the classical three-step analysis consisting in: (i) identifying the reference framework; (ii) ascertaining whether the contested scheme derogated from that framework, in the light of the objective pursued by it, and (iii) establishing whether the Member State had demonstrated that the differentiation introduced by the aid scheme was justified, since that differentiation resulted from the nature or general scheme of the framework of which that scheme formed part.
A. Step 1: The reference framework
16.
The General Court rejected the pleas by which the UK and ITV claimed that the Commission had made a manifest error of assessment in concluding that the reference framework consisted solely of the ‘CFC rules’, and not the general UK corporation tax system (‘the general CT system’).
17.
In that regard, in the first place, the General Court stated that the general CT system was based on the principle of territoriality, under which only profits made in the UK are taxed. Next, it noted that the CFC rules were intended to ensure that profits made by a CFC – which, under that principle, would not normally be taxed in the UK – would nevertheless be taxed (when they were considered to have been artificially diverted from the UK and thus as having artificially increased the profits of the CFC, which subsequently distributed dividends which were not taxable in the UK). The General Court concluded from this that the CFC rules were not an exception to the general CT system but an extension of it, or a corollary which followed a distinct and separable logic from that of that system. (
7
)
18.
In the second place, the General Court examined whether the CFC rules could be regarded as a complete body of rules, distinct from the general CT system, in particular as regards elements such as the tax base, the taxable person, the taxable event and the tax rate.
19.
As regards the tax base, the General Court observed, in essence, that the CFC rules were intended to tax CFCs’ accounting profits made outside the UK which were artificially diverted from that State. By contrast, UK corporation tax (CT) applied to profits made in the UK by companies established there. (
8
)
20.
As regards the taxable person, the General Court held, in essence, that taxable persons subject to the CFC rules differed from taxable persons subject to the general CT system on account of the special feature whereby those rules came into play when companies resident in the UK had certain interests in subsidiaries outside the UK. (
9
)
21.
As regards the taxable event, the General Court held that the decisive factor for the purposes of imposing a CFC charge was the artificial diversion of profits from the UK whereas, under the general CT system, it was the making of profits in the UK that gave rise to tax. (
10
)
22.
As regards the tax rate, the General Court, while acknowledging that the CFC rules did not contain a specific rate applicable to CFCs’ profits and referred to the rate provided for by the general CT system, considered that, as a whole, the CFC charge was determined by a specific calculation mechanism which entailed, where appropriate, calculating the average of several tax rates applicable to the profits of the related company that was taxable in the UK. (
11
)
23.
Furthermore, the General Court noted that the CFC rules contained specific provisions concerning the calculation of the CFC charge, the management and collection of that charge and, more specifically, its relationship with the taxes payable by the company resident in the UK and those paid by the CFC in its country of residence. In addition, it pointed out that, when calculating the amount of tax payable by the resident company which was taxable on account of the profits made by its CFC, relief was provided for any taxes that would have been paid in the CFC’s host country. (
12
)
B. Step 2: The existence of an advantage and the a priori selectivity of the contested scheme
24.
In the first place, the General Court held, in essence, that the rules defined in Part 9A of the TIOPA laid down criteria for identifying situations where there has been an artificial diversion of profits, such as, inter alia, those covered by Chapter 5 thereof. Thus, according to the General Court, where one of the criteria laid down by those rules was fulfilled, the profits made by the CFCs in question were taxed in the UK by means of the CFC charge. It concluded from this that the fact of providing, in Chapter 9, exemptions from that charge for profits which would otherwise have been subject to it, by virtue of the abovementioned criteria, constituted an advantage, and not a variation in the taxation of CFCs’ profits or a delimitation of the scope of taxation of those profits.
25.
In the second place, the General Court ruled, in essence, that the objective of the CFC rules was the protection of the UK CT base by taxing profits arising from UK activities and assets which were artificially diverted to CFCs.
26.
In the third place, the General Court held, in essence, that the GFE was a priori selective in light of the objective of the reference framework.
C. Step 3: The existence of justifications for the exemptions at issue
27.
The General Court rejected the arguments of the UK and ITV according to which the exemptions at issue were justified.
28.
As regards the first justification, first of all, the General Court found that, although it was apparent from the replies to the consultation that had been conducted by the UK authorities before the adoption of the CFC rules that, inter alia, the proposal relating to a partial exemption of 75% was mostly supported because of its simplicity and ease of application, the UK had not provided any evidence to quantify the administrative costs relating to the identification and location of SPFs in the context of intra-group loans, but had merely made general assertions. The General Court also pointed out that it had not been demonstrated that the 75% exemption threshold was necessary or appropriate in order to answer the question relating to the difficulty of identifying and locating the SPFs carried out in the context of intra-group loans generating NTFP.
29.
As regards the second justification, the General Court inferred from the judgment in Cadbury Schweppes and Cadbury Schweppes Overseas (
13
) that, since the CFC charge applied to profits which, under the UK SPFs test, were to be regarded as having been artificially diverted, that charge did not constitute an obstacle to freedom of establishment and held, consequently, that the exemptions at issue could not be justified in order to ensure that freedom.
III. Assessment of the appeals
A. Admissibility
30.
The Commission submits that national law is a question of fact, falling within the exclusive jurisdiction of the General Court, except where the interpretation of that law is based on a distortion of evidence. It accepts that, by virtue of the judgment in Fiat, (
14
) the correct determination of the reference framework is a question of law, but submits that, in that judgment, the error found by the Court of Justice related to whether the General Court had taken appropriate factors into account when making that determination, and not to the interpretation of national law. By contrast, in the present cases, the appellants do not claim that the General Court relied on incorrect elements when it assessed whether the Commission had correctly defined the reference framework.
31.
The UK, ITV and LSEGH contest the above arguments and contend that the appeals are admissible.
32.
I first recall that, according to the judgment in Fiat (paragraph 82), ‘it is true that, with respect to the assessment in the context of an appeal of the General Court’s findings on national law, which, in the field of State aid, constitute findings of fact, the Court of Justice has jurisdiction only to determine whether that law was distorted’.
33.
However, the fact remains that the Court of Justice cannot be deprived of the possibility of verifying whether the above assessment does not constitute in itself an error of EU law. (
15
)
34.
Indeed, the case-law of the Court of Justice makes it clear that ‘the question whether the General Court adequately defined the relevant reference [framework] … is a question of law which can be reviewed by the Court of Justice on appeal. The arguments aimed at calling into question the choice of reference [framework] as part of the first step of the analysis of the existence of a selective advantage are admissible, since that analysis derives from a legal classification of national law on the basis of a provision of EU law’. (
16
)
35.
Indeed, according to that case-law, ‘to concede that the Court of Justice is not in a position to determine whether the General Court made no error of law when it endorsed the definition of the relevant reference framework, the interpretation thereof and the application thereof as the decisive parameter for the purpose of examining whether there was a selective advantage would be tantamount to accepting that the General Court may have infringed a provision of primary EU law, namely Article 107(1) TFEU, without any possibility of that infringement being found in an appeal, which would contravene the second subparagraph of Article 256(1) TFEU’. (
17
)
36.
Moreover, where the General Court has found facts or assessed them, the Court of Justice has jurisdiction under Article 256 TFEU to review the legal characterisation of those facts, which would extend to the assessment of the content of national law in the event of distortion. The Court of Justice must be able to review whether the General Court ‘made findings going manifestly against the content of the provisions of [national] law at issue’ or attributed to them a significance which they manifestly do not have. (
18
) Thus, the definition of the reference framework and, by extension, the question whether the General Court distorted national law, are points of law amenable to review by the Court of Justice at the appeal stage. (
19
)
37.
It follows that the present appeals are admissible.
B. Substance
38.
In support of its appeal (Case C‑555/22 P), the UK raises five grounds, alleging: (i) an error of law, distortion and incorrect characterisation of the facts as regards the identification of the reference framework; (ii) an error of law, distortion and incorrect characterisation of the facts as regards the existence of an advantage; (iii) an error of law, distortion and incorrect characterisation of the facts and infringement of the obligation to state reasons as regards selectivity; (iv) an error of law, distortion and incorrect characterisation of the facts as regards administrative practicability, and (v) an error of law as regards freedom of establishment.
39.
Next, ITV (Case C‑556/22 P) raises four grounds of appeal, alleging: (i) an error in the determination of the reference framework; (ii) an error in the determination of a selective advantage; (iii) an error in the treatment of the justification for the exemptions at issue, and (iv) an error in the application of the judgment in Cadbury.
40.
Finally, LSEGH (Case C‑564/22 P) raise five grounds of appeal, alleging: (i) an error of law in the identification of the reference framework; (ii) an error of law as regards the identification of the objective of that framework; (iii) an error of law as regards the existence of discrimination between economic operators; (iv) infringement of Articles 263 and 296 TFEU on account of the failure to respond to certain grounds of appeal and the substitution by the General Court of its own reasoning for that of the Commission in the decision at issue, and (v) an error of law as regards the justification of the exemptions at issue.
41.
Although the appellants do not all raise the same number of pleas and despite the fact that, within those pleas, each appellant may have attributed greater or lesser weight to certain arguments or put forward specific arguments, their arguments nevertheless centre on four elements: (i) the determination of the reference framework; (ii) the existence of a selective advantage; (iii) the justification for the contested scheme by way of the need to enable administrative practicability of the CFC rules, and (iv) the justification for that scheme in order to respect freedom of establishment.
42.
It should be pointed out that the appeals focus predominantly on element (i) (the reference framework).
43.
Therefore, I will address the various arguments of the appellants jointly under those four elements (which fall under the three consecutive steps of the analysis carried out by the General Court, the last two elements comprising Step 3 of the analysis).
44.
The appellants’ arguments according to which Chapters 5 and 9 must be read together, in that they reflect the risk-based approach followed by the UK, are relevant not only for the purposes of assessing the existence and justification of a selective advantage, but also for the purposes of the definition of the correct reference framework itself.
45.
Furthermore, even though some of the arguments raised by the appellants under elements (iii) and (iv) above concern Step 3 of the analysis, I will address those arguments already in the reference framework part of the Opinion. (
20
) This is justified in so far as there is a close link between the arguments raised in relation to the determination of the relevant reference framework, on the one hand, and those seeking to justify the combined reading of Chapters 5 and 9 and according to which the exemptions at issue must be regarded as analogous to the filters of Chapter 3 of Part 9A of the TIOPA (hereafter ‘Chapter 3’) and to ‘entity level exemptions’, on the other hand.
1.
First ground of UK’s and ITV’s appeals and first and second grounds of LSEGH’s appeal – Step 1 (determination of the reference framework)
(a)
Arguments of the parties
46.
The UK submits that the General Court erred in law and/or infringed EU law because it distorted the underlying facts and mischaracterised them in law when it concluded that the UK CFC rules should be treated as the reference framework.
47.
ITV claims that the General Court erred in law and/or made a manifest error of assessment in concluding that the Commission had not erred in its selection of reference framework for the analysis of whether or not the State aid measures laid down in Articles 107 and 108 TFEU had been breached.
48.
LSEGH argue, first, that the General Court erred in law by distorting national law and overlooking evidence in identifying the UK CFC rules in Part 9A of the TIOPA as the reference framework, rather than the general CT system of which they form an inseparable part. Second, even if the reference framework was the UK CFC rules, the General Court erred in law in its identification of the objective of the reference framework, and consequently erred in identifying the provisions in Chapter 5 as determining the ‘normal’ taxation of NTFP so that the GFE in Chapter 9 conferred an ‘advantage’.
49.
The Commission disputes the appellants’ arguments and submits, in essence, that the General Court did not consider it ‘normal’ to tax all CFC profits, but noted that their profits were subject to a CFC charge, notwithstanding the fact that they were made by a non-UK company when they resulted from an artificial diversion. Therefore, the CFC rules make it possible to bring within the UK tax base profits from UK assets or activities which would otherwise escape it. The Commission argues, in essence, that significant risks of diversion are ruled out in the case of profits covered by the ‘entity exemptions’, whereas it is not ruled out in respect of profits covered by the exemptions at issue, which satisfy the Chapter 5 criteria.
(b)
Assessment
(1) Introduction
50.
As regards the reference framework, the appellants maintain, in essence, that the Commission, having described the CFC rules as a ‘normal’ tax system, failed to place those rules in the correct context, within which they represent a strictly delimited exception to, and part of, the general CT system. The latter system is largely territorial and provides for taxing, in principle, only the profits that companies established in the UK have themselves made. The CFC rules are not detachable from the general CT system, but constitute a corrective measure, inseparable from that system, which aims to protect the CT base in the UK from abuses involving CFCs. According to the appellants, the exemptions at issue were formulated very broadly, so as to ensure that the NTFP of CFCs are not (entirely) subject to the CFC charge whenever the risk to the UK tax base is low and where the exception to the principle of territoriality in that charge is, therefore, unjustified. These exemptions are analogous to the entity exemptions as well as to the filters of Chapter 3. The appellants submit that account must also be taken of the fact that Chapter 4, which concerns the application of the CFC charge to the commercial financial profits of CFCs, provides for exemptions within it, whereas Chapter 5 does not provide for any exemptions itself.
51.
As I have mentioned in point 45 above, these arguments are closely related to those by which the appellants argue that it is wrong to consider that Chapter 5 sets out criteria for establishing which CFCs’ NTFP must be characterised as artificially diverted, whereas Chapter 9 establishes exemptions for certain profits which would otherwise have been subject to a CFC charge under Chapter 5. The appellants contend that those chapters complement each other and give rise to a uniform and coherent body of rules on taxation of the NTFP of CFCs. Thus, taken as a whole, the said chapters define the scope of the CFC charge, taking into account the assessment of the risk posed, for the tax base in the UK, by the origin and use of the capital from which those NTFP are made.
52.
Furthermore, the appellants argue that the CFC rules must be read together with the provisions of the general CT system under which, first, the dividends that CFCs distribute to parent companies established in the UK are not taxable and, second, those companies can deduct the interest on their loans, even where the funds thus borrowed are used to finance a CFC.
(2) Case-law on determination of the reference framework
53.
The Court of Justice has held that ‘the determination of the reference framework is of particular importance in the case of tax measures, since the existence of an economic advantage for the purposes of Article 107(1) TFEU may be established only when compared with “normal” taxation’. (
21
)
54.
In addition, it is ‘necessary that the common tax regime or the reference [framework] applicable in the Member State concerned be correctly identified in the Commission decision and examined by the court hearing a dispute concerning that identification. Since the determination of the reference [framework] constitutes the starting point for the comparative examination to be carried out in the context of the assessment of selectivity, an error made in that determination necessarily vitiates the whole of the analysis of the condition relating to selectivity’. (
22
)
55.
It should also be recalled that, according to the judgment in World Duty Free, (
23
)‘the determination of the reference framework, which must be carried out following an exchange of arguments with the Member State concerned, must follow from an objective examination of the content, the structure and the specific effects of the applicable rules under the national law of that State. In that regard, the selectivity of a tax measure cannot be assessed on the basis of a reference framework consisting of some provisions of the national law of the Member State concerned that have been artificially taken from a broader legislative framework’ (emphasis added).
56.
Consequently, ‘where the tax measure in question is inseparable from the general tax system of the Member State concerned, reference must be made to that system. On the other hand, where it appears that such a measure is clearly severable from that general [CT] system, it cannot be ruled out that the reference framework to be taken into account may be more limited than that general [CT] system, or even that it may equate to the measure itself, where the latter appears as a rule having its own legal logic and it is not possible to identify a consistent body of rules external to that measure’. (
24
)
57.
It follows that – before it assesses the nature of the measure in question and whether it constitutes a selective advantage – the Court must verify whether the reference framework has been correctly defined. That requires the Court to establish, first, the test that must be applied in order to determine which interpretation of national law prevails: whether that proposed by the Commission or that advocated by the Member State. Secondly, the Court has to assess whether that prevailing interpretation can be rebutted.
(3) The reference framework definition test
58.
The judgment in Fiat (paragraph 73) (
25
) makes it clear that, ‘outside the spheres in which EU tax law has been harmonised, it is the Member State concerned which determines, by exercising its own competence in the matter of direct taxation and with due regard for its fiscal autonomy, the characteristics constituting the tax, which define, in principle, the reference [framework] or the “normal” tax regime, from which it is necessary to analyse the condition relating to selectivity. This includes, in particular, the determination of the basis of assessment and the taxable event’ (emphasis added).
59.
Moreover, in its case-law, the Court refers in this connection to the principle of fiscal legality, which forms part of the EU legal order as a general principle of law, and requires that any obligation to pay a tax and all the essential elements defining the substantive features thereof be provided for by law and that a taxable person be able to foresee and calculate the amount of tax due and determine the point at which it becomes payable. (
26
)
60.
It is thus clear from the Court’s case-law that, when determining the reference framework for the purposes of applying Article 107(1) TFEU to tax measures, the Commission is, in principle, required to accept the interpretation of the relevant provisions of national law given by the Member State concerned in the context of an exchange of arguments between that State and the Commission to the extent that that interpretation is compatible with the wording of those provisions. (
27
)
61.
In the same vein, I would point out that both of the judgments in Fiat (paragraph 96) (
28
) and in Engie (paragraph 44) make it clear that the Commission’s analysis must rely on tax principles that are explicit in national law. (
29
)
62.
It follows that the reference framework must be established on the basis of national law as interpreted by the Member State, which is entitled to define the objectives and the constitutive elements of the tax legislation in question as well as the practical implementation of that legislation.
63.
However, the Member State’s interpretation is not absolute. The Commission may deviate from that interpretation, but only subject to the conditions established by the Court’s case-law. This may be the case, in particular, where the Commission is able to establish that another interpretation prevails in that Member State’s case-law or administrative practice, where it must rely on reliable and consistent evidence that has been the subject of an exchange of arguments in the administrative procedure. (
30
)
64.
In a situation such as the present case, where the Member State has no such case-law or administrative practice, it may be inferred from the conditions discussed above that the Commission’s interpretation will prevail over the Member State’s interpretation only if the Commission can establish that the latter interpretation is manifestly incompatible with the wording and objectives of the national provisions at issue.
65.
Furthermore, the approach adopted by the Court means that the Commission bears the burden of proof in showing that the Member State’s interpretation is manifestly incorrect and incompatible with the wording and objectives of the national provisions.
66.
My analysis will address the central question of the present appeals: are the CFC rules the correct reference framework in this case? In order to answer that question, I shall use a two-step test which, to my mind, may be inferred from the Court’s case-law cited above. (
31
) I will first endeavour to determine whether the CFC rules have their own legal logic (
32
) determining their existence or whether they should be considered as forming an integral part of the general CT system. I will then assess national law by answering the question whether the interpretation of the CFC rules provided by the UK corresponds to the wording and objectives of that national law, or whether the Commission succeeded in proving that the UK’s interpretation is manifestly incompatible with that wording and those objectives. (
33
)
(i) Part 1: do the CFC rules have a distinct reason for their existence?
67.
In paragraph 82 of the judgment under appeal, the General Court rightly ruled that the CFC regime was a corollary to the general CT system.
68.
However, it then held that ‘the rules applicable to CFCs are based on a logic distinct from that of the general tax system in the [UK]. That logic is admittedly supplementary or, as the Commission states in recital 105 of the [decision at issue], a corollary to the general tax system based on the principle of territoriality, however it is severable from it’.
69.
From the outset, it should be noted that, in principle, a corollary cannot be severable from the principal element from which, by definition, it is meant to stem, and that, consequently, it is meant to follow the same logic. It must therefore be assessed whether the case at hand presents a distinction which justifies a deviation from the general understanding, which would allow the General Court to conclude that, while the CFC regime was a corollary to the general CT system, it was based on a distinct logic.
70.
Accordingly, I will assess whether the CFC rules have their own distinct purpose and their own constituent elements and tools used to achieve that purpose, with a view to establishing whether those are different from that of the general CT system.
– (a) The purpose of the general CT system and of the CFC rules
71.
In this section, I will analyse the purpose of the general CT system and of the CFC rules as well as the question whether the CFC rules contribute to the purpose of the general CT system.
72.
It follows from the UK’s observations that the purpose of the general CT system and that of the CFC rules is to protect the UK CT base from base erosion and profit shifting (‘BEPS’). Indeed, the OECD/G20 BEPS project is unequivocal that the purpose of the CFC rules is to prevent both base erosion and profit shifting. (
34
) Therefore, the General Court was wrong when it found that the objective of the CFC rules could only ever be to combat profit shifting in the form of the artificial diversion of profits from the UK. (
35
)
73.
As the appellants have observed, in order to comply with the judgment in Cadbury, with the CFC charge, the UK sought to target only ‘wholly artificial’ arrangements of diversion of profits. In that judgment, the Court had found that the previous UK CFC regime breached the freedom of establishment. It follows from the same judgment that any such breach can be justified only where it targeted the creation of ‘wholly artificial’ arrangements, that is, those ‘with a view to escaping the tax normally due on the profits generated by activities carried out on national territory’ (paragraph 55 of that judgment).
74.
Therefore, as the UK explains, the national legislature sought to limit the CFC charge to situations where: (i) either a CFC had no genuine economic presence in the overseas territory and therefore would not comply with the ‘business premises test’, or (ii) there would be a sufficiently calibrated risk assessment to enable the CFC charge to target that portion of a CFC’s profits that undermined the UK tax regime.
75.
At the hearing, the appellants confirmed that the purpose of the CFC rules is twofold: fighting base erosion and profit shifting. The UK pointed inter alia to Chapter 7 of Part 9A of the TIOPA and to the fourth scenario in Chapter 5 thereof concerning finance leasing arranged through an offshore entity, which confirm that what is targeted is not only profit shifting but also base erosion. The Commission merely insisted that there is a net distinction between base erosion and profit shifting and that, in its view, the only core goal of the CFC rules was profit shifting, that is, an artificial diversion of profits. I consider the Commission’s assertions unconvincing and, in any event, insufficient to overrule the Member State’s interpretation of the purpose of its national law.
76.
It follows that the CFC rules and the general CT system pursue the same purpose: to tax those corporate profits that form part, or would have formed part, of the UK CT base were it not for base erosion and profit shifting. Indeed, as ITV rightly points out, the suite of measures and exemptions in the TIOPA follows a holistic approach, as they collectively target the risk of artificial arrangements being put in place, those arrangements having a material impact on the integrity of the general CT system. The means by which that risk is addressed depends on factual circumstances likely to arise in practice. Therefore, Part 9A of the TIOPA uses a variety of legislative techniques in order to target only ‘wholly artificial’ arrangements, on the one hand, and to contribute to the preservation of the CT base, on the other.
77.
In that connection, I consider that Chapter 9, in particular, appears to be an appropriate legislative measure to complement the purpose of the general CT system in a manner that is compliant with the Court’s judgment in Cadbury. That chapter thus allows a company to bring evidence to show that the loans were made to fund commercial activities of other companies of a multinational group out of QLRs or that there was no diversion of profits or otherwise to accept the CFC charge, which is based on a reasoned estimation of the anticipated level of overcapitalisation.
78.
It follows from the above considerations that the CFC rules genuinely contribute to the purpose pursued by the general CT system.
– (b) Territorial scope of the general CT system and the CFC rules
79.
As ITV points out, the CFC regime serves to preserve the integrity of the general CT system by bringing into the charge to UK tax those profits which, while earned abroad, have been artificially diverted from the UK and which should therefore be treated as if they arose in the UK. Without application of the CFC rules, the territorial focus of the UK’s CT system would likely be circumvented through the use of aggressive tax avoidance.
80.
It is apparent from the judgment under appeal and from the parties’ observations that it is not disputed that – apart from the CFC rules – the general CT system provided, during the period under review, that UK CT applied only to profits arising to UK-resident companies. In the same vein, it applied to non-resident companies carrying on a trade in the UK through a permanent establishment or deriving profits from UK land.
81.
The appellants explain that the general CT system is based on the ‘largely territorial’ principle. That approach means that, normally, non-UK multinational groups are not subject to any of the UK tax rules but for the CFC rules, that is, aside from that exception no other foreign-sourced profits are taxed by the UK. Hence, the CFC rules are an exception to the territoriality principle, and an exclusion from that exception (such as that in Chapter 9) should not be viewed as a derogation. It follows from previous analysis that wholly artificial arrangements exist to divert profits and erode the tax base. Accordingly, the territorial scope of the system was adjusted, according to the UK, to be largely territorial and the system was complemented with an exception to the purely territorial principle. That exception targets those wholly artificial arrangements and brings those profits back to the UK ‘where they (notionally) belong’.
82.
In paragraph 83 of the judgment under appeal, the General Court made an error when it found that the CFC rules did not operate as an exception to the general CT system. The CFC rules impose a charge equivalent to the UK CT on UK companies because of the income arising to non-resident subsidiaries
outside the UK (CFCs) and accounted for in the financial statements of the CFCs. As I have explained above, the purpose of such an exception is to address wholly artificial arrangements. That exception shows why the CT system as such relies on the largely territorial principle.
83.
However, it has to be noted that the final tax liability lies with a company, resident in the UK, which is responsible for the tax arising on the profits of a different corporate entity, resident outside the UK.
84.
It follows that the General Court misunderstood the largely territorial nature of the general CT system and proceeded on the basis that only profits made in the UK are taxed (see paragraph 116 of the judgment under appeal). This is an incorrect characterisation of the underlying territorial scope of the system.
85.
For instance, that error led the General Court to assume that income from UK activities which arises to a CFC must necessarily have been artificially diverted. That is an erroneous conclusion based on an incorrect premiss. (
36
)
86.
Indeed, it is precisely because of the specific nature of the risks to the tax base as were identified by the UK legislature that the largely territorial taxation approach was adopted and encompassed the exemptions at issue.
87.
As ITV rightly points out, to use a fishing analogy, Part 9A of the TIOPA casts a wide net, but the holes in the mesh are large: only relevant fish (of a certain size) are caught. However, one would not describe the holes in a fishing net as a separate tool. Instead, they are a conscious and deliberate part of the net itself.
88.
It can be concluded from the above that the largely territorial scope of the UK CT means that the UK tax regime is aimed at capturing foreign profits arising to foreign companies only where either (i) those profits have been artificially diverted from the jurisdiction of the UK parent company group, or (ii) the arrangements undermine the general CT system in an abusive way. Otherwise, the territorial nexus for taxing foreign profits is lost.
89.
The Commission merely contends that the UK is incapable of identifying any part of that judgment that is contingent on the General Court having concluded that the UK CT regime is entirely, rather than largely, territorial. It submits that the UK’s claim should be declared ineffective. I consider that institution’s arguments insufficient to show that the UK’s interpretation is manifestly inconsistent with the wording and objectives of its national law.
90.
It follows that the purpose and selected tools of the CFC rules are the core reason why the general CT system as a whole is considered to have a largely territorial scope.
– (c) The Andres case-law of the Court of Justice
91.
As Advocate General Wahl pointed out in Andres, (
37
) it can be inferred from the case-law that, in cases such as this one, the Court has endorsed an approach that seeks to identify the entire body of rules that influence the tax burden weighing on undertakings. Such an approach ensures that the selectivity of a tax measure is assessed against a framework that includes all relevant provisions, and not against provisions that have been carved out artificially from a broader legislative framework.
92.
It follows from the Court’s judgment in the same case that the reference framework should not be a rule which constitutes an exception to the general rule, when assessing the whole content of all the provisions allows one to conclude that the tax measure at issue was defining a situation which fell under the general rule. The Court ruled that ‘the selectivity of a tax measure cannot be precisely assessed on the basis of a reference framework consisting of some provisions that have been artificially taken from a broader legislative framework’. (
38
)
93.
In the present case, the General Court concluded that the reference framework amounted to the CFC rules, which, as I have shown above, are an exception to the territorial taxation in so far as they impose the CFC charge on profits which would not be taxable under the general CT system.
94.
I consider that, in the light of the Andres case-law cited above, rules introducing such an exception cannot constitute the correct reference framework.
95.
Furthermore, the CFC rules cannot be considered to be severable from the general CT system, since otherwise – by attaching excessive importance to the regulatory technique used by the State in question – one would artificially divide the tax burden placed on the UK resident entity. This is precisely what the General Court did in the judgment under appeal, but proceeding in such a manner is contrary to the Court of Justice’s case-law. (
39
)
– (d) Main elements of a tax reference framework
96.
My above conclusions on the reference framework are not undermined by the alleged distinctions in relation to the main elements of the corporate taxation rules in the UK that the General Court raised in paragraphs 85 to 88 of the judgment under appeal.
97.
First, as regards paragraph 85 of the judgment under appeal (tax base), as the UK emphasises, the General Court wrongly seeks to distinguish between profits made in the UK and profits which have been artificially diverted from the UK – in order to treat them as different tax bases. This distorts the concept of ‘tax base’ in this context. The OECD Glossary defines the term ‘tax base’ (or ‘taxable base’) as ‘the thing or amount on which the tax rate is applied, e.g. corporate income, personal income, real property’. (
40
) That is, that term refers to the thing or amount that is subject to taxation, whether that consists of ‘profits’, or ‘sales’ (in the case of a general sales tax), or ‘value added’ (in the case of value added tax), or ‘assets’ (in the case of a capital tax such as wealth tax or inheritance tax). Contrary to what the General Court suggested, the UK CFC charge and the general CT charge both apply to the same tax base: corporate profits.
98.
The General Court reasoned that the CFC legislation would constitute a distinct body of rules if the tax base were different, before defining that distinct tax base as the corporate profits of a CFC that are taxable under the CFC rules. This ignored the fact that the general CT charge and the CFC charge both fall under the same type of tax base as taxable corporate profits, and those profits are computed in accordance with the same rules that apply to both CFCs and UK-resident companies.
99.
Secondly, as regards paragraph 86 of the judgment under appeal (taxable person), I would note that the CFC charge is attributed to parent companies established in the UK, namely companies which are subject to CT in the UK. It is true that, as the Commission argues, those are a subset of the companies established in the UK, since not all of them necessarily have CFCs whose profits trigger a CFC charge. However, the fact remains that, within that subset, the same companies are liable to pay both CT and the CFC charge. The taxable person is the same in both circumstances: under the general CT system, tax is imposed on UK-resident companies and, under the CFC rules, tax is imposed also on UK-resident companies to which the profits of their CFCs are attributed.
100.
In that connection, the Commission’s arguments reiterate the crux of the General Court’s erroneous analysis. The Commission relies on the General Court’s reasoning according to which companies that are liable to tax in respect of the profits of CFCs are different – in principle – from those that are not. This goes no further than identifying that a regime targeted at the profits of CFCs is taxing the profits of CFCs. It ignores the critical point, which is that the ‘taxable person’ liable to pay tax (under both the general CT system and the CFC regime) remains the UK resident company.
101.
Thirdly, in relation to paragraph 87 of the judgment under appeal (taxable event), the General Court found that the taxation of a CFC charge (under the CFC rules) arises when the CFCs make profits outside the UK that are regarded as arising from artificial arrangements or diversions of resources or profits which should have been taxed in the UK, and (in the case of UK CT), the making of profits in the UK, are different taxable events. This amounts to a distortion of the concept of ‘taxable event’. As the UK notes, under the general CT system and under the CFC rules, the occurrence which affects the liability of a person to tax is the realisation of profits. The Commission has not offered an answer on this point.
102.
It does not matter whether those profits arise to a UK parent company or to the CFC: the same rules apply for determining when profits arise (for example, the application of the recognition of profits in the accounts). No profits arise merely from the making of artificial arrangements or from the diversion of resources or profits from the UK. As the UK emphasises, profits arise – both under the general CT system and under the CFC rules – when those profits are earned and recognised for tax purposes; identical rules apply to determine when those profits have arisen.
103.
Finally, paragraph 88 of the judgment under appeal (tax rate) notes that the applicable tax rate for the CFC charge is the same as that provided by the general CT system. That should have led the General Court to confirm that at least one element of the CFC rules was the same as the general CT system. Instead, paragraph 88 goes on to refer to the situation where there are ‘several applicable rates’ and the average of those rates is applied to the profits of a CFC. (
41
) The same paragraph concludes that the CFC charge is determined by a specific calculation which entails calculating the average of several tax rates.
104.
As the UK rightly argues, by concluding that there is a bespoke calculation in relation to the CFC charge that is materially different to the approach in S. 8(5) of the Corporation Tax Act 2009 (CTA 2009), the General Court made an error. Indeed, S. 371BC and S. 8(5) are designed to give rise to an equivalent tax charge for any individual accounting period, but they produce that tax charge through slightly different routes.
105.
It follows that the main elements of the tax system at issue (tax base, taxable person, taxable event and tax rate) confirm that the general CT system and the CFC rules together create a consistent body of rules, (
42
) such that the correct reference framework is the general CT system and not the CFC rules.
– (e) Structure of national law and the drafting technique: are the general CT system and the CFC rules connected?
106.
The appellants submit that, contrary to what the General Court held, the CFC rules are not severable from the general CT system, given that, according to the wording used in the written observations of the UK and of ITV, they constitute an exception to the principle of territoriality that largely characterises that system or, according to the wording used by LSEGH, a remedy which is inseparable from that system, and which is intended to protect the UK CT base from abuses involving CFCs.
107.
As the UK rightly contends, in determining the reference framework, the General Court failed to take into account how far the CFC rules draw upon and are part of the broader general CT legislation.
108.
Starting with S. 371AA(12) of Part 9A of the TIOPA, it clearly states that the CFC legislation is part of the Corporation Tax Acts.
109.
The drafting technique used by the legislature confirms that the intention was to use the CFC rules and the general CT system together. Indeed, there are multiple cross-references to the CTA 2009 and 2010 provisions in Part 9A. (
43
) There are more than 80 cross-references to the CTA provisions in the 2013 CFC legislation. (
44
) Even the definition of QLR relies upon the definition of ‘loan relationships’ in S. 302(1) of CTA 2009. (
45
)
110.
It follows that, also structurally, Part 9A of the TIOPA forms part of the UK CT legislation, and cannot itself form an autonomous reference framework. Paragraph 68 of the judgment under appeal correctly states: ‘where the tax measure in question is inseparable from the general tax system of the Member State concerned, reference must be made to that system’ and, indeed, Part 9A is inseparable from the general CT system.
111.
It follows that the structure of the national law and the drafting technique further confirm that the general CT system and the CFC rules are connected and that those rules are not severable from that system.
– (f) Conclusion on Part 1
112.
As the legal literature confirms, ‘the position that there is no difference between the CFC rules and other provisions of the UK corporate tax regime delimiting what falls within the UK corporate tax net appears rather persuasive. Notwithstanding the fact that the CFC regime is made up of a complete body of rules distinct from the general UK corporate tax regime, Part 9A [of the TIOPA] clearly forms a necessary complement to the, in principle, territorial approach of the [Corporation Tax Act]. The CFC regime, therefore, can only be fully understood when considering the UK corporate tax system as a whole rather than when looked at in isolation’. (
46
)
113.
The CFC rules should, in my view, be considered an extension of the general CT system. As a result, it is wrong and artificial for such an extension to be severable from that system and it would run counter to the judgment in World Duty Free (see point 55 of the present Opinion).
114.
The General Court thus erred by abstracting one set of rules (the CFC rules) from their broader legislative framework (the general CT system), contrary to the principles accurately outlined in paragraph 68 of the judgment under appeal.
115.
It follows that the CFC rules must, in principle, be characterised as forming part of the general CT system, and that the General Court erred in law by ruling otherwise. Furthermore, the Commission has failed to demonstrate that such a characterisation, provided by the Member State, is manifestly incompatible with the purpose (the specific effects), the constitutive elements (the content) and the structure of the CFC rules and the general CT system. (
47
) It is now necessary to proceed to the next step of my analysis, which is to ‘get into the weeds’ and analyse the content of the specific provisions of the national legislation in question. That will involve verifying whether the interpretation of the wording of the relevant individual provisions of the national law put forward by the Member State in question amounts to a reading which is manifestly incompatible with those provisions. (
48
)
(ii) Part 2: interpretation of the provisions of the CFC rules
116.
It follows from the Court’s case-law, as I have recalled in point 60 of the present Opinion, that, in principle, it is the Member State’s interpretation of its own national law that determines the reference framework for the purposes of assessing the selectivity of the measure in question.
117.
Given that the General Court instead confirmed the Commission’s interpretation of the national law in the decision at issue, it is necessary to verify whether the Member State’s interpretation of the relevant national provisions as advocated in the UK’s appeal, and supported in the submissions of ITV and LSEGH, is indeed incompatible with the wording of those provisions.
– (a) Chapter 2 ‘the CFC charge’: Wording of S. 371BB
118.
S. 371BB of Chapter 2 of Part 9A of the TIOPA sets out the basic rule for determining what profits pass through the CFC charge gateway.
119.
S. 371BB first indicates, in subsection 1 thereof, which steps ought to be followed to determine whether and, if so, which of the Chapters 4 to 8 applies to a CFC’s profits (Step 1 of S. 371BB).
120.
Next, it sets out the extent to which profits fall under one of those chapters (Step 2 of S. 371BB) and provides, in subsection 2 thereof, that subsection 1 is ‘subject to’ inter alia Chapter 9.
121.
When the UK submits that the reference to Chapter 9 in subsection 2 is a signposting provision and not an operative one, it does not contradict the wording of subsection 2. Indeed, it merely draws the taxpayer’s attention to the fact that Chapter 9 may affect the operation of subsection 1, but it would not be sufficient in itself to subject any NTFP to tax through Step 2.
122.
Subsections 1 and 2, when read together, do not appear to be incompatible with the UK’s interpretation of how Chapter 9 operates within the CFC system: the UK argues that, when profits meet the criteria of Chapter 9, they are not examined under the other chapters of Part 9A of the TIOPA. Therefore, once Chapter 9 applies, it is not necessary to verify whether profits also fall under one of the criteria of Chapter 5, given that, whether or not that is the case, those profits will be taxed in accordance with the rules under Chapter 9.
123.
When S. 371BB is read in the context of Part 9A of the TIOPA, the interpretation provided by ITV and LSEGH is plausible and does not contradict the actual text of Part 9A of the TIOPA. Indeed, those parties contend that Chapter 9 may be applied, at the request of the taxable company concerned, without first taking into account Chapter 5, and therefore without it being necessary to establish whether the CFC’s NTFP arising from QLRs (and thus falling under Chapter 9) fulfil the criteria of Chapter 5.
124.
Furthermore, such a reading has been exemplified in the HMRC Manual, (
49
)which provides the following example in relation to S. 371BB: ‘A CFC has the following [NTFP] arising in an accounting period[:] £10m from loan A that is a QLR[;] £20m from loan B that is a QLR[; and] £15m that are non-exempt distributions. A claim is made for Chapter 9 to apply, specifying that [S.] 371IB (the full exemption) should apply to the profits in respect of loan A, exempting 90% of the [NTFP] from that loan. [S.] 371ID (75% exemption) applies to loan B. As a result of the claim profits of £6m pass through the CFC charge gateway by way of Chapter 9 (£1m from loan A and £5m from loan B); the remaining profits of £15m do not pass through the CFC gateway by way of Chapter 9 as the non-exempt distribution profits do not fall within [S.] 302(1) [of] CTA 2009. Instead the £15m non-exempt distributions will pass through the CFC gateway by way of Chapter 5
(on the assumption for this example that the profits fall within Chapter 5)’ (emphasis added).
125.
To my mind, the provisions of S. 371BB support the position of the UK, according to which, where any of the three GFEs (conditions in Chapter 9) apply, it is not necessary to consider Chapter 5 at all. Chapter 3 (S. 371CB(1) and (8) (
50
)) makes it clear that Chapter 9 can be applied without considering Chapter 5. (
51
)
126.
The Commission insists, in essence, that the General Court was correct to conclude that NTFP that pass through the CFC charge gateway on the basis of Chapter 5 (by virtue of either the UK SPFs or the UK-connected capital test) constitute profits which have been artificially diverted from the UK within the meaning of the CFC rules and Chapter 9 acts as a (partial) exemption for NTFP arising from QLRs that would otherwise have passed through the CFC charge gateway under Chapter 5. None of the Commission’s arguments establish that the UK’s interpretation of the provisions of S. 371BB is manifestly incorrect.
– (b) Chapter 3 ‘the CFC charge gateway’: Wording of S. 371CB
127.
S. 371CB of Chapter 3 sets out circumstances under which Chapter 5 will be applied. It provides – subject to certain, defined exceptions – that Chapter 5 will apply to NTFP generated by a CFC during a prescribed accounting period. S. 371CB(8) provides that, ‘in the case of a chargeable company which makes a claim under Chapter 9, in this section and Chapter 5 references to the CFC’s [NTFP] are to those profits excluding also the CFC’s [QLR] profits (as defined in Chapter 9)’ (emphasis added).
128.
The reading of that provision is consistent with the UK’s interpretation in that the legislation defines exemptions in S. 371CB(2), (3) and (4) as well as in Chapter 5. In turn, the presence of the adverb ‘also’ in S. 371CB(8) allows for the interpretation according to which the exemptions in Chapter 9 operate in addition to other exemptions in S. 371CB and in Chapter 5.
129.
It is therefore plausible to interpret S. 371CB(1) and (8) as meaning that Chapter 9 can be applied without considering Chapter 5. (
52
)The appellants argue that S. 371CB(8) is a central operative provision, which provides that, if a claim is made, then Chapter 9 applies in place of Chapter 5, and that Chapters 3 and 9, when read together, provide an alternative method for computing the amount of NTFP which, in the case of QLRs, is liable to tax. If there are NTFP, Chapter 9 is considered first, and only then are any residual NTFP not included in the QLR profits considered under Chapter 5. Such an interpretation appears to me to be consistent with the wording of the provisions in question.
130.
Furthermore, ITV has pointed out that Chapter 9 serves to delineate the nature and extent of the relevant profits falling within the Chapter 5 gateway in limine. Therefore, it is arguable that Chapter 9 does not substitute the provisions that would otherwise apply.
131.
The Commission acknowledges that Chapters 5 and 9 constitute alternative methods for determining chargeable profits. Nevertheless, the Commission insists that it does not follow that those chapters are themselves alternatives for identifying NTFP which are subject to a charge to tax. However, such a reading does not show that the Member State’s interpretation is manifestly incompatible with the actual wording of the national provisions.
– (c) Chapter 5 ‘the CFC charge gateway: [NTFP]’: Wording of S. 371EA
132.
S. 371EA(1) of Chapter 5 provides that, for the purposes of Step 2 of S. 371BB(1), a CFC’s profits falling under that chapter are its NTFP to the extent that they meet the criteria of that chapter. S. 371EA(2) indicates that ‘references to the CFC’s [NTFP] are to be read in accordance with [S.] 371CB(2) and, so far as applicable, [S.] 371CB(8)’.
133.
As the UK and ITV emphasise, the fact that S. 371EA(2) of Chapter 5 refers to S. 371CB(8) of Chapter 3 means, as I have explained above, that, if there are NTFP, Chapter 9 is to be considered first, and only any residual NTFP not included in the QLR profits will then considered under Chapter 5. To my mind, such an interpretation is consistent and plausible.
134.
Chapter 5 (S. 371EA(2)) requires references to NTFP to be read in accordance with S. 371CB(2) and (8). In turn, S. 371CB(8) requires a reference to NTFP in Chapter 5 to be treated as excluding profits arising from QLRs in respect of which a claim is made under Chapter 9 (as I have explained in the preceding point).
135.
In my view, by the reference to S. 371CB(8), S. 371EA – which, in accordance with its title, is the ‘basic rule’ of Chapter 5 and which is dedicated to CFCs’ NTFP – subjects the application of criteria in that chapter to the fact that the NTFP in question do not fall under Chapter 9.
136.
Thus, that assessment does not render the interpretation advocated by the UK incompatible with the wording of the national provisions.
137.
The Commission misinterprets the terms of S. 371EA(2) which, as I have analysed above, state that references to NTFP in Chapter 5 have to be read subject to the terms of S. 371CB(8) where that section is applicable.
138.
In its response, the Commission argues that it follows from S. 371IA(1) that Chapter 9 applies to NTFP arising from QLR that would otherwise have been subject to a charge under Chapter 5. Contrary to that argument, the wording of S. 371EA cannot be unequivocally interpreted as meaning that the same profits can fall within both Chapter 5 and Chapter 9 simultaneously.
139.
It follows from the above considerations that there is nothing in the wording and context of S. 371EA that would indicate that the Member State has put forward a manifestly incompatible interpretation of the provision in question which would show that the interpretation suggested by the Commission unequivocally stems from the wording of the relevant provision.
– (d) Chapter 9 ‘Exemptions for profits from QLRs’: Wording of S. 371IA
140.
The wording of S. 371IA(1) to (3) of Chapter 9 describes the mechanism by which a company may make a claim under Chapter 9, and it limits the application of Chapter 9 to that company’s NTFP arising from QLRs.
141.
First, subsection 1 of S. 371IA provides that ‘this Chapter applies if[:] apart from this Chapter, Chapter 5 ([NTFP]) would apply’ to a CFC’s profits. Subsection 2 thereof states that ‘a chargeable company … may make a claim … for step 2 in [S.] 371BB(1) (the CFC charge gateway) to be taken … subject to this Chapter’. Finally, subsection 3 stipulates that, ‘if [that] company makes a claim … the CFC’s [QLR] profits pass through the CFC charge gateway so far as (and only so far as) they are not exempt under this Chapter’.
142.
According to the UK, the wording ‘apart from this Chapter, Chapter 5 ([NTFP]) would apply’ in S. 371IA(1)(a) does not mean that a charge to tax would have arisen under Chapter 5 if there had not been a claim to apply Chapter 9. That wording explains the relationship between Chapters 5 and 9. (
53
) It does not support the suggestion that Chapter 9 is an exemption from Chapter 5. Instead, it reflects the way in which these two chapters must be applied together. It does not mean that, in the absence of a claim under Chapter 9, those NTFP would become taxable under Chapter 5. Such an explanation seems all the more plausible taking into account the interpretation of other provisions analysed above.
143.
The Commission argues, based on an interpretation of S. 371IA(1) to (3) of Chapter 9 of the TIOPA, that ‘NTFP concerned by Chapter 9 are those that, absent the exemption contained in Chapter 9, would be subject to a CFC charge (on the basis of Chapter 5 – that being the Chapter concerning NTFP)’.
144.
This claim is used by the Commission to support its erroneous characterisation of Chapter 9 as a derogation which confers an ‘advantage’ on taxpayers as against what the Commission alleges is the ‘normal’ taxation of NTFP, namely, the rules in Chapter 5.
145.
However, as LSEGH emphasise, the Commission makes an error as regards the operation of the relevant rules. As has been discussed above, Chapter 9 may cause NTFP to be subject to a CFC tax charge that would otherwise not have arisen under Chapter 5. On that basis, Chapter 9 should not be viewed as derogating from Chapter 5 (see also points 129 and 130 of the present Opinion). Chapter 9 could only be a derogation under the reference framework if, were it not for that chapter, the company would pay a tax (or would pay more tax).
146.
In this context, practical examples highlighted by LSEGH show when a taxpayer might rationally choose Chapter 9 in circumstances where at least some of the relevant CFC’s NTFP would otherwise not have fallen within Chapter 5, and yet are taken through the CFC charge gateway under Chapter 9. Those examples demonstrate that, in practice, Chapter 9 does not exclusively constitute an elimination or reduction of the CFC tax that would otherwise be charged under Chapter 5 and thus be characterised as a derogation. (
54
)
147.
In the absence of concrete examples of practice proving the opposite, the Commission has failed to show that the wording of S. 371IA(1) – which states that Chapter 9 applies if ‘apart from this Chapter, Chapter 5 ([NTFP]) would apply for a CFC’s accounting period’ – is evidence for the proposition ‘that Chapter 9 applies to NTFP arising from QLR that would otherwise have been subject to a charge under Chapter 5’. That wording of the provisions rather indicates that the term ‘apart’ describes the relationship between the two chapters.
148.
Such an understanding is further confirmed by the UK’s arguments to the effect that, in the decision at issue, the Commission based its assessment and focused on the wrong provision of the CFC rules. According to the UK’s submissions, S. 371IA(1)(a) is not an operative provision, but simply one of the conditions for Chapter 9 to apply. As I have analysed above, (
55
) it is S. 371CB(8), which is an operative provision, that contains a crucial condition that, if a claim is made, Chapter 9 applies in place of Chapter 5.
149.
It follows that, in the absence of concrete examples of case-law or administrative practice of the Member State concerned which deviate from that State’s interpretation, (
56
) the interpretation maintained by the Commission is not sufficient to overrule the interpretation and description of the practical situations provided by the appellants.
– (e) The relationship between Chapters 5 and 9
150.
According to the Commission’s suggestions, which were confirmed by the General Court, Chapters 5 and 9 set out, respectively, rules and exceptions to the CFC rules, in the sense that the latter chapter would entail a reduction of the tax otherwise due under the former. However, as I have assessed above, the legislative structure and content of the national legislation confirm the opposite: neither Chapter 5 nor Chapter 9 is superior to the other, they are primus inter pares and apply to different categories of NTFP.
151.
The wording of the provisions of the TIOPA demonstrates that Chapter 9 is not a derogation from, or an exception to, Chapter 5, (
57
) but rather a complementary and alternative mechanism by which liability may be assessed when certain, specific conditions are met.
152.
Those two chapters complement each other and give rise to a consistent body of rules on the taxation of CFCs’ NTFP. Thus, taken as a whole, those chapters define the scope of the CFC charge, taking into account the assessment of the risk posed, for the tax base in the UK, by the origin and use of the capital from which those NTFP are made. The CFCs may present a risk to the CT base through base erosion and profit shifting. As a result, the UK’s CFC rules first identify those CFCs that present the greatest risk of base erosion and profit shifting (hence, the CFC regime is risk-based) and then quantify the amount of profit that should be brought back within the UK tax net. Part 9A of TIOPA operates to identify those arrangements which present the highest risk to the UK CT base. The three GFEs rely on this risk-based approach. As the UK submits, its legislature’s position, when drafting the relevant legislation, was that QLRs (that is, loans to fund genuine commercial activities of the group, to which the GFEs may apply) present a relatively low risk of artificial diversion of profits. That is in contrast to ‘upstream loans’ and ‘moneybox arrangements’, both of which present a high risk to the UK CT base.
153.
By reading those chapters separately, the Commission and the General Court attributed excessive value to the regulatory technique used by the UK legislature, instead of carrying out an objective examination of the content, structure and actual effects of the applicable rules under the national law concerned, as is required by the case-law. (
58
)
154.
It is therefore possible to conclude that the intended effect of Chapters 5 and 9 is collectively to address the risks posed by certain defined artificial arrangements. In addition, they provide legal tools to implement the system of largely territorial taxation of corporate profits in circumstances where the UK has established a risk of wholly artificial arrangements by certain CFCs and their UK-resident parent companies.
– (f) SPFs
155.
Finally, as part of the analysis of the content and specific effects of the national legislation, I will address the question of the meaning of the concept of SPFs. Although, formally, it should rather be addressed under Step 2 or 3 of the analysis, the assessment of the reference framework would be incomplete without addressing the wording and context of the provisions relating to SPFs given that that concept forms an integral part of the framework. According to ITV, by treating the CFC regime as severable, with the concept of SPFs as a proxy for artificial diversion of profits as its lodestar, the Commission introduced an abstract concept in place of the proper application of the national legislation in issue.
156.
Indeed, the Commission’s adherence to the concept of SPF analysis being used as a sole proxy for artificial diversion within the CFC regime is akin to its mistaken adherence to the abstract concept of ‘arm’s length valuation’ in the case which gave rise to the judgment in Fiat. (
59
) The General Court (in paragraph 101 of the judgment under appeal in particular) erred in law in validating that erroneous approach. (
60
)
157.
As LSEGH explain, the SPF concept is used in the UK CFC rules as one of the indicators to identify profits which pass through the gateways in Chapter 4 (profits from UK activities) and Chapter 5 (NTFP), in which S. 371EB regulates NTFP arising from activities where there are UK SPFs. Therefore, it is plausible that, as LSEGH argue, the SPF concept is not a guiding rule, but is only used in those Chapter 4 and Chapter 5 gateways and, even in those chapters, that concept is always applied alongside other concepts (such as the Chapter 4 exclusions or the Chapter 9 GFEs).
158.
It seems that, contrary to the Commission’s arguments, the CFC rules are not designed primarily with UK SPFs as a proxy for artificial diversion of profits. As ITV argues, that would have been a blunt instrument that would potentially have fallen foul of the proportionality test and the judgment in Cadbury. ITV further argues that the TIOPA dispenses with the need to conduct the UK SPFs test at all, in so far as, when addressing QLRs, the nature and extent of risk to the integrity of the general CT system can be catered for simply by using Chapter 9. These arguments tend to indicate that the UK SPFs test is one of the tools deployed by the CFC regime, and – contrary to what the Commission and the General Court suggest – it is not the determinative tool.
159.
In addition, the analysis of SPFs inevitably leads to a subjective evaluation and this is critical when, as in the present case, the analysis had to be carried out ex post. As ITV explained before the General Court, HMRC’s approach had, in practice, differed significantly from the vast majority of analyses undertaken by taxpayers and their advisors. This is likely to lead to extensive litigation, requiring a detailed analysis of the steps taken by the taxpayer to establish an accurate evaluation of the level of UK and non-UK SPFs respectively. ITV highlighted concrete examples at first instance, whereby the global accounting firm Deloitte LLP had examined a sample of 25 taxpayers, (
61
) all with UK-parented groups, that had responded to HMRC information requests regarding Chapter 9 financing structures impacted by the decision at issue. Following a detailed SPF analysis, three taxpayers concluded that they had zero UK SPFs, 22 taxpayers concluded that they had a minority percentage of UK SPFs, while no taxpayer found that it had 100% UK SPFs. In only three cases were the conclusions of HMRC and the taxpayer consistent with each another. The divergences in approach can be seen in the redacted Deloitte report submitted before the General Court. (
62
) Those inconsistencies demonstrate the uncertainties and shortcomings with relying on an SPF test in giving a reliable and fair outcome for taxpayers across the board, and correspondingly the need for a clearly defined reasonable test in the form of Chapter 9. Such subjectivity can only confirm the understanding of the SPF analysis as forming only part of the tools available under the CFC rules and further indicates the plausibility of the UK’s assertions of administrative difficulties in the individual assessment of SPFs on the part of both the administration and the taxpayer.
160.
I would tend to agree with ITV that the Commission and the General Court wrongly construed the SPF analysis as a core focus of the CFC rules, such that Chapter 9 was seen in that context as an exemption. I have shown that Chapter 9 is instead a reference tool, which largely guards against overcapitalisation and seeks to establish a proxy for the UK tax, which the UK has notionally lost. In particular, it does not seek to identify any proxy for UK SPFs when addressing intra-group financing.
161.
Based on the above, the assessment of the wording and context of Chapters 4 and 5 in relation to SPFs shows that the Commission has not succeeded in establishing that the interpretation provided by the Member State concerned in relation to the wording and context of the SPF rules is manifestly wrong.
– (g) Interim conclusion
162.
It follows from all the foregoing considerations that a correct application of the principles of the case-law recalled in points 55 and 56 of the present Opinion confirms that the CFC rules in the present case are not severable from the general CT system, in so far as they form an integral part of, and complement, that system. As a result, the correct reference framework in the present case ought to have been the general CT system, and not the CFC rules.
163.
It follows from the case-law of the Court, cited in point 54 of the present Opinion, and from the foregoing considerations that an ‘error made in [the] determination [of the reference framework] necessarily vitiates the whole of the analysis of the condition relating to selectivity’.
164.
As a result, the judgment under appeal must be set aside in its entirety and the decision at issue must be annulled.
165.
Therefore, it is not necessary to examine the other grounds of appeal. I will however provide a brief analysis – for the sake of completeness – in the event that the Court disagrees with my assessment above.
2.
Second and third grounds of the UK’s appeal, second ground of ITV’s appeal and third ground of LSEGH’s appeal – Step 2 (the existence of a selective advantage)
(a)
Arguments of the parties
166.
The UK and ITV (by their respective second grounds of appeal) submit, in essence, that the General Court erred in law when it held that the UK CFC legislation gave rise to an advantage. This error of law followed from the distortions and mischaracterisations of the facts in relation to the role of SPFs in the UK CFC legislation and the relationship between Chapters 5 and 9.
167.
By its third ground of appeal, the UK claims that the General Court erred in law when assessing the objective and the selectivity of the UK CFC legislation. The judgment under appeal contains repeated distortions and/or manifest errors of assessment with regard to the role of SPFs in the UK CFC legislation and the interrelation between Chapters 5 and 9 thereof. It also fails to record or address core elements of the UK’s submissions, in breach of its duty to state reasons.
168.
By their third ground of appeal, LSEGH argue that the General Court erred in law in relation to the finding of a selective advantage. In particular, the General Court erred by incorrectly concluding that economic operators that could benefit from the GFE under Chapter 9 were in a comparable legal and factual situation with companies that could not.
169.
The Commission disputes the above arguments.
(b)
Assessment
170.
Should the conclusion of the General Court in relation to Step 1 of the analysis (definition of the reference framework) be upheld by the Court of Justice – which I consider unlikely – it will be necessary to examine whether the General Court’s assessment of Step 2 of the analysis (whether the tax measure is a derogation from the reference framework) is, in turn, correct as well. That would involve examining the question whether the exemptions at issue derogate from the reference framework, in so far as they introduce differentiations between operators which find themselves, with regard to the objective pursued by that framework, in a comparable factual and legal situation.
171.
I must admit that I find this exercise quite theoretical, since the above will be possible only if the Court disagrees with my Opinion in relation to the reference framework and comes to the conclusion that the reference framework in the present case is Part 9A of the TIOPA, except for Chapter 9 thereof (which provides for the exemptions at issue). If it is accepted that the reference framework is Part 9A of the TIOPA including Chapter 9, it is difficult to see how it can be ascertained whether the arguments that were put forward by the Commission and confirmed by the judgment under appeal are capable of establishing that Chapter 9 creates exemptions which derogate from that reference framework even though they form part of that framework.
172.
Be that as it may, even in the theoretical scenario that all the
CFC rules will be held to be the reference framework, the fact remains that – as I have explained in detail in relation to my assessment of the Step 1 of the analysis – the national legislation, as interpreted by the Member State concerned, has not been rebutted by the Commission (in so far as it has failed to show that the UK’s interpretation of its national legislation is manifestly wrong). In particular, Chapter 9 is not a derogation from, or an exception to, Chapter 5, (
63
) but rather a complementary and alternative mechanism by which liability may be assessed when certain, specific conditions are met.
173.
Indeed, as I explain in my assessment of Step 1, first, the Commission and the General Court were wrong to hold that Chapter 9 provides for exemptions from the CFC charge in favour of CFCs’ NTFP which would otherwise be taxable under Chapter 5. The General Court overestimated the role of the UK SPFs test by holding that any NTFP of a CFC which satisfy that criterion should automatically be classified as artificially diverted from the UK and, consequently, subject to the CFC charge under Chapter 5. Certain types of arrangements, namely QLRs, do not pose a high risk of artificial diversion, irrespective of the presence of SPFs in the UK. Other types of arrangements, namely those not covered by QLRs, would entail such a risk, again irrespective of the presence of SPFs in the UK.
174.
Secondly, it also follows from my assessment of Step 1 that the Commission and the General Court failed to take account of the fact that the CFC rules, as a whole and in the light of their objective, were conceived following an approach based on an assessment of the risks that CFCs’ profits pose to the general CT system (of which the CFC rules form an integral part). The objective of those rules is to address base erosion and profit shifting, whereas the Commission and the General Court wrongly accepted only the latter element.
175.
Thirdly, as can be inferred from my assessment of Step 1, the Commission and the General Court, when they compared, on the one hand, CFCs’ NTFP to which the exemptions at issue were applicable and, on the other hand, CFCs’ NTFP excluded from those exemptions, confined themselves to answering in the affirmative the question whether all those profits could satisfy the UK SPFs test, instead of taking into consideration the levels of risk for the general CT system associated with the various profits.
176.
It follows that the General Court erred in law when it confirmed the Commission’s interpretation of the underlying national legislation of the Member State concerned and thus reached an erroneous legal conclusion concerning the existence of an advantage and the role of SPFs within that national legislation. In the same vein, the General Court made analogous errors in relation to the objective of the CFC rules (and that of the general CT system).
177.
Should the Court of Justice disagree with my above assessment and the General Court’s analysis as to the a priori selectivity of the exemptions at issue are confirmed – which I consider unlikely – it will be necessary to examine the appellants’ arguments relating to the manner in which the General Court assessed the justifications for these exemptions.
3.
Fourth ground of the UK’s appeal, third ground of ITV’s appeal and fifth ground of LSEGH’s appeal – Step 3a: Justification of the exemptions at issue by the need to ensure administrative practicability
(a)
Arguments of the parties
178.
By its fourth ground of appeal, the UK claims that the General Court failed to address its argument that the distinction in the decision at issue between UK SPFs and UK-connected capital was irrational, with the result that the General Court breached its duty to state reasons. Furthermore, the General Court rejected the justification of administrative practicability for two reasons related to the alleged lack of evidence before the General Court. The UK claims that neither of those reasons was well founded, both involving a clear distortion of the facts at issue before the General Court.
179.
By its third ground of appeal, ITV submits that the General Court erred in law and/or made a manifest error of assessment in concluding that the exemptions, if they did confer a selective advantage (quod non), could not be justified on the basis of administrative practicability.
180.
By their fifth ground of appeal, LSEGH argue that the General Court erred in law in concluding that the GFE in Chapter 9 was not justified by the nature or overall structure of the reference framework.
181.
The Commission disputes those arguments.
(b)
Assessment
182.
I have shown in the first part of my Opinion (reference framework) that the UK’s interpretation of its national legislation is plausible in relation to the purpose, content and specific effects of the national legislation and that the Commission’s interpretation of that national law in the decision at issue was therefore incorrect. As regards the problems relating to the practicability of the SPF analysis, these have been specifically addressed in points 157 to 159 and 173 of the present Opinion.
183.
Therefore, it is sufficient to point out – similar to what the Court of Justice did in the judgment in Andres (
64
) – that it is on the basis of its flawed legal assessment (whereby the Commission did not err in interpreting the underlying national legislation) (
65
) that the General Court analysed the submissions made to it by the applicants at first instance seeking to show the justification of the exemptions at issue by the need to ensure administrative practicability. Therefore, the above legal error necessarily vitiates also the General Court’s assessment of that justification. (
66
)
184.
Nevertheless, in the theoretical scenario that an assessment of these grounds of appeal were carried out by the Court, they would necessarily have to be upheld.
4.
Fifth ground of the UK’s appeal, fourth ground of ITV’s appeal and fifth ground of LSEGH’s appeal – Step 3b: Justification for the exemptions at issue by the need to ensure compliance with the freedom of establishment
(a)
Arguments of the parties
185.
By its fifth ground of appeal, the UK claims that the General Court’s reasoning contains a manifest error of law as to the requirement of the freedom of establishment and the significance of the judgment in Cadbury amounting to a disregard of that case. The General Court’s conclusion on this issue reveals several errors. First, it is based on a misunderstanding of the role of SPFs in the UK CFC legislation. Second, the General Court appears to have assumed that the UK has adopted a purely territorial system. Third, this part of the judgment under appeal fails to set out or address the substantial arguments made by the UK with regard to the impact of the Cadbury line of case-law on the design of its CFC legislation.
186.
By its fourth ground of appeal, ITV submits that the General Court erred in law in its failure properly to consider and apply the judgment in Cadbury. In particular, that court failed to do so in the context of considering the reference framework, selective advantage or the question of whether the exemptions at issue might be justified in order to protect the freedom of establishment under Article 49 TFEU. Further or in the alternative, the General Court failed to give adequate reasons for its conclusions on this issue.
187.
By their fifth ground of appeal, LSEGH claim that the General Court erred in law in concluding that the GFE in Chapter 9 is not justified by the nature or overall structure of the reference framework.
188.
The Commission disputes those arguments.
(b)
Assessment
189.
As I have explained in points 182 and 183 of the present Opinion, in so far as the General Court erroneously upheld the Commission’s misinterpretation of the underlying national legislation, the General Court’s analysis of the submissions made to it by the applicants at first instance seeking to show the justification (including the present one) of the exemptions at issue is necessarily also vitiated.
190.
It is sufficient to point out that, in points 73 to 77 of the present Opinion, it was concluded that, with the new CFC regime, the UK legislature’s intention was to comply, in particular, with the judgment in Cadbury and that the Commission had not advanced arguments that would allow the Court to question that understanding as being manifestly wrong.
191.
Nevertheless, in the theoretical scenario that an assessment of these grounds of appeal were carried out by the Court, they would necessarily have to be upheld.
5.
Fourth ground of LSEGH’s appeal
(a)
Arguments of the parties
192.
LSEGH submit that the General Court infringed Articles 263 and 296 TFEU when it failed to address the pleas in law and breached its duty to state reasons, and because the General Court substituted its own reasoning for that of the Commission in the decision at issue.
193.
The Commission disputes those arguments and argues that the General Court was correct to confirm the Commission’s findings as to the lack of justification for the derogation on the grounds of administrative practicability and that it complied with its duty to state reasons.
(b)
Assessment
194.
As I have explained in points 182 and 183 of the present Opinion, in so far as the General Court erroneously upheld the Commission’s misinterpretation of the underlying national legislation, the General Court’s analysis of the submissions made to it by the applicants at first instance seeking to show the justification (including the present one) of the exemptions at issue is necessarily also vitiated.
195.
Nevertheless, in the theoretical scenario that an assessment of this ground of appeal were carried out by the Court, it would necessarily have to be upheld.
IV. Conclusion
196.
In the light of the foregoing, I propose that the Court of Justice should:
1.
Set aside the judgment of the General Court of the European Union of 8 June 2022, United Kingdom and ITV v Commission (T‑363/19 and T‑456/19, EU:T:2022:349);
2.
Annul Commission Decision (EU) 2019/1352 of 2 April 2019 on the State aid SA.44896 implemented by the United Kingdom concerning CFC Group Financing Exemption;
3.
Order the European Commission to pay the costs of the appeals as well as those of the proceedings at first instance.
(
1
)	Original language: English.
(
2
)	Decision of 2 April 2019 on the State aid SA.44896 implemented by the United Kingdom concerning CFC Group Financing Exemption (OJ 2019 L 216, p. 1) (‘the decision at issue’).
(
3
)	The full text of Part 9A of the TIOPA is provided as Annex A.3 to the UK’s appeal in Case C‑555/22 P. See the text of that act at https://www.legislation.gov.uk/ukpga/2010/8/contents/.
(
4
)	Identifying the location of SPFs is regarded as giving a good indication of where risk in relation to assets is managed, and as a good proxy for the location of assets which generate profits.
(
5
)	The UK was still a Member State at the relevant time.
(
6
)	Council Directive of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (OJ 2016 L 193, p. 1).
(
7
)	See paragraphs 77, 78 and 80 to 83 of the judgment under appeal.
(
8
)	See paragraph 85 of the judgment under appeal.
(
9
)	See paragraph 86 of the judgment under appeal.
(
10
)	See paragraph 87 of the judgment under appeal.
(
11
)	See paragraph 88 of the judgment under appeal.
(
12
)	See paragraphs 89 and 90 of the judgment under appeal.
(
13
)	Judgment of the Grand Chamber of 12 September 2006 (C‑196/04, EU:C:2006:544, paragraphs 72 and 73; ‘the judgment in Cadbury’).
(
14
)	Judgment of the Grand Chamber of 8 November 2022, Fiat Chrysler Finance Europe v Commission (C‑885/19 P and C‑898/19 P, EU:C:2022:859; ‘the judgment in Fiat’).
(
15
)	See judgment of the Grand Chamber of 5 December 2023, Luxembourg and Others v Commission (C‑451/21 P and C‑454/21 P, EU:C:2023:948, paragraphs 76 and 77 and the case-law cited; ‘the judgment in Engie’).
(
16
)	Judgment in Fiat, paragraph 85. See also the judgment in Engie, paragraph 78.
(
17
)	See the judgment in Engie, paragraph 79.
(
18
)	See judgment of 3 April 2014, France v Commission (C‑559/12 P, EU:C:2014:217, paragraph 81).
(
19
)	Judgment in Fiat (paragraphs 82 and 85).
(
20
)	Point 46 et seq. of the present Opinion.
(
21
)	Judgment in Fiat, paragraph 69 and the case-law cited (emphasis added).
(
22
)	Ibid., paragraph 71 and the case-law cited.
(
23
)	Judgment of the Grand Chamber 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 62 and the case-law cited; ‘the judgment in World Duty Free’).
(
24
)	Ibid., paragraph 63.
(
25
)	See also judgment in Engie, paragraphs 112 and 118.
(
26
)	Judgment in Engie, paragraph 119 and the case-law cited.
(
27
)	Ibid., paragraphs 111 and 120 and the case-law cited.
(
28
)
(
29
)	As regards the word ‘explicit’, it is used by the Court in the judgments in Fiat and in Amazon (judgment of 14 December 2023, Commission v Amazon.com and Others, C‑457/21 P, EU:C:2023:985), but not in the judgment in Engie.
(
30
)	Judgment in Engie, paragraph 121.
(
31
)	See points 53 to 65 of the present Opinion.
(
32
)	See the judgment in World Duty Free, paragraph 63.
(
33
)	See Part 1 of the present Opinion (points 67 to 115).
(
34
)	See Organisation for Economic Co-operation and Development (OECD) BEPS Project, OECD/G20 Inclusive Framework on BEPS, Action 3 Controlled Foreign Company, https://www.oecd.org/tax/beps/beps-actions/action3/.
(
35
)	See paragraphs 109 to 120 of the judgment under appeal.
(
36
)	See, in particular, paragraphs 85 and 87 of the judgment under appeal.
(
37
)	See his Opinion in Andres(insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2017:1017, point 109).
(
38
)	Judgment of 28 June 2018, Andres (insolvency of Heitkamp BauHolding) v Commission (C‑203/16 P, EU:C:2018:505, paragraphs 101 to 103; ‘the judgment in Andres’). See also point 55 of the present Opinion.
(
39
)	Judgment in World Duty Free, paragraph 94: ‘the use of a particular regulatory technique cannot enable national tax rules to evade, from the outset, scrutiny under State aid rules as provided for under the FEU Treaty, nor is such use sufficient to define the relevant reference framework for the purposes of assessing the condition relating to selectivity, since that would cause the form of State intervention to prevail decisively over its effects’ (emphasis added); and judgment in Fiat, paragraph 70: ‘regulatory technique cannot be decisive in order to determine whether a tax measure is selective’. See also paragraph 92 of the judgment in Andres.
(
40
)	See OECD, Glossary of Tax Terms (OECD Web Archive).
(
41
)	See S. 371BC(3)(b) of Chapter 2 of Part 9A of the TIOPA.
(
42
)	See the judgment in World Duty Free, paragraph 63.
(
43
)	Many examples can be found of the CFC legislation relying on provisions elsewhere in the CT code. In Chapter 9, Ss. 371IB(1) and IH(1) both refer to provisions in the CTA 2009. Key definitions, such as ‘taxable total profits’ in S. 371SB refer to CTA 2010. Ss. 371SD-SR contain a series of ‘[CT] assumptions’ which apply rules taken from the CT legislation. Chapter 21 of Part 9A (Management) draws heavily on other provisions, especially Finance Act 1998. Chapter 22 (Definitions) makes frequent references to the CT legislation.
(
44
)	See footnote 11 to the UK reply before the General Court (also Annex A.9 to Case C‑555/22 P).
(
45
)	See S. 371IA(10)(a).
(
46
)	Goeth, P., in Kofler et al. (Editors), CJEU – Recent developments in direct taxation 2021 (2022), Linde Digital.
(
47
)	See the judgment in World Duty Free, paragraph 62.
(
48
)	See points 58 to 65 of the present Opinion.
(
49
)	The ‘Internal Manual’ of the UK tax authority (His Majesty’s Revenue & Customs, HMRC), inter alia on CFCs. See section INTM216800. Source: https://www.gov.uk/hmrc-internal-manuals/international-manual/intm190000 (‘the HMRC Manual’).
(
50
)	S. 371CB(8) makes it clear that NTFP that are taxed under Chapter 9 cannot also be taxed under Chapter 5. Either Chapter 9 or Chapter 5 alone applies.
(
51
)	The UK’s interpretation is also in line with the HMRC Manual.
(
52
)	See footnote 50.
(
53
)	I shall return to this relationship in point 150 et seq. of the present Opinion.
(
54
)	The first is a situation where a taxpayer owns a CFC which is party to multiple QLRs and where in respect of some QLRs more than 25% of the associated NTFP would, absent a Chapter 9 claim, fall within Chapter 5, but where in respect of other QLRs of the CFC, less than 25% of the associated NTFP would not do so. In such situation, a Chapter 9 election would reduce the CFC tax charge in respect of the first category of QLRs, but increase it in respect of the second. However, a taxpayer cannot choose to apply Chapter 9 in respect of only some of a CFC’s QLRs, if a claim is made, Chapter 9 applies in respect of all QLRs. Nevertheless, a rational taxpayer may still choose to make that claim if it takes the view that it will benefit overall, taking into account both categories of QLRs. The second is a situation where a taxpayer considers that less than 25% of a given CFC’s NTFP from QLRs would fall within Chapter 5, but where the UK tax authority challenges the taxpayer’s analysis. In that situation, the taxpayer might rationally choose for Chapter 9 to apply to the CFC in order to achieve certainty and avoid the costs of disputing the matter with HMRC. In that case, 25% of the relevant NTFP would pass through the CFC charge gateway applying Chapter 9, even though as a technical matter the taxpayer may be correct that less than 25% would do so under Chapter 5.
(
55
)	See point 129 of the present Opinion.
(
56
)	See the case-law cited in point 63 of the present Opinion.
(
57
)	See, in particular, point 129 of the present Opinion.
(
58
)	See the judgment in Fiat (paragraphs 70 and 72). In particular, the Commission and the General Court failed to take into account the risk-based nature of the legislative framework established in Part 9A of the TIOPA.
(
59
)	ITV puts forward similar arguments in the context of the ground relating to the determination of the reference framework.
(
60
)	The General Court repeatedly assumed that, where there are UK SPFs, all NTFP attributable to those SPFs are artificially diverted from the UK (see paragraphs 106, 139 to 143, 148 and 149, 150 to 154, 155 to 159, 162 to 165, 176 and 177, 179 and 180, 199 and 201).
(
61
)	Sample obtained from anonymised data of taxpayers which produced SPF reports that were shared with HMRC. The Deloitte report was submitted by ITV to the General Court as Annex E1.
(
62
)	Many taxpayers have conducted detailed SPF analyses to see if they in fact received any State aid in this case. A number found that, while the CFCs had been established with UK-connected capital, there were no material UK SPFs at all. Over half of the applications for annulment initially brought before the General Court have been withdrawn on this basis.
(
63
)	See, in particular, point 129 of the present Opinion.
(
64
)	See paragraphs 106 and 107.
(
65
)	See, in particular, points 113 to 115 as well as points 162 to 164 of the present Opinion.
(
66
)	See, by analogy, judgment of 16 September 2021, Commission v Belgium and Magnetrol International (C‑337/19 P, EU:C:2021:741, paragraphs 120 to 122).