JUDGMENT OF THE GENERAL COURT (Seventh Chamber, Extended Composition)

24 September 2019 ( *1 )

(State aid – Aid implemented by the Netherlands – Decision declaring the aid to be incompatible with the internal market and unlawful and ordering its recovery – Tax ruling – Transfer pricing – Calculation of the tax base – Arm’s length principle – Advantage – Reference system – Fiscal and procedural autonomy of the Member States)

In Cases T‑760/15 and T‑636/16,

Kingdom of the Netherlands, represented initially by M. Bulterman, B. Koopman, M. de Ree and M. Noort, subsequently by M. Bulterman, M. de Ree and M. Noort, acting as Agents,

applicant in Case T‑760/15,

supported by

Ireland, represented initially by E. Creedon, G. Hodge, A. Joyce and K. Duggan, subsequently by G. Hodge, A. Joyce, K. Duggan, M. Browne and J. Quaney, acting as Agents, and by M. Collins, P. Gallagher, Senior Counsel, B. Doherty and S. Kingston, Barristers,

intervener,

Starbucks Corp., established in Seattle, Washington (United States),

Starbucks Manufacturing Emea BV, established in Amsterdam (Netherlands),

represented by S. Verschuur, M. Petite and M. Stroungi, lawyers,

applicants in Case T‑636/16,

v

European Commission, represented, in Case T‑760/15, initially by P.‑J. Loewenthal and B. Stromsky, subsequently by P.‑J. Loewenthal and F. Tomat, acting as Agents, and in Case T‑636/16, by P.‑J. Loewenthal and F. Tomat, acting as Agents,

defendant,

APPLICATIONS based on Article 263 TFEU seeking annulment of Commission Decision (EU) 2017/502 of 21 October 2015 on State aid SA.38374 (2014/C ex 2014/NN) implemented by the Netherlands to Starbucks (OJ 2017 L 83, p. 38),

THE GENERAL COURT (Seventh Chamber, Extended Composition)

composed of M. van der Woude, President, V. Tomljenović (Rapporteur), E. Bieliūnas, A. Marcoulli and A. Kornezov, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written procedure and further to the hearing on 2 July 2018,

gives the following

Judgment

I. Background to the dispute and legal framework

1 Starbucks Manufacturing Emea BV (‘SMBV’) is a subsidiary of the Starbucks group (‘the Starbucks group’), established in the Netherlands. The Starbucks group is composed of Starbucks Corp. and all the companies controlled by that corporation. Starbucks Corp. is headquartered in Seattle, Washington (United States). Alki LP (‘Alki’) is a subsidiary of the Starbucks group, established in the United Kingdom, which indirectly controls SMBV. Alki and SMBV concluded a roasting agreement (‘the roasting agreement’), which provides inter alia that SMBV is to pay Alki a royalty for the use of Alki’s intellectual property (IP) rights, including roasting methods and other roasting know-how (‘the royalty’).

2 Commission Decision (EU) 2017/502 of 21 October 2015 on State aid SA.38374 (2014/C ex 2014/NN) implemented by the Netherlands to Starbucks (OJ 2017 L 83, p. 38; ‘the contested decision’) concerns a measure relating to the application of the Netherlands corporate tax system to the specific case of SMBV.

A. National legislative framework

3 According to the general Netherlands corporate income tax system, corporate income tax must be paid by companies established in the Netherlands – which are resident taxpayers – and by non-established companies – which are non-resident taxpayers – that have an economic activity in the Netherlands. According to Article 2 of the Wet op vennootschapsbelasting (Law on corporation tax; ‘CIT’) of 1969, established companies – which necessarily includes companies incorporated under Netherlands law – are subject to corporate income tax on their worldwide income. According to Article 3 of the CIT, non-established companies, for their part, are taxed on their income from Netherlands sources.

4 In that context, the corporate tax base is made up of the profits made by the corporate taxpayer. It follows from Article 8 of the CIT, read in conjunction with Section 3.8 of the Wet inkomstenbelasting (Income Tax Act) of 2001, that all taxpayers must be taxed according to the total profit concept. According to that concept, all corporate profits are taxed, provided that they derive from an economic or commercial activity. Section 3.8 of the Income Tax Act provides that ‘the profit from a business enterprise is the amount of the aggregate benefits that, under whatever name and in whichever forms, are derived from a business enterprise’. According to Section 3.25 of the Income Tax Act 2001, which applies also to corporate taxpayers by virtue of Article 8 of the CIT, the taxable yearly profits must be determined on the principles of sound business practice and in a consistent manner independently of the likely outcome.

5 In general, the taxable profits correspond to the accounting profits as reflected in the company’s profit and loss accounts. However, adjustments can be made based on specific tax provisions, such as applicable tax incentives, the participation exemption, corrections to the tax result from transactions not executed at arm’s length and the application of different depreciation rules under tax and accounting rules.

6 Article 8b(1) of the CIT provides that, ‘where an entity participates, directly or indirectly, in the management, control or capital of another entity, and conditions are made or imposed between these entities in their commercial and financial relations (transfer prices) which differ from conditions which would be made between independent parties, the profit of these entities will be determined as if the last mentioned conditions were made’.

7 Decree IFZ2001/295M of the Netherlands State Secretary for Finance of 30 March 2001, entitled ‘Transfer pricing method, application of the arm’s length principle and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ (‘the transfer pricing decree’), describes the manner in which the Netherlands tax administration interprets the arm’s length principle on the basis of Article 8b(1) of the CIT. The preamble of the transfer pricing decree provides the following: ‘The policy of the Netherlands on the arm’s length principle in the field of international tax law is that this principle forms an integral part of the Netherlands system of tax law as a result of its incorporation in the broad definition of income recorded in Section 3.8 of the Income Tax Act. In principle, this means that the [Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, adopted by the Committee on Fiscal Affairs of the Organisation for Economic Co-operation and Development (OECD) on 27 June 1995] apply directly to the Netherlands under Section 3.8 of the Income Tax Act. There are a number of areas in which the OECD Guidelines provide scope for individual interpretation by the member countries. In a number of other areas, practical experience has shown that the OECD Guidelines are in need of clarification. This decree explains the Netherlands’ position in relation to these particular points and seeks, where possible, to remove any confusion.’

8 The transfer pricing decree is divided into twelve parts on the arm’s length principle, on transfer pricing methods, on administrative approaches aimed at preventing and resolving transfer pricing disputes, on secondary adjustments, on determination of the arm’s length price where the assessment is highly uncertain at the time of the transaction, on the provision of services within a group, on contributions to a cost-sharing agreement with a profit mark-up, on arm’s length remuneration for financial services, on subsidies, fiscal advantages and partially deductible costs, on the allocation of profits to a parent company and to a permanent establishment, on the entry into force of that decree and on the application of the current policy.

9 More specifically, the transfer pricing decree states in point 1 thereof, inter alia, that the arm’s length principle under Netherlands law is based, in general, on comparing the conditions of a transaction between affiliated companies with the conditions of a transaction between independent companies. The administration is entitled to expect a taxpayer to demonstrate that the transfer prices it applies comply with the arm’s length principle. In that context, the premiss must be that each of the companies concerned receives a remuneration which reflects the functions performed, taking into account the assets mobilised and the risks run. In addition, arm’s length remuneration must in theory be determined on the basis of transactions. In the event of difficulty, transactions may be assessed together in order to determine compliance with the arm’s length principle. Moreover, in examining multiannual data, the tax administration may not use hindsight.

10 In point 2 thereof, the transfer pricing decree refers to five methods, set out in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, adopted by the Committee on Fiscal Affairs of the Organisation for Economic Co-operation and Development on 27 June 1995 and revised on 22 July 2010 (‘the OECD Guidelines’), concerning the determination of transfer prices. Those methods include the comparable uncontrolled price method (‘the CUP method’) and the transactional net margin method (the ‘TNMM’). According to the transfer pricing decree, the OECD Guidelines assume a certain hierarchy between the methods, preference being given to the traditional transactional methods. The Netherlands tax administration must always conduct a transfer pricing audit from the perspective of the method chosen by the taxpayer at the date of the transaction. The decree states that that rule complies with paragraph 1.68 of the 1995 version of the OECD Guidelines. It follows that the taxpayer is in principle free to choose a transfer pricing method as long as the selected method leads to a result in conformity with the arm’s length principle. Even though, where it chooses a transfer pricing method, the taxpayer is deemed to take into account the reliability of that method in the situation in question, that approach is not specifically aimed at encouraging it to assess all the methods and justifying, thereafter, the reasons why the method it has chosen gives the best result under the conditions present.

11 Point 5 of the transfer pricing decree provides inter alia that it may be difficult, during the transfer of intangible goods such as patents, for example, to assess the value of those assets at the time of the transfer on account of insufficient knowledge about future advantages and risks. In the event that independent companies have opted for a price revision clause, in comparable circumstances, the tax administration must have the possibility of determining the price on the basis of such a clause. The objective is to have a regime in which the remuneration is in conformity with the advantages the intangible good will generate in the future.

B. Advance pricing arrangement

12 On 28 April 2008, the Netherlands tax authorities concluded an advance pricing arrangement with SMBV (‘the APA’), the objective of it being to determine SMBV’s remuneration for its production and distribution activities, as described in the APA, within the Starbucks group (‘SMBV’s remuneration’). Thereafter, SMBV’s remuneration served to determine annually its taxable profit on the basis of Netherlands corporate income tax. According to its preamble, the APA is a tax agreement relating to the conformity with the arm’s length principle of the transfer prices to be used in the calculation of profit within an international group. It is apparent from [confidential] ( 1 ) the APA that the agreement was intended inter alia to be used for the purposes of the annual corporate income tax declarations in the Netherlands. The APA was valid for the period between 1 October 2007 and 31 December 2017.

13 The APA provided for a method for determining SMBV’s remuneration in accordance with the arm’s length principle for its production and distribution activities within the Starbucks group. In addition, the APA endorsed the amount of the royalty, paid by SMBV to Alki for the use of roasting technologies, coffee blends and coffee roasting curves (‘the roasting IP’), in the context of the process of producing and providing coffee to shop operators.

14 More specifically, as regards the scope of the APA, [confidential]. Regarding SMBV’s functions, [confidential] it was mainly responsible for the production of roasted coffee beans and for the provision of roasted coffee beans and related products to Starbucks shops in the Europe, Middle East and Africa region (‘the EMEA region’) and that it was the owner of a roasting facility in the Netherlands. Moreover, the APA indicated that SMBV was licensing certain intellectual property rights belonging to Alki and that those rights were necessary to the process of producing and providing coffee to store operators. It was stated that, to that end, SMBV paid the royalty to Alki. [confidential] Furthermore, according to [confidential] the APA, SMBV carried out a distributor function for a number of other coffee-related products and, besides the logistics functions relating to its own production activities, also provided logistics support for other products on certain markets.

15 Regarding the transfer pricing method for SMBV’s production and distribution activities, [confidential] the APA stated inter alia that SMBV’s remuneration had to be determined on the basis of the cost plus method (see paragraph 187 below in relation to the meaning of that expression), and that it was at arm’s length if the ‘operating margin’ reached [confidential]% of the relevant cost base (‘SMBV’s cost base’). In addition, according to the APA, SMBV’s cost base did not include: – the costs of the Starbucks cups, paper napkins, etc.; – the costs of green coffee beans; – the logistics and distribution cost relating to services provided by third parties and to the remuneration for activities provided by third parties under consignment manufacturing contracts; – the royalty payment.

16 So far as concerns the royalty that SMBV had to pay annually to Alki, [confidential] the APA provided that it was fixed on the basis of the difference between the operational profit made in respect of the production and distribution function, before royalty expenses, and SMBV’s remuneration. The royalty payment was deductible for corporate income tax purposes and was not subject to Netherlands withholding tax.

C. Background to the dispute

1. Administrative procedure before the Commission

17 On 30 July 2013, the European Commission sent the Kingdom of the Netherlands an initial request for detailed information on its national tax ruling practice in the area of corporate taxation. To that effect, it requested that all rulings concerning SMBV and Starbucks Coffee Emea BV, two subsidiaries of the Starbucks group established in the Netherlands, be sent to it. In response to that request, the Kingdom of the Netherlands inter alia sent the APA.

18 On 11 June 2014, the Commission initiated the formal investigation procedure under Article 108(2) TFEU (‘the opening decision’) in respect of the APA, on the ground that that agreement might constitute State aid within the meaning of Article 107(1) TFEU.

19 Following the adoption of the opening decision, the Commission exchanged, on numerous occasions, correspondence with the Kingdom of the Netherlands and with those entities of the Starbucks group that were the correspondents of the Commission during the administrative procedure (‘the Starbucks correspondents’) in relation inter alia to the APA.

2. Contested decision

20 On 21 October 2015, the Commission adopted the contested decision. In that decision, the Commission, first, found that the APA constituted aid incompatible with the internal market and, second, ordered the recovery of that aid. The contested decision is divided into 11 sections.

(a) Description of the contested measure

21 In Section 2 of the contested decision, entitled ‘Description of the contested measure’, the Commission identified the APA as the measure at issue. It stated that the APA had been concluded on the basis of the transfer pricing report prepared by the Starbucks group’s tax advisor (‘the transfer pricing report’) and found that that document formed an integral part of the APA (recitals 40 and 46 of the contested decision).

22 First, the Commission noted that, in adopting the APA, the Netherlands tax authorities had accepted that the remuneration for SMBV’s activities in the Netherlands, as determined by the Starbucks group’s tax advisor, constituted an arm’s length remuneration. The Commission then noted that the Netherlands authorities had also accepted that the level of the royalty payment from SMBV to Alki corresponded to the difference between the realised operating profit before royalty payments and SMBV’s remuneration as provided for by the APA. It found that the APA provided that the royalty payment would be deductible from SMBV’s taxable profit and would not be subject to withholding tax in the Netherlands (recitals 40 to 44 of the contested decision).

23 Second, the Commission set out the content of the transfer pricing report. First of all, the Commission stated that the transfer pricing report presented Starbucks Coffee Emea as the principal establishment of the Starbucks group in the EMEA region. It was described as sublicensing the Starbucks group’s intellectual property rights (trade mark, technology and know-how) – for which it itself was paying a royalty to Alki – to third parties operating Starbucks branches. Those then paid Starbucks Coffee Emea for IP rights corresponding to a percentage of their turnover. In that regard, the Commission noted that the Starbucks group’s tax advisor considered that the CUP method could be used to determine the arm’s length price of payments of intra-group IP rights to Starbucks Coffee Emea.

24 Next, as regards SMBV, first, the Commission noted that the transfer pricing report was limited to describing it as an entity with the primary function of roasting green coffee beans and selling the roasted coffee on to affiliated and non-affiliated entities. As part of those activities, SMBV was required to observe the specifications provided by the companies of the Starbucks group that were established in the territory of the United States (‘Starbucks US’) and had the responsibility of ensuring that its production was in conformity with the quality standards of Starbucks US. SMBV also acted as distribution intermediary for various products not derived from café and provided ‘support to the supply chain’. Second, the Commission stated that, to carry out that activity, SMBV supplied itself with green coffee beans from a subsidiary of the Starbucks group established in Switzerland, Starbucks Coffee Trading SARL (‘SCTC’). SMBV also paid a royalty to Alki for the use of roasting processes and for the right to provide Starbucks branches with coffee. In that regard, the Commission observed that the transfer pricing report did not list the licensing arrangement under which SMBV paid a royalty to Alki among the most important transactions. The relationships between SMBV and the various entities of the Starbucks group were restated in Figure 1 of the contested decision, reproduced below:

25 Last, the Commission stated that, as regards the choice of transfer pricing method, the transfer pricing report selected the TNMM, a method whereby account was taken of the net margins that had been received in comparable transactions by non-affiliated companies. According to the transfer pricing report, that method was appropriate in the case at hand, since the differences between the transactions and the functions of the entities to be compared to determine the net margin were less the sources of error than in traditional methods (recital 55 of the contested decision).

26 The Commission stated that, in order to apply the TNMM, the tax advisor had chosen as profit level indicator the operating costs for the activities where SMBV provided added value. After a comparability search, the tax advisor had considered that the net profit of the entities comparable to SMBV corresponded to a mark-up on total costs. Thereafter, the Starbucks group’s tax advisor had made two adjustments in order to take account of the differences between the compared entities and SMBV, such as the risks assumed or the functions performed. The first adjustment sought to take into account the fact that SMBV’s cost base, to which the mark-up was applied, did not include the cost of green coffee beans. The second adjustment purported to take into account the fact that the comparable undertakings bore the cost of raw materials and that their return was calculated on a cost base including raw materials. Applying those two adjustments, the mark-up had thus been set at [confidential]% of SMBV’s cost base (recitals 56 to 61 of the contested decision).

27 Third, the Commission set out the content of the OECD Guidelines in their 1995 and 2010 versions. According to the Commission, the OECD Guidelines described five methods to approximate an arm’s length pricing of transactions and profit allocation between companies of the same group. In its view, they classified those five methods either as traditional transaction methods or as transactional profit methods. According to the contested decision, the traditional transaction methods were to be given priority. The CUP method and the TNMM were included among the five methods listed in the OECD Guidelines (recitals 67 to 70 of the contested decision).

28 The first method, the CUP method, is, as the Commission described, a traditional transaction method, consisting in comparing the price charged for the transfer of property or services in a transaction between two associated undertakings with the price charged for the transfer of property or services in a comparable transaction carried out in comparable circumstances between two independent undertakings (recitals 67 and 71 of the contested decision).

29 The second method, the TNMM, is, as the Commission describes, a transactional profit method, which involves estimating the potential amount of arm’s length profit for an entire activity, rather than for specific transactions. In that context, a profit level indicator would be selected, such as costs, turnover or fixed investment, to which would be applied a profit ratio reflecting that observed in comparable transactions on the market (recitals 67 and 72 to 74 of the contested decision).

(b) Assessment of the contested measure

30 In Section 9 of the contested decision, entitled ‘Assessment of the contested measure’, the Commission concluded that State aid had been granted. It found that the four conditions for the existence of State aid had been satisfied.

31 After recalling the conditions for the existence of State aid, set out in Article 107(1) TFEU, the Commission found that the first condition for the existence of State aid, the requirement of an intervention by the State or through State resources, had been satisfied. It noted, to that end, first, that the APA contained the acceptance by the Netherlands tax administration of a method for allocating profits to SMBV within the Starbucks group, as proposed by the Starbucks group’s tax advisor. SMBV then calculated on that basis the annual amount of corporate income tax it was required to pay in the Netherlands. According to the Commission, the APA was therefore imputable to the Kingdom of the Netherlands. Second, the Commission found that the APA resulted in a lowering of SMBV’s tax liability in the Netherlands by deviating from the tax that SMBV would otherwise – in the absence of the APA – have been obliged to pay under the general Netherlands corporate income tax system. The Commission thus took the view that the APA had given rise to a reduction of the Kingdom of the Netherlands’ tax revenue (recitals 223 to 226 of the contested decision).

32 As regards the second and fourth conditions for a finding of State aid, first, the Commission found that the APA was liable to affect intra-Union trade, since SMBV was part of the Starbucks group, a globally active entity operating in all Member States of the European Union. Second, it maintained that, given that the APA reduced the tax burden that SMBV would otherwise have had to bear under the general corporate income tax system, it distorted or threatened to distort competition by strengthening SMBV’s financial position (recital 227 of the contested decision).

33 As regards the third condition for a finding of State aid, the Commission considered that the APA conferred a selective advantage on SMBV, in so far as it had resulted in a lowering of SMBV’s tax liability in the Netherlands as compared with what it would have had to pay under the general corporate income tax system and as compared with stand-alone undertakings (recital 228 of the contested decision).

34 As a preliminary point, the Commission observed that the case-law had established a three-step analysis to be used in determining whether a particular tax measure was selective. The first step is to identify the ‘reference system’, namely, the tax regime normally applicable to the beneficiary of the tax measure. In the second step, it is necessary to determine whether the tax measure derogates from that reference system, in so far as it differentiates between economic operators who, in the light of the objectives intrinsic to the reference system, are in a comparable legal and factual situation. In the third and final step, if the measure constitutes a derogation from the reference system, the Member State must establish that the derogation is justified by the nature or the general scheme of the reference system (recital 230 of the contested decision).

35 As regards the first step, identification of the reference system, the Commission considered the reference system to be the general Netherlands corporate income tax system, the objective of which is to tax the profits of all companies subject to tax in the Netherlands. It stated in that regard that companies established in the Netherlands are resident taxpayers and are subject to corporate income tax on their worldwide income. Companies not established in the Netherlands are non-resident companies and are subject to tax with regard to income from Netherlands sources. According to the Commission, integrated companies and stand-alone companies were in a comparable legal and factual situation in the light of that objective and were therefore subject to corporate income tax without distinction. In that regard, the difference in the modalities of calculating the taxable profits of integrated companies had no bearing on the objective of the reference system, taxation of the profits of all companies subject to tax in the Netherlands (recitals 231 to 244 of the contested decision).

36 As regards the second step set out in paragraph 34 above, namely, demonstrating a derogation from the reference system, the Commission indicated, first of all, that the question of whether a tax measure constituted a derogation from the reference system would generally coincide with identification of the advantage granted to the beneficiary under that measure. In its view, where a tax measure results in a reduction of the tax liability of a beneficiary compared to what it would otherwise have to pay were it not for that measure, that reduction constitutes both the advantage granted by the tax measure and the derogation from the reference system (recital 253 of the contested decision).

37 Next, the Commission recalled the case-law according to which, in the case of an individual measure, the identification of the economic advantage is, in principle, sufficient to support the presumption that that measure is selective. It stated that, in the case at hand, the APA granted to SMBV was an individual aid measure (recital 254 of the contested decision).

38 Last, the Commission asserted that, in the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C-182/03 and C-217/03, EU:C:2006:416), the Court of Justice had found that a tax measure which results in an integrated company charging transfer prices that did not reflect those which would have been charged in conditions of free competition, that is prices negotiated by independent undertakings negotiating under comparable circumstances at arm’s length, conferred an advantage on that group company in so far as it resulted in a reduction of its taxable base and thus its tax liability under the ordinary corporate income tax system. The Commission recalled that the arm’s length principle consisted in the notion that transactions between intra-group companies were to be remunerated as if they had been agreed to by stand-alone companies negotiating under conditions of free competition. Accordingly, the Commission stated that it had to verify whether the methodology accepted by the Netherlands tax administration via the APA for the purposes of determining SMBV’s taxable profits in the Netherlands departed from a methodology that resulted in a reliable approximation of a market-based outcome and, therefore, from the arm’s length principle. In that case, the APA would be regarded as conferring a selective advantage on SMBV within the meaning of Article 107(1) TFEU (recitals 259 to 263 of the contested decision).

39 Consequently, the Commission found that the arm’s length principle necessarily formed an integral part of its assessment, under Article 107(1) TFEU, of the tax measures granted to integrated companies, independently of whether a Member State had incorporated that principle into its national legal system. The Commission then stated that, in response to the arguments of the Kingdom of the Netherlands raised during the administrative procedure, it had not examined whether the APA observed the arm’s length principle, as defined in Article 8b of the CIT and by the transfer pricing decree, but that it had sought to determine whether the Netherlands tax administration had conferred a selective advantage on SMBV within the meaning of Article 107(1) TFEU (recitals 264 and 265 of the contested decision).

40 In the light of those elements, the Commission set out a series of lines of reasoning to prove that the APA conferred a selective advantage on SMBV. In a primary reasoning, the Commission elaborated several lines of reasoning, some of which were subsidiary to each other, to demonstrate that the APA derogated from the general Netherlands corporate income tax system. In a subsidiary reasoning, the Commission maintained that the APA derogated from Article 8b(1) of the CIT and from the transfer pricing decree.

41 In particular, in the first place, in its primary reasoning aimed at demonstrating that the APA derogated from the general Netherlands corporate income tax system, the Commission noted that the Starbucks group’s tax advisor had chosen the TNMM for the purposes of determining SMBV’s taxable profits. It considered that different methodological choices, proposed by the Starbucks group’s tax advisor and endorsed by the Kingdom of the Netherlands, led to a reduction in the corporate income tax paid by SMBV as compared to stand-alone companies whose taxable profits were determined under market conditions (recitals 268 to 274 of the contested decision).

42 First, the Commission considered that the transfer pricing report had failed to examine whether the intra-group transfer for which the APA had actually been requested and granted – namely, the royalty SMBV paid to Alki for the licence to use the roasting IP – was in conformity with the arm’s length principle. Consequently, the transfer pricing report failed to identify or analyse controlled and uncontrolled transactions, which was a necessary first step in assessing the arm’s length nature of commercial conditions applicable between related parties for transfer pricing purposes (recitals 275 to 285 of the contested decision).

43 Second, regarding the level of the royalty, the Commission considered that, had the transfer pricing report correctly identified and examined the royalty, it should have resulted in an arm’s length value of zero. It noted inter alia that SMBV generated no profit from the use of the IP rights that were the subject of the royalty, in so far as it did not exploit them on the market. The Commission then considered that the profits paid to Alki by means of the royalty should have been fully taxed in the Netherlands (recitals 286 to 341 of the contested decision).

44 In examining the arm’s length nature of the royalty, the Commission applied the CUP method and identified a number of manufacturing agreements between the Starbucks group and third entities, or between third entities to the Starbucks group, as being comparable transactions.

45 In addition, the Commission rejected the arguments raised by the Kingdom of the Netherlands and Starbucks seeking to justify the amount of the royalty. First, it took the view that the consideration for the royalty payment could not be Alki’s taking over of SMBV’s entrepreneurial risks; otherwise, integrated companies could contractually reallocate risk and thereby prevent any application of the arm’s length principle. Second, the Commission added that the royalty payment could not be justified by size of the amounts paid by Alki to Starbucks US.

46 Third, regarding the level of the purchase price of green coffee beans, the Commission noted that that transaction had not been examined in the transfer pricing report, when that report identified it as one of the main transactions effected by SMBV. Using SCTC’s financial data, the Commission calculated the average gross margin on the costs of green coffee beans for the APA’s validity period. The Commission considered that the gross margin between 2011 and 2014, which resulted in a significant increase in the price of green coffee beans to be borne by SMBV compared to the costs borne by SCTC, did not reflect a reliable approximation of a market-based outcome. It concluded that the price premium paid by SMBV, in lowering the latter’s recorded profits and therefore taxable base, constituted a selective advantage (recitals 342 to 361 of the contested decision).

47 In the second place, still in its primary line of reasoning to demonstrate that the APA derogated from the general Netherlands corporate income tax system, but subsidiary to the criticisms set out in paragraphs 42 to 46 above, the Commission considered that, in any event and even assuming that the TNMM were appropriate for identifying the profits made by SMBV, the transfer pricing report had incorrectly applied the TNMM. It concluded that, since that method did not result in an arm’s length outcome, the Netherlands tax authorities could not approve it in the APA (recitals 362 to 408 of the contested decision).

48 First, the Commission considered that the transfer pricing report had erroneously identified SMBV as being the least complex entity, and therefore as being the ‘tested party’, for the purposes of the application of the TNMM. It added that, on the contrary, SMBV should have been identified as the most complex entity, in so far as, first, Alki performed only limited functions and, second, apart from the fact that SMBV performed functions other than roasting, that function was not a routine activity but an essential one (recitals 362 to 377 of the contested decision).

49 Second, the Commission considered that the profit level indicator used in the transfer pricing report, namely, operating costs, was inappropriate. According to the Commission, the Starbucks group’s tax advisor had erroneously found that roasting was SMBV’s principal function rather than reselling and distribution. The Commission then concluded that the use of the sales recorded by SMBV as profit level indicator was more appropriate and would have led to a higher remuneration of SMBV’s activity. In support of that conclusion, the Commission calculated a profitability ratio from a group of independent entities exercising the same reselling and roasting activities as SMBV. It concluded, after comparison with Starbucks Manufacturing Corporation (‘SMC’) – the only other entity of the group to exercise roasting activities for the group – that SMC was [confidential] times more profitable than SMBV on the basis of the APA (recitals 379 to 400 of the contested decision).

50 Third, the Commission considered that, in any event and even assuming that operating costs were a profit level indicator appropriate for calculating SMBV’s transfer prices, the two adjustments made by the tax advisor in the transfer pricing report did not enable a reliable approximation of a market-based outcome to be reached. The Commission criticised, first, the use of a ‘working capital adjustment’ and, second, the exclusion of the costs of the undertakings designated in recital 300 of the contested decision as published in the Official Journal of the European Union by the term ‘unaffiliated manufacturing company 1’ (‘unaffiliated manufacturing company 1’) from the cost base used as profit level indicator (recitals 401 to 408 of the contested decision).

51 The Commission then concluded that the methodology accepted by the Netherlands tax authorities, whereby the profits generated by SMBV in excess of the [confidential]% margin of operating costs had to be paid as a royalty to Alki, was not in line with the arm’s length principle and led to a reduction in SMBV’s tax burden.

52 It is thus apparent from the foregoing that, in the examination in respect of the general Netherlands corporate income tax system, the Commission raised six errors justifying the conclusion that there was a selective advantage in the case at hand. In that examination, the first three errors come under a principal position, whereas the other three errors come under a subsidiary position and are subsidiary to each other.

53 Specifically, as regards the principal position, the Commission considered that the method accepted by the APA departed from a methodology that led to a reliable approximation of a market-based outcome in line with the arm’s length principle, in so far as: – the choice of the TNMM was erroneous and the transfer pricing report did not examine the intra-group transaction for which the APA had effectively been requested and granted (‘the first line of reasoning’); – first, the APA did not establish a methodology to ensure that the royalty paid by SMBV to Alki was in line with the arm’s length principle; however, the CUP method should have been applied in order to determine the amount of the royalty paid by SMBV to Alki; under that method, the royalty should have been zero (‘the second line of reasoning’); – second, the APA did not examine whether the level of purchase price of green coffee beans was in line with the arm’s length principle; that level was overvalued (‘the third line of reasoning’).

54 With regard to the subsidiary position, the Commission considered that, even assuming that the TNMM were the appropriate method for determining the profits made by SMBV, the transfer pricing report had incorrectly applied the TNMM. In that regard, the Commission took the view that: – the method accepted by the APA derogated from a method that gave a reliable approximation of a market-based outcome in line with the arm’s length principle, in so far as SMBV had been incorrectly identified as the least complex entity and thus as the tested entity for the purposes of the application of the TNMM (‘the fourth line of reasoning’); – in the alternative, the method accepted by the APA did not give a reliable approximation of a market-based outcome in line with the arm’s length principle, in so far as SMBV’s functions had been incorrectly analysed and the choice of operating costs as profit level indicator was incorrect (‘the fifth line of reasoning’); – in the alternative, the method accepted by the APA did not give a reliable approximation of a market-based outcome in line with the arm’s length principle, in so far as the adjustments made to the mark-up were inappropriate (‘the sixth line of reasoning’).

55 In the third place, in its subsidiary reasoning aimed at demonstrating that the APA derogated from Article 8b(1) of the CIT and from the transfer pricing decree, the Commission considered that, even supposing that the relevant reference system were not composed of the general rules on corporate income tax, but, as the Netherlands authorities maintained, only of the provisions enshrining the arm’s length principle in Netherlands law, namely Article 8b(1) of the CIT and the transfer pricing decree, the APA, in approving a method of determining SMBV’s profits that did not result in an arm’s length outcome, also derogated from that reference system. To that end, the Commission referred to its analysis conducted in respect of the general Netherlands corporate income tax system and the six lines of reasoning set out in paragraphs 52 to 54 above (the ‘reasoning in respect of the limited reference system’) (recitals 409 to 412 of the contested decision).

56 So far as concerns the third step of the analysis of the selectivity of tax measures, as identified in paragraph 34 above, the Commission found that the derogation from the reference system was not justified. In that regard, it noted that neither the Netherlands authorities nor Starbucks had put forward any possible justifications for SMBV’s selective treatment, when the burden of proof in that regard lay with them. The Commission moreover added that it had not been able to identify any possible justification (recitals 413 and 414 of the contested decision).

57 The Commission concluded that SMBV’s APA conferred on SMBV a selective advantage, within the meaning of Article 107(1) TFEU, in so far as it had validated a method for allocating profits to SMBV which could not be regarded as resulting in a reliable approximation of a market-based outcome in line with the arm’s length principle. According to the Commission, that method had led to a reduction in SMBV’s tax burden, primarily, under the general Netherlands corporate income tax system, by comparison with stand-alone companies, and, in the alternative, under Article 8b(1) of the CIT and the transfer pricing decree, by comparison with other integrated companies (recitals 415 and 416 of the contested decision).

58 Consequently, the Commission concluded that the APA constituted State aid (recitals 422 and 423 of the contested decision).

59 The Commission then considered that the aid granted to SMBV was incompatible with the internal market. In its view, the Kingdom of the Netherlands had not invoked any of the grounds for a finding of compatibility provided for in Article 107(2) and (3) TFEU. The aid in question, which was to be considered operating aid, could not normally be considered compatible with the internal market (recitals 431 to 434 of the contested decision).

60 Moreover, the Commission found that the Kingdom of the Netherlands had not notified it, in accordance with Article 108(3) TFEU, of any plan corresponding to the APA and had not complied with the standstill obligation incumbent on it under that article. It could therefore only be unlawful State aid, put in effect in contravention of that provision (recitals 435 and 436 of the contested decision).

61 Furthermore, the Commission specified that the information on which it had based its decision was available for the Netherlands tax administration at the time the APA was adopted. It added, in respect of the cost of green coffee beans, that the transfer pricing report did not examine the prices charged by SCTC to SMBV under their green coffee bean sourcing agreement and that, had that transaction been examined in the APA in 2008 in order to determine its arm’s length price, the APA would not have been able to leave room for the price increases observed in 2011 (recitals 424 to 427 of the contested decision).

62 Last, the Commission identified SMBV and the Starbucks group as a whole as aid beneficiaries, on the ground that they formed a single economic entity (recitals 417 to 419 of the contested decision).

(c) Recovery of the State aid

63 In Section 10 of the contested decision, entitled ‘Recovery’, first, the Commission inter alia considered that it was not required to quantify the exact amount of the aid to be recovered, but rather it was sufficient for its decision to include information enabling the addressee of the decision to work out that amount itself without overmuch difficulty. In the present case, the Commission considered that, since the royalty amount had to be zero, SMBV’s accounting profits should have been used to calculate its taxable profits. Moreover, those profits should have been increased by the difference between the price paid for the green coffee beans and the price that ought to have been paid. In that regard, the Commission considered that a gross margin of [confidential]% for SCTC constituted an arm’s length price for the purchase of the coffee beans. It then specified that the sum to be recovered corresponded to the difference between the tax that should have been paid on the basis of that price and the amount actually paid under the APA (recitals 442 to 448 of the contested decision).

64 Second, the Commission found that, in the first instance, the Kingdom of the Netherlands was required to recover from SMBV the aid and that, should SMBV not have been in a position to make the repayment, the Kingdom of the Netherlands was to recover the balance from Starbucks Corp., since it was the entity which controlled the Starbucks group (recital 449 of the contested decision).

(d) Conclusion

65 In conclusion, the Commission found that the Kingdom of the Netherlands, by concluding the APA, had unlawfully granted State aid to SMBV and to the Starbucks group, in breach of Article 108(3) TFEU, that the Kingdom of the Netherlands was required to recover it, by virtue of Article 16 of Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 TFEU (OJ 2015 L 248, p. 9), from SMBV and, if SMBV failed to repay the full amount of the aid, from Starbucks Corp. for the amount of aid outstanding (recital 450 of the contested decision).

66 The operative part of the contested decision reads as follows: ‘Article 1 The advanced pricing arrangement entered into by the [Kingdom of the] Netherlands on 28 April 2008 with [SMBV], which enables the latter to determine its corporate income tax liability in the Netherlands on a yearly basis for a period of 10 years, constitutes aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union that is incompatible with the internal market and that was unlawfully put into effect by the [Kingdom of the] Netherlands in breach of Article 108(3) of the Treaty. Article 2 The [Kingdom of the] Netherlands shall recover the incompatible and unlawful aid referred to in Article 1 from [SMBV]. Any sums that remain unrecoverable from [SMBV], following the recovery described in the preceding paragraph, shall be recovered from Starbucks [Corp.]. The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiaries until their actual recovery. The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004. Article 3 Recovery of the aid granted referred to in Article 1 shall be immediate and effective. The [Kingdom of the] Netherlands shall ensure that this Decision is implemented within four months following the date of notification of this Decision. Article 4 Within two months following notification of this decision, the [Kingdom of the] Netherlands shall submit information regarding the methodology used to calculate the exact amount of aid. The [Kingdom of the] Netherlands shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid granted referred to in Article 1 has been completed. It shall immediately submit, on simple request by the Commission, information on the measures already taken and planned to comply with this Decision. ...’

II. Procedure and forms of order sought

A. Written part of the procedure in Case T‑760/15

67 By application lodged at the Registry of the General Court on 23 December 2015, the Kingdom of the Netherlands brought the action in Case T‑760/15. The Commission lodged a defence on 30 March 2016. The reply and the rejoinder were lodged on 14 June 2016 and 9 September 2016, respectively.

1. Composition of the formation of the Court and priority treatment

68 By document lodged at the Court Registry on 20 June 2016, the Kingdom of the Netherlands requested that Case T‑760/15 be heard and determined by a Chamber sitting in extended composition. The Court took formal note, pursuant to Article 28(5) of its Rules of Procedure, of the fact that Case T‑760/15 had been referred to the Fifth Chamber, Extended Composition.

69 Following a change in the composition of the Chambers of the Court on 26 September 2016, the Judge-Rapporteur was assigned, pursuant to Article 27(5) of the Rules of Procedure, to the Seventh Chamber, Extended Composition, of the General Court to which Case T‑760/15 was accordingly allocated.

70 Since a member of the Seventh Chamber, Extended Composition, of the General Court was unable to sit, the President of the General Court, by decision of 26 April 2017, designated the Vice-President of the General Court to complete the chamber.

71 By decision of 12 December 2017, the President of the Seventh Chamber, Extended Composition, of the General Court approved the proposal of the Judge-Rapporteur that Case T‑760/15 be given priority under Article 67(2) of the Rules of Procedure.

2. Interventions

72 By document lodged at the Court Registry on 6 April 2016, the United Kingdom of Great Britain and Northern Ireland applied for leave to intervene in Case T‑760/15 in support of the form of order sought by the Commission.

73 By document lodged at the Court Registry on 7 April 2016, Ireland applied for leave to intervene in Case T‑760/15 in support of the form of order sought by the Kingdom of the Netherlands.

74 By order of 13 June 2016, the President of the Fifth Chamber of the General Court granted the applications for leave to intervene of the United Kingdom and Ireland.

75 By document lodged at the Court Registry on 9 November 2016, the United Kingdom withdrew its intervention. By order of 12 December 2016, the President of the Seventh Chamber, Extended Composition, of the General Court removed the United Kingdom as intervener from Case T‑760/15.

3. Applications for confidential treatment

76 By document lodged at the Court Registry on 26 February 2016, the Kingdom of the Netherlands applied for confidential treatment, vis-à-vis the public, of part of the application and certain documents annexed to it.

77 By document lodged at the Court Registry on 17 May 2016, the Kingdom of the Netherlands applied for confidential treatment, vis-à-vis Ireland, of part of the application and certain documents annexed to it, as well as the contested decision and part of the defence.

78 By document lodged at the Court Registry on 17 May 2016, the Commission applied for confidential treatment, vis-à-vis Ireland, of part of the defence.

79 By document lodged at the Court Registry on 1 July 2016, the Kingdom of the Netherlands applied for confidential treatment, vis-à-vis Ireland, of part of the reply and certain documents annexed to it.

80 By document lodged at the Court Registry on 21 July 2016, the Kingdom of the Netherlands informed the Court that it had reached an agreement with the Commission concerning the non-confidential version of the contested decision for publication and that it was amending the applications for confidential treatment it had made in Case T‑760/15 with regard to the contested decision in accordance with that agreement.

81 By document lodged at the Court Registry on 11 October 2016, the Kingdom of the Netherlands applied for confidential treatment, vis-à-vis Ireland, of part of the rejoinder and certain documents annexed to it.

82 Following its admission as intervener, Ireland received only non-confidential versions of the procedural documents and raised no objection to the applications for confidential treatment made with regard to it.

83 On the proposal of the Judge-Rapporteur, the Seventh Chamber, Extended Composition, of the General Court adopted a measure of organisation of procedure provided for in Article 89 of the Rules of Procedure by which the Kingdom of the Netherlands was invited to revise its applications for confidential treatment of the APA, the roasting agreement between SMBV and Alki, mentioned in recital 142 of the contested decision, and the transfer pricing report, in order to remove certain inconsistencies in those applications. The Kingdom of the Netherlands provided new non-confidential versions of those documents within the prescribed period.

4. Forms of order sought

84 The Kingdom of the Netherlands claims that the Court should: – annul the contested decision; – order the Commission to pay the costs in Case T‑760/15.

85 The Commission contends that the Court should: – dismiss the application in Case T‑760/15 as unfounded; – order the Kingdom of the Netherlands to pay the costs in Case T‑760/15.

86 Ireland claims that the Court should annul the contested decision in accordance with the form of order sought by the Kingdom of the Netherlands.

B. Written part of the procedure in Case T‑636/16

87 By application lodged at the Court Registry on 5 September 2016, Starbucks Corp. and Starbucks Manufacturing Emea (together, ‘Starbucks’) brought the action in Case T‑636/16. The Commission lodged a defence on 16 March 2017. The reply and the rejoinder were lodged on 26 June and 20 October 2017, respectively.

1. Composition of the formation of the Court and priority treatment

88 On the proposal of the Seventh Chamber of the General Court, the Court decided, on 12 July 2017, pursuant to Article 28 of the Rules of Procedure, to refer the case to a Chamber sitting in extended composition.

89 Since a member of the Seventh Chamber, Extended Composition, of the General Court was unable to sit, the President of the General Court, by decision of 1 August 2017, designated the Vice-President of the General Court to complete the Chamber.

90 By decision of 12 December 2017, the President of the Seventh Chamber, Extended Composition, of the General Court approved the proposal of the Judge-Rapporteur that Case T‑636/16 be given priority under Article 67(2) of the Rules of Procedure.

2. Applications for confidential treatment

91 By document lodged at the Court Registry on 7 April 2017 and regularised by documents lodged on 23 April 2018, Starbucks applied for confidential treatment, vis-à-vis Ireland, of certain information in the application, in the defence, in the reply, in the rejoinder as well as in certain of the annexes to those submissions.

3. Forms of order sought

92 Starbucks claims that the Court should: – annul Articles 1 to 4 of the contested decision; – in the alternative, annul Article 2(1) of the contested decision; – order the Commission to pay the costs in Case T‑636/16.

93 The Commission contends that the Court should: – dismiss the action in Case T‑636/16 as unfounded; – order Starbucks to pay the costs in Case T‑636/16.

C. Joinder for the purposes of the oral part of the procedure, and the oral part of the procedure

94 By document lodged at the Court Registry on 23 February 2017, Starbucks applied for Cases T‑760/15 and T‑636/16 to be joined for the purposes of the oral part of the procedure.

95 By decision of 7 June 2017, the President of the Seventh Chamber, Extended Composition, of the General Court decided not to join, at that stage of the procedure, Cases T‑760/15 and T‑636/16.

96 By decision of the President of the Seventh Chamber, Extended Composition, of the General Court of 8 May 2018, Cases T‑760/15 and T‑636/16 were joined for the purposes of the oral part of the procedure, in accordance with Article 68 of the Rules of Procedure.

97 Acting on a report from the Judge-Rapporteur, the Court decided to open the oral part of the procedure and, by way of the measures of organisation of procedure under Article 89 of the Rules of Procedure, asked the parties to answer questions in writing. The parties responded to that measure of organisation of procedure within the prescribed period.

98 By documents lodged at the Court Registry on 7 and 15 June 2018, Starbucks requested confidential treatment of certain information contained in its response to the measure of organisation of procedure and in that of the Commission.

99 By document lodged at the Court Registry on 8 June 2018, Starbucks submitted observations on the report for the hearing.

100 By document lodged at the Court Registry on 14 June 2018, the Commission requested that Starbucks’ observations on the report for the hearing be withdrawn from the case file.

101 After having received the only non-confidential versions of the documents mentioned in paragraphs 91, 98 and 99 above, Ireland raised no objection to the applications for confidential treatment made with regard to it.

102 By document lodged at the Court Registry on 26 June 2018, Starbucks requested authorisation to use technical means during the hearing and proposed having recourse, during the hearing, to an expert. At the hearing, the Commission was requested to submit orally its observations on that request and in turn requested authorisation to use technical means during the hearing.

103 The parties presented oral argument, with the use of the technical means requested, and answered the questions put by the Court at the hearing on 2 July 2018.

104 The parties were heard during the hearing on a possible joinder of Cases T‑760/15 and T‑636/16 for the purposes of the decision closing the proceedings, and the Court took formal note of it in the minutes of the hearing.

III. Law

105 For the purposes of the present actions, it is necessary, at the outset, to address certain procedural questions raised by the parties, before analysing the substantive pleas the parties raise.

A. Procedural matters

106 Regarding the procedural matters that are at issue in the case at hand, first of all, it is necessary to examine the possible joinder of the present case for the purposes of the decision closing the proceedings. Next, it is appropriate to examine the Commission’s request that Starbucks’ observations of 8 June 2018 on the report for the hearing be withdrawn from the case file. Last, it is appropriate to examine the issue of the admissibility of Annex A.7 to the application in Case T‑760/15, which has been disputed by the Commission.

1. Joinder of the present cases for the purposes of the decision closing the proceedings

107 In accordance with Article 19(2) of Rules of Procedure, the President of the Seventh Chamber, Extended Composition, of the General Court referred the decision as to whether Cases T‑760/15 and T‑636/16 should be joined for the purposes of the decision closing the proceedings, which fell within his remit, to the Seventh Chamber, Extended Composition, of the General Court.

108 The parties having been heard at the hearing with respect to a possible joinder of the cases, it is appropriate for Cases T‑760/15 and T‑636/16 to be joined for the purposes of the decision which closes the proceedings, on account of the connection between them.

2. Request that Starbucks’ observations on the report for the hearing be withdrawn from the case file

109 By letter of 14 June 2018, the Commission requested the General Court to withdraw from the case file of Cases T‑760/15 and T‑636/16 Starbucks’ letter of 8 June 2018 (see paragraph 100 above), to the extent that it contained observations on the report for the hearing, on the ground that such observations are provided for neither in the Rules of Procedure nor in the practice rules for the implementation of the latter.

110 First, it is appropriate to recall that, by decision of 13 June 2018, the President of the Seventh Chamber, Extended Composition, of the General Court decided to place on the case file Starbucks’ letter of 8 June 2018. Second, it must be recalled that the General Court is the sole judge of whether documents not provided for in the Rules of Procedure need to be placed on the case file. Accordingly, the Commission’s request that the letter of 8 June 2018 be withdrawn from the case file must be rejected.

111 However, according to Article 84(1) of the Rules of Procedure, no new plea in law may be introduced in the course of proceedings unless it is based on matters of law or fact which have come to light in the course of the procedure.

112 Given that Starbucks has not provided any justification for the late submission of the arguments raised in its letter of 8 June 2018, it is necessary, as the Commission has argued, to reject them as inadmissible to the extent that they go beyond mere observations on the confidentiality and accuracy of the report for the hearing by amending the pleas raised in the application.

3. Admissibility of Annex A.7 to the application in Case T‑760/15

113 The Commission disputes the admissibility of Annex A.7 to the application in Case T‑760/15, which contains a schematic comparison of certain aspects of the functioning of the contracts concluded between the Starbucks group and certain third parties. According to the Commission, the essential factual and legal elements on which the action is based must be set out – or otherwise be deemed inadmissible – at least in summary form, but coherently and intelligibly, from the actual text of the application. That condition is not, in its view, satisfied in this case.

114 It must be noted that, under Article 21 of the Statute of the Court of Justice of the European Union and Article 76(d) of the Rules of Procedure, each application is required to state the subject matter of the proceedings, the pleas in law and arguments on which the application is based and a summary of those pleas. That statement must be sufficiently clear and precise to enable the defendant to prepare his defence and the Court to rule on the application, if necessary, without any further information. It is necessary, for an action to be admissible, that the basic matters of law and fact relied on be indicated, at least in summary form, coherently and intelligibly in the application itself. Whilst the body of the application may be supported and supplemented on specific points by references to extracts from documents annexed thereto, a general reference to other documents, even those annexed to the application, cannot make up for the absence of the essential arguments in law which, in accordance with the abovementioned provisions, must appear in the application. The annexes may be taken into consideration only in so far as they support or supplement pleas or arguments expressly set out by applicants in the body of their pleadings and in so far as it is possible to determine precisely what are the matters they contain that support or supplement those pleas or arguments. Furthermore, it is not for the Court to seek and identify in the annexes the pleas and arguments on which it may consider the action to be based, since the annexes have a purely evidential and instrumental function (see judgment of 14 March 2013, Fresh Del Monte Produce v Commission, T‑587/08, EU:T:2013:129, paragraphs 268 to 271 and the case-law cited).

115 In the case at hand, it is appropriate to observe that, as regards the contracts concluded between the Starbucks group and external roasters and manufacturers of coffee-derived products, the Kingdom of the Netherlands submits that Annex A.7 contains a ‘schematic overview of the points of comparison of the contracts produced by the Commission ... which includes the three differences cited’ in the application in Case T‑760/15. However, the Kingdom of the Netherlands sets out, in paragraphs 140 to 155 of the application in Case T‑760/15, the reasons which demonstrate, in its view, that the contracts that the Commission invokes in the contested decision are not comparable with the contractual relationship between Alki and SMBV.

116 In that regard, it must be held that all the arguments contained in Annex A.7 to the application in Case T‑760/15 are set out in a sufficiently clear and precise manner in paragraphs 140 to 155 of the application in Case T‑760/15. Thus, even without Annex A.7 to the application in Case T‑760/15, the Commission would have been capable of preparing its defence and the Court of ruling on the action. The only added value of Annex A.7 to the application in Case T‑760/15 consists, therefore, in indicating which specific contracts are concerned by the respective arguments of the Kingdom of the Netherlands when it refers, in paragraphs 140 to 155 of the application, to the ‘majority’ or ‘most’ of those contracts.

117 It is therefore appropriate to reject the Commission’s argument that Annex A.7 to the application in Case T‑760/15 should be rejected as inadmissible.

B. Pleas raised and structure of the examination of the present actions

118 The actions brought in Cases T‑760/15 and T‑636/16 seek the annulment of the contested decision to the extent that it classifies the APA as State aid for the purposes of Article 107(1) TFEU and to the extent that it orders the recovery of sums that were not collected by the Kingdom of the Netherlands from SMBV by way of corporate income tax.

119 In support of their actions, the Kingdom of the Netherlands and Starbucks put forward five and two pleas, respectively, which overlap for the most part.

120 By the first plea in Case T‑760/15 as well as by the first part of the first plea in Case T‑636/16, the Kingdom of the Netherlands and Starbucks call into question the Commission’s examination of the selective nature of the APA. Specifically, they argue that the Commission used an erroneous reference system for the examination of the selectivity of the APA.

121 By the second, third and fourth pleas in Case T‑760/15 as well as by the second part of the first plea and the second plea in Case T‑636/16, the Kingdom of the Netherlands and Starbucks argue that the Commission’s analysis according to which the APA conferred an advantage on SMBV is erroneous.

122 Specifically, by the second plea in Case T‑760/15 as well as by the second part of the first plea in Case T‑636/16, the Kingdom of the Netherlands and Starbucks invoke, in essence, an infringement of Article 107 TFEU, in that the Commission erroneously examined whether there was an advantage in relation to the arm’s length principle particular to EU law and thereby violated the Member States’ fiscal autonomy.

123 By the third plea in Case T‑760/15 as well as by the third part of the first plea and the first, second, fourth and fifth parts of the second plea in Case T‑636/16, the Kingdom of the Netherlands and Starbucks claim, in essence, infringement of Article 107 TFEU in that the Commission erroneously considered the choice of the TNMM to set transfer pricing to constitute an advantage. The Kingdom of the Netherlands and Starbucks dispute, in essence, the Commission’s principal line of reasoning regarding the existence of a tax advantage in favour of SMBV, set out in recitals 255 to 361 of the contested decision. Those pleas concern the first to third lines of reasoning mentioned in paragraph 53 above.

124 By the fourth plea in case T‑760/15 as well as by the third part of the second plea in Case T‑636/16, the Kingdom of the Netherlands and Starbucks claim infringement of Article 107 TFEU to the extent that the Commission erroneously considered the detailed rules for the application of the TNMM as validated in the APA to confer an advantage on SMBV. Those pleas concern the fourth to sixth lines of reasoning mentioned in paragraph 54 above.

125 By the fifth plea in Case T‑760/15, the Kingdom of the Netherlands claims breach of the principle of due diligence.

126 With regard to the analysis of the pleas raised by the Kingdom of the Netherlands and Starbucks, first of all, it is necessary to examine, the plea disputing the existence of the arm’s length principle as the Commission describes it in the contested decision. Next, it is appropriate to examine the pleas disputing that, in its first six lines of reasoning set out in paragraphs 53 and 54 above, the Commission demonstrated that the APA derogated from the general Netherlands corporate income tax system and conferred an advantage, within the meaning of Article 107 TFEU, on SMBV. Additionally, it is necessary to examine the plea disputing that, in its reasoning in respect of the limited reference system, set out in paragraph 55 above, the Commission demonstrated that the APA derogated from the limited reference system composed of Article 8b of the CIT and from the transfer pricing decree and conferred an advantage, within the meaning of Article 107 TFEU, on SMBV. Last, should the examination carried out on the existence of an advantage lead to the rejection of those pleas, it will be appropriate to examine the pleas alleging an absence of selectivity of the contested measure and breach of the obligation of due diligence.

127 In that regard, it must moreover be borne in mind that, according to the case-law, classification as State aid requires all the conditions referred to in Article 107(1) TFEU to be fulfilled. It is thus established that, for a measure to be categorised as State aid within the meaning of that provision, there must, first, be an intervention by the State or through State resources; second, the intervention must be liable to affect trade between Member States; third, it must confer a selective advantage on the recipient; and, fourth, it must distort or threaten to distort competition (see judgment of 21 December 2016, Commission v Hansestadt Lübeck, C‑524/14 P, EU:C:2016:971, paragraph 40 and the case-law cited).

128 In the case at hand, however, as is apparent from the presentation of the pleas, which is set out in paragraphs 118 to 125 above, the Kingdom of the Netherlands and Starbucks do not dispute the assessment made by the Commission regarding the first two conditions and the fourth condition to be satisfied in order for a measure to be classified as State aid. They do not dispute that, supposing that the Commission demonstrated that the APA conferred a tax advantage, that advantage constituted intervention by the State or through State resources, that it was liable to affect trade between Member States and that it distorted or threatened to distort competition. The four first pleas raised in Case T‑760/15 seek, in essence, to call into question the Commission’s finding that the APA conferred a selective advantage on SMBV.

129 Moreover, as regards demonstrating the selective advantage, it must be noted that the Commission’s approach of examining the criteria of advantage and selectivity concurrently is not itself incorrect, given that both the advantage and the selective nature of that advantage are examined. Nevertheless, the Court considers it appropriate to consider, first of all, whether the Commission was entitled to conclude that there was an advantage, before going on, if necessary, to examine whether that advantage had to be considered to be selective.

130 Thereafter, it will be appropriate to analyse the arguments of the Kingdom of the Netherlands and of Starbucks on the absence of an advantage, within the meaning of Article 107 TFEU, conferred on SMBV by the APA.

C. Existence of an arm’s length principle in the field of State aid control and compliance with the principle of Member States’ fiscal autonomy

131 By its second plea, the Kingdom of the Netherlands argues that the Commission erred in identifying an arm’s length principle particular to EU law and in identifying it as a criterion for assessing the existence of State aid. Starbucks raises, in essence, the same complaints, in the second part of its first plea.

132 First, the Kingdom of the Netherlands argues that the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), on which the Commission relies to identify an arm’s length principle particular to EU law, is not authority for the existence of such a principle. In addition, the Commission neither stated the basis from which it had identified the existence of an arm’s length principle in EU law nor explained the content of that principle. Starbucks adds that, notwithstanding the fact that observance of Article 107 TFEU effectively constitutes a limit on Member States’ fiscal autonomy, the Commission exceeded the powers conferred on it by Article 107 TFEU. Starbucks criticises the Commission for having replaced, purportedly under the principle of equal treatment, Netherlands rules of tax law with a transfer pricing principle developed autonomously and, thus, for having imposed substantive rules of tax law.

133 Second, the Kingdom of the Netherlands argues that the Commission could not examine the APA under an arm’s length principle particular to EU law, since only the legislation and national rules of the Member State concerned are relevant for the purposes of State aid control. Specifically, the Kingdom of the Netherlands contends that the existence of an advantage can be examined only by reference to the charges which are normally included in the budget of the undertaking under national law and not by reference to an arm’s length principle particular to EU law. Starbucks adds, furthermore, that the Commission did not take Netherlands law into account and that its reasoning deviates from – and indeed conflicts with – Netherlands transfer pricing rules.

134 First of all, Ireland adds that the Commission, which was required to identify a derogation, did not compare Starbucks’ situation to that of any other taxpayer but merely sought to apply the arm’s length principle. Next, it argues that the Commission cannot impose rules that have never been incorporated into the national system. Accepting a principle of equal treatment in tax matters would then encroach on the sovereignty and the autonomy of the Member States. Last, Ireland submits that the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), did not identify an arm’s length principle particular to EU law, in so far as, in that case, first, the arm’s length principle had been incorporated into Belgian national law and, second, the judgment referred to the OECD Guidelines, which had also been incorporated into Belgian national law.

135 The Commission disputes those arguments. It contends inter alia that it examined the existence of a selective advantage by reference to the reference framework deriving from national law and not by reference to the arm’s length principle. It maintains that it is clear from the contested decision that the existence of an advantage was assessed by comparison with the tax burden that would normally have been borne by SMBV under the general Netherlands system of corporate income tax.

136 Under the present plea, in essence, the Kingdom of the Netherlands and Starbucks therefore criticise the Commission for having identified an arm’s length principle specific to EU law in breach of the fiscal autonomy of the Member States and for having examined the APA only by reference to that principle without taking Netherlands law into account.

137 First and foremost, it must be noted that, as is apparent in particular from recitals 252, 267 and 408 of the contested decision, the examination in the light of the arm’s length principle as described by the Commission in the contested decision forms part of its principal analysis of the selective advantage. As has been set out in paragraph 35 above, that analysis entails examining whether the APA derogates from the general Netherlands corporate income tax system. It must be noted in that regard that the Commission had previously indicated, in recitals 232 to 244 of the contested decision, that the objective of the general Netherlands corporate income tax system was to tax the profits of all companies resident in the Netherlands, whether or not integrated, and that both types of company are in a similar factual and legal situation in the light of that objective.

138 As regards the definition of the arm’s length principle, the Commission asserted, in recitals 258 and 261 of the contested decision, that, according to that principle, intra-group transactions should be remunerated as if they had been agreed to by independent companies. It added, in recital 262 of the contested decision, that the purpose of that principle was to ensure that intra-group transactions were treated for tax purposes by reference to the amount of profit that would have arisen if the same transactions had been executed by independent companies. The Commission moreover argued during the hearing that the arm’s length principle was, in its view, a tool for assessing the price level of intra-group transactions, and the Court took formal note of that in the minutes of the hearing.

139 With regard to the legal nature of the arm’s length principle, the Commission considered, in recital 264 of the contested decision, that the arm’s length principle necessarily formed part of its assessment, under Article 107 TFEU, of tax measures granted to group companies, irrespective of whether the Member State had incorporated that principle into its national legal system. It stated that the arm’s length principle which it was applying was a general principle of equal treatment in taxation, which fell within the application of Article 107 TFEU. The French-language version of the contested decision mentions in that connection a ‘principe de traitement équitable’ (principle of equitable treatment) which is a translation error of the expression ‘principle of equal treatment’. The Commission based that statement on the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), concerning the tax regime for coordination centres in Belgium, in which the Court of Justice had held that the method for determining taxable income under that regime conferred a selective advantage on those centres. Specifically, the Commission referred to paragraph 96 of that judgment, in which the Court of Justice held that the method for determining the taxable income of the centres ‘[meant] that the transfer prices [did] not resemble those which [were] charged in conditions of free competition’.

140 As regards the application of the arm’s length principle, in recital 263 of the contested decision, the Commission indicated that, to assess whether the Kingdom of the Netherlands had granted a selective advantage to SMBV, it accordingly had to verify whether the methodology accepted by the Netherlands tax administration through the APA for the purposes of determining SMBV’s taxable profits in the Netherlands departed from a methodology that resulted in a reliable approximation of a market-based outcome and, therefore, from the arm’s length principle. It added, in recital 264 of the contested decision, that the arm’s length principle was used to establish whether the taxable profit of a group company for corporate income tax purposes had been determined on the basis of a methodology that approximated market conditions, so that that company was not treated favourably under the general corporate income tax system as compared to non-integrated companies whose taxable profit was determined by the market.

141 It must therefore be examined whether the Commission was entitled to analyse the measure at issue in the light of the arm’s length principle as described in the contested decision, summarised in recitals 138 to 140 above, which consists in verifying whether intra-group transactions are remunerated as if they had been negotiated under market conditions.

142 According to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 47 and the case-law cited). Thus, intervention by the Member States in matters of direct taxation, even if it relates to issues that have not been harmonised in the European Union, is not excluded from the scope of the rules on the monitoring of State aid.

143 It follows that the Commission can classify a tax measure as State aid provided that the conditions for classification are met (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 28, and of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81). Member States must exercise their competence in respect of taxation in accordance with EU law (judgment of 3 June 2010, Commission v Spain, C‑487/08, EU:C:2010:310, paragraph 37). Consequently, they must refrain from taking, in that context, any measure likely to constitute State aid that is incompatible with the internal market.

144 As regards the condition that the measure at issue must grant an economic advantage, it should be borne in mind that, according to settled case-law, measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions are regarded as State aid (see judgment of 2 September 2010, Commission v Deutsche Post, C‑399/08 P, EU:C:2010:481, paragraph 40 and the case-law cited; judgment of 9 October 2014, Ministerio de Defensa et Navantia, C‑522/13, EU:C:2014:2262, paragraph 21).

145 Specifically, a measure by which the public authorities grant certain undertakings favourable tax treatment which, although not involving the transfer of State resources, places the recipients in a more favourable financial position than that of other taxpayers amounts to State aid within the meaning of Article 107(1) TFEU (judgment of 15 March 1994, Banco Exterior de España, C‑387/92, EU:C:1994:100, paragraph 14; see, also, judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 46 and the case-law cited).

146 In the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Accordingly, such a measure confers an economic advantage on its recipient if it mitigates the burdens normally included in the budget of an undertaking and which, accordingly, without being subsidies in the strict meaning of the word, are similar in character and have the same effect (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22).

147 Consequently, in order to determine whether there is a tax advantage, the position of the recipient as a result of the application of the measure at issue must be compared with his position in the absence of the measure at issue (see, to that effect, judgment of 26 April 2018, Cellnex Telecom and Telecom Castilla-La Mancha v Commission, C‑91/17 P and C‑92/17 P, not published, EU:C:2018:284, paragraph 114), and under the normal rules of taxation.

148 In the context of determining the fiscal position of an integrated company which is part of a group of undertakings, it must be noted at the outset that the pricing of intra-group transactions carried out by that company is not determined under market conditions. That pricing is agreed to by companies belonging to the same group, and is therefore not subject to market forces.

149 Where national tax law does not make a distinction between integrated undertakings and stand-alone undertakings for the purposes of their liability to corporate income tax, that law is intended to tax the profit arising from the economic activity of such an integrated undertaking as though it had arisen from transactions carried out at market prices. In those circumstances, it must be held that, when examining, pursuant to the power conferred on it by Article 107(1) TFEU, a fiscal measure granted to such an integrated company, the Commission may compare the fiscal burden of such an integrated undertaking resulting from the application of that fiscal measure with the fiscal burden resulting from the application of the normal rules of taxation under national law of an undertaking, placed in a comparable factual situation, carrying on its activities under market conditions.

150 Furthermore, and as the Commission correctly stated in the contested decision, those findings are supported by the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), concerning Belgian tax law, which provided for integrated companies and stand-alone companies to be treated on equal terms. The Court of Justice recognised in paragraph 95 of that judgment the need to compare a regime of derogating aid with the ‘ordinary tax system, based on the difference between profits and outgoings of an undertaking carrying on its activities in conditions of free competition’.

151 In that context, although, through that fiscal measure granted to an integrated company, national authorities have accepted a certain level of pricing for an intra-group transaction, Article 107(1) TFEU allows the Commission to check whether that pricing corresponds to pricing under market conditions, in order to determine whether there is, as a result, any mitigation of the burdens normally included in the budget of the undertaking concerned, thus conferring on that undertaking an advantage within the meaning of that article. The arm’s length principle, as described by the Commission in the contested decision, is thus a tool for making that determination in the exercise of the Commission’s powers under Article 107(1) TFEU. The Commission also stated, correctly, in recital 261 of the contested decision, that the arm’s length principle was a ‘benchmark’ for establishing whether an integrated company was receiving, pursuant to a tax measure determining its transfer pricing, an advantage within the meaning of Article 107(1) TFEU.

152 It should also be stated that when the Commission uses that tool to check whether the taxable profit of an integrated undertaking pursuant to a tax measure corresponds to a reliable approximation of a taxable profit generated under market conditions, the Commission can identify an advantage within the meaning of Article 107(1) TFEU only if the variation between the two comparables goes beyond the inaccuracies inherent in the methodology used to obtain that approximation.

153 In the present case, the APA concerns the determination of SMBV’s taxable profits under the CIT the objective of which, irrespective of whether the normal rules of taxation are to be broadly or narrowly defined, is to tax integrated and stand-alone undertakings in the Netherlands in the same way with regard to corporate income tax. The Commission was therefore in a position to verify whether SMBV’s taxable profit pursuant to the APA was lower than its tax burden in the absence of the APA and under the normal rules of taxation in Netherlands law. Given that SMBV is an integrated undertaking and that the CIT is intended to tax the profit resulting from the economic activity of such an integrated undertaking as if it had resulted from transactions carried out at market prices, it is necessary, in examining the APA, to compare SMBV’s taxable profit as a result of the application of the APA with the position, as it would be if the normal tax rules under Netherlands law were applied, of an undertaking in a factually comparable situation, carrying on its activities in conditions of free competition. Against that background, although the APA accepted a certain level of pricing for intra-group transactions, it is necessary to check whether that pricing corresponds to prices that would have been charged under market conditions.

154 In that context, it must be stated that, with regard to the examination as to whether an integrated undertaking has obtained an advantage within the meaning of Article 107(1) TFEU, the Commission cannot be criticised for having used a methodology for determining transfer pricing that it considers appropriate in this instance in order to examine the level of transfer pricing for a transaction or for several closely connected transactions that is part of the contested measure. The Commission is nevertheless required to justify its choice of methodology.

155 Even though the Commission correctly observed that it cannot be formally bound by the OECD Guidelines, the fact remains that those guidelines are based on important work carried out by groups of renowned experts, that they reflect the international consensus achieved with regard to transfer pricing and that they thus have a certain practical significance in the interpretation of issues relating to transfer pricing, as the Commission acknowledged in recital 66 of the contested decision.

156 Consequently, the Commission correctly concluded that it was entitled to examine, in the context of its analysis under Article 107(1) TFEU, whether intra-group transactions were remunerated as though they had been negotiated under market conditions. That finding is not called into question by the other arguments of the Kingdom of the Netherlands and of Starbucks.

157 First, as regards the argument of the Kingdom of the Netherlands that the Commission failed to explain the content of the arm’s length principle as defined in the contested decision, it is sufficient to recall that the contested decision highlights it as a useful tool that can be used to verify that intra-group transactions are remunerated as if they had been negotiated between stand-alone undertakings (see paragraph 138 above). That argument must therefore be rejected.

158 Second, to the extent that the Kingdom of the Netherlands and Starbucks maintain that the arm’s length principle as described by the Commission in the contested decision would permit it alone to prescribe the taxable profit of an undertaking and that it would have the effect of disguised direct tax harmonisation in contravention with Member States’ fiscal autonomy, that argument must be rejected.

159 While, in the absence of EU rules governing the matter, it falls within the competence of the Member States to designate bases of assessment and to spread the tax burden across the different factors of production and economic sectors (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P,EU:C:2011:732, paragraph 97), it does not mean that every tax measure, which affects, inter alia, the basis of assessment taken into account by the tax authorities, will escape the application of Article 107 TFEU (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 104). It follows that the Commission does not have, at this stage of the development of EU law, competence to allow it to define in an autonomous manner the ‘normal’ taxation of an integrated undertaking, by disregarding national tax rules. However, although ‘normal’ taxation is defined by national tax rules and although the very existence of an advantage must be established by reference to them, the fact remains that, if those national rules provide that stand-alone companies and integrated companies must be dealt with under the same conditions, Article 107(1) TFEU allows the Commission to verify whether the price level of intra-group transactions, accepted by the national authorities for determining the tax base of an integrated undertaking, corresponds to a price level of a transaction which has been negotiated in market conditions.

160 Consequently, when the Commission examines whether the method validated in a national tax measure leads to an outcome established in conformity with the arm’s length principle as has been defined in paragraph 137 above, it is not exceeding its competences.

161 Third, as regards the argument of the Kingdom of the Netherlands that the Commission has failed to provide any legal basis for its arm’s length principle, it must be pointed out that, in recitals 264 and 265 of the contested decision, the Commission stated that the arm’s length principle as described in the contested decision existed independently of the incorporation of that principle into the national legal system. It also made clear that it had not examined whether the APA complied with the arm’s length principle laid down in Article 8b of the CIT or in the transfer pricing decree, which incorporate the arm’s length principle into Netherlands law. The Commission also asserted that the arm’s length principle which it applied was distinct from that enshrined in Article 9 of the OECD Model Tax Convention on Income and on Capital.

162 However, the Commission also made clear, in recital 264 of the contested decision, that the arm’s length principle necessarily formed an integral part of the examination, under Article 107(1) TFEU, of tax measures granted to group companies and that the arm’s length principle was a general principle of equal treatment in taxation, which fell within the application of Article 107 TFEU.

163 It is therefore apparent from the contested decision that the arm’s length principle, as described by the Commission, is a tool which it used, correctly, in the context of the examination carried out under Article 107(1) TFEU.

164 It is true that, at the hearing, the Commission inter alia stated that the arm’s length principle as described in the contested decision did not fall within EU law or international law, but that it was inherent in the ordinary system of taxation as provided for by national law. Thus, according to the Commission, if a Member State chooses, in the context of its national tax system, the approach of the separate legal entity, according to which tax law is concerned with legal entities, and not with economic entities, the arm’s length principle is necessarily a corollary of that approach, which is binding in the Member State concerned, independently of whether the arm’s length principle has, expressly or impliedly, been incorporated into national law.

165 In that regard, the Kingdom of the Netherlands and Starbucks indicated at the hearing that, by those assertions, the Commission seemed to be changing its stance on the arm’s length principle as described in the contested decision. However, on the assumption that the interpretation put forward by the Kingdom of the Netherlands and Starbucks is found to be correct, it must be stated, in any event, that the Commission cannot change the legal basis of the arm’s length principle, as set out in the contested decision, at the hearing stage (see, to that effect, judgment of 25 June 1998, British Airways and Others v Commission, T‑371/94 and T‑394/94, EU:T:1998:140, paragraph 116).

166 In all events, it must be noted that the clarification provided at the hearing does not call into question the finding in paragraph 156 above that it is apparent from the contested decision that the arm’s length principle is being applied in the context of the examination under Article 107(1) TFEU. It is, moreover, apparent from all of the written submissions of the Kingdom of the Netherlands and Starbucks that they understood the contested decision to mean that the arm’s length principle as described by the Commission in the contested decision was being applied in the context of the examination of a national tax measure under Article 107(1) TFEU.

167 Fourth, the Kingdom of the Netherlands and Ireland submit, in essence, that the Commission wrongly asserted, in the contested decision, that there was a general principle of equal treatment in taxation on the profits of integrated and non-integrated undertakings.

168 It is true that the Commission indicated, in recital 264 of the contested decision, that the arm’s length principle was a general principle of equal treatment in taxation, which fell within the scope of Article 107(1) TFEU. However, that wording must not be taken out of context and cannot be interpreted as meaning that the Commission asserted that there was a general principle of equal treatment in relation to tax inherent in Article 107(1) TFEU, which would give that article too broad a scope.

169 In any event, it is implicitly but necessarily evident from recitals 258 to 267 of the contested decision, and in particular from recitals 262 and 265 of that decision, that the arm’s length principle as described by the Commission in the contested decision was perceived by the Commission only as a tool enabling it to check that intra-group transactions are remunerated as though they had been negotiated between independent companies. The argument of the Kingdom of the Netherlands and of Ireland does not alter the finding in paragraphs 147 to 156 above that the Commission was entitled to examine, in its analysis under Article 107(1) TFEU, whether intra-group transactions were remunerated as though they had been negotiated under market conditions.

170 Accordingly, the Court must reject the argument of the Kingdom of the Netherlands and of Ireland in that respect.

171 Fifth, the Kingdom of the Netherlands and Starbucks argue that the Commission made an assessment in the light of the arm’s length principle, but that it did not examine whether there was an advantage by reference to national tax law. In that regard, it must be noted that it is clear from recitals 267, 341, 415 and 416 of the contested decision that the Commission carried out its examination of whether there was an advantage by reference to the general Netherlands corporate income tax system. It will be necessary to verify whether that examination was vitiated by error in respect of the specific examination of the six lines of reasoning and, if necessary, in respect of the limited reference system.

172 On the basis of the foregoing, it is necessary to reject the second plea in Case T‑760/15 and the second part of the first plea in Case T‑636/16, according to which the Commission committed an error in identifying an arm’s length principle as a criterion for assessing the existence of State aid. It is therefore in the light of the considerations set out in paragraphs 137 to 170 above that the merits of each line of reasoning set out in the contested decision should be analysed (see paragraphs 53 and 54 above).

D. Dispute as to the principal reasoning regarding the existence of a tax advantage in favour of SMBV (recitals 275 to 361 of the contested decision)

1. Choice of the TNMM in the case at hand and the lack of examination of the intra-group transaction for which the APA had in reality been requested (first line of reasoning)

173 The first part of the third plea in Case T‑760/15