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

24 September 2019 ( *1 )

(State aid — Aid granted by Luxembourg — Decision declaring the aid incompatible with the internal market and unlawful and ordering its recovery — Tax ruling — Advantage — Arm’s length principle — Selectivity — Presumption — Restriction of competition — Recovery)

In Cases T‑755/15 and T‑759/15,

Grand Duchy of Luxembourg, represented initially by D. Holderer and T. Uri, subsequently by T. Uri, acting as Agents, and initially by D. Waelbroeck, S. Naudin and A. Steichen, subsequently by D. Waelbroeck and A. Steichen, lawyers,

applicant in Case T‑755/15,

supported by

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

intervener,

Fiat Chrysler Finance Europe, established in Luxembourg (Luxembourg), represented by J. Rodríguez, Solicitor, G. Maisto and M. Engel, lawyers,

applicant in Case T‑759/15,

supported by

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

intervener,

v

European Commission, represented by P.-J. Loewenthal and B. Stromsky, acting as Agents,

defendant,

APPLICATIONS pursuant to Article 263 TFEU for annulment of Commission Decision (EU) 2016/2326 of 21 October 2015 on State aid SA.38375 (2014/C ex 2014/NN) which Luxembourg granted to Fiat (OJ 2016 L 351, p. 1),

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 part of the procedure and further to the hearing on 21 June 2018,

gives the following

Judgment

I. Background to the dispute

A. The tax ruling issued to FFT by the Luxembourg tax authorities

1 On 14 March 2012, the tax adviser of Fiat Chrysler Finance Europe, formerly Fiat Finance and Trade Ltd (‘FFT’), sent a letter to the Luxembourg tax authorities requesting a tax ruling. [confidential] ( 1 )

2 On 3 September 2012, the Luxembourg tax authorities issued a tax ruling in favour of FFT (‘the tax ruling at issue’). The ruling was contained in a letter which stated that, ‘with respect to [the] letter dated [14 March 2012] regarding the intra-group financing activity of [FFT], [it is] hereby [confirmed] that the transfer pricing analysis hereafter has been realised in accordance with the Circular 164/2 of the 28 January 2011 and respects the arm’s length principle’.

3 The letter of 3 September 2012 also made clear that the decision contained therein was to be binding on the tax authorities for a period of five years (that is from tax year 2012 to tax year 2016).

B. The administrative procedure before the Commission

4 On 19 June 2013, the European Commission sent the Grand Duchy of Luxembourg an initial request for detailed information on its national practice regarding tax rulings. That initial request for information was followed by a lengthy exchange of correspondence between the Grand Duchy of Luxembourg and the Commission until, on 24 March 2014, the Commission adopted a decision requiring information to be provided to it by the Grand Duchy of Luxembourg.

5 On 11 June 2014, the Commission decided to initiate the formal investigation procedure under Article 108(2) TFEU (‘the opening decision’) in respect of the tax ruling at issue. Between the date of the opening decision and 15 July 2015, there was a further lengthy exchange of correspondence between the Commission and the Grand Duchy of Luxembourg, as well as FFT, with particular regard to the tax ruling at issue.

C. The contested decision

6 On 21 October 2015, the Commission adopted Decision (EU) 2016/2326 on State aid SA.38375 (2014/C ex 2014/NN) which Luxembourg granted to Fiat (OJ 2016 L 351, p. 1, ‘the contested decision’).

1. Description of the contested measure

7 In Section 2 of the contested decision, entitled ‘Description of the aid measure’, the Commission first described FFT, the beneficiary of the tax ruling at issue, which was part of the Fiat/Chrysler automobile group (‘Fiat/Chrysler group’). It stated that FFT provided treasury services and financing to the Fiat/Chrysler group companies established in Europe, excluding those established in Italy, and that it operated from Luxembourg, where its head office was located. The Commission stated that FFT was involved, in particular, in market funding and liquidity investments, relations with financial market actors, financial coordination and consultancy services to the group companies, cash management services to the group companies, short-term or medium-term inter-company funding, and coordination with the other treasury companies (recitals 34 to 51 of the contested decision).

8 The Commission then described the tax ruling at issue, stating that it had been issued by the Luxembourg tax administration on 3 September 2012. It indicated that that ruling followed (i) the letter of 14 March 2012 from FFT’s tax adviser to the Luxembourg tax administration, containing a request for approval of an advance transfer pricing arrangement, and (ii) a transfer pricing report containing a transfer pricing analysis, prepared by the tax adviser in support of FFT’s request for a tax ruling (‘the transfer pricing report’) (recitals 9, 53 and 54 of the contested decision).

9 The Commission described the tax ruling at issue as endorsing a method for arriving at a profit allocation to FFT within the Fiat/Chrysler group, which enabled FFT to determine its corporate income tax liability to the Grand Duchy of Luxembourg on a yearly basis. It pointed out that the tax ruling at issue had been binding for a period of five years, from the 2012 tax year until the 2016 tax year (recitals 52 and 54 of the contested decision).

10 The Commission noted that, according to the transfer pricing report, the most appropriate method for determining the taxable profit of FFT was the transactional net margin method (‘the TNMM’). This method entails, according to the Commission, taking into consideration the net margins earned in comparable transactions by independent enterprises. This choice was justified, according to that report, by the fact that FFT was providing financial services only to Fiat/Chrysler group companies. The Commission added that, according to the transfer pricing report, the remuneration due to FFT, which constituted the taxable profit, had to be determined by reference to the capital needed by FFT to perform its functions and to bear its risks, in relation to the assets in use (recitals 55 and 56 of the contested decision).

11 Specifically, the Commission found that the transfer pricing report, as endorsed by the tax ruling at issue, proposed calculating the overall remuneration due to FFT for its financing and treasury activities and the risks that it bore, such remuneration consisting of the following two components (recital 70 of the contested decision): – a ‘risk remuneration’, calculated by multiplying FFT’s hypothetical regulatory capital of EUR 28500000, estimated by applying the Basel II framework by analogy, by the pre-tax expected return of 6.05%, estimated using the Capital Asset Pricing Model (‘CAPM’); – a ‘functions remuneration’, calculated by multiplying what is designated as FFT’s capital used to perform the functions, estimated as EUR 93710000, by the market interest rate applied to short-term deposits, estimated to be 0.87%.

12 In addition, the Commission noted that the tax ruling at issue had endorsed the proposal in the transfer pricing report not to remunerate the portion of FFT’s equity designated as supporting FFT’s financial investments in Fiat Finance North America Inc. (‘FFNA’) and Fiat Finance Canada Ltd (‘FFC’) (recital 69 of the contested decision).

2. Description of the Luxembourg rules on transfer pricing

13 The Commission indicated that the tax ruling at issue had been issued on the basis of Article 164(3) of the Luxembourg Income Tax Code (loi du 4 décembre 1967 concernant l’impôt sur le revenu (Law of 4 December 1967 on income tax), as amended, ‘the Tax Code’) and Circular L.I.R. No 164/2 of 28 January 2011, issued by the director of Luxembourg taxes (‘the Circular’). In that regard, first, the Commission noted that that article established the arm’s length principle under Luxembourg tax law, according to which transactions between intra-group companies (‘integrated companies’) were to be remunerated as if they had been agreed to by independent companies negotiating under comparable circumstances at arm’s length (‘stand-alone companies’). Second, it added that the Circular explained in particular how to determine an arm’s length remuneration specifically in the case of intra-group financing companies (recitals 74 to 83 of the contested decision).

3. Description of the OECD Guidelines

14 The Commission outlined the transfer pricing guidelines of the Organisation for Economic Cooperation and Development (OECD) and indicated that transfer prices referred to prices charged for commercial transactions between various entities belonging to the same corporate group. It stated that, in order to avoid a situation where multinational companies had a financial incentive to allocate as little profit as possible to jurisdictions where their profits were subject to higher taxation, tax administrations should only accept transfer prices between integrated companies when, in accordance with the arm’s length principle, transactions are remunerated as if they were agreed to by stand-alone companies negotiating under comparable circumstances at arm’s length. The Commission pointed out that that principle was to be found in Article 9 of the OECD Model Tax Convention on Income and on Capital (‘the OECD Model Tax Convention’) (recitals 84 to 87 of the contested decision).

15 The Commission recalled that the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, adopted by the OECD’s Committee on Fiscal Affairs on 27 June 1995 and updated on 22 July 2010 (‘the OECD Guidelines’), set out five methods for approximating an arm’s length pricing of transactions and profit allocation between integrated companies. Only two of those methods were relevant for the contested decision (recitals 88 and 89 of the contested decision).

16 The first of these is the comparable uncontrolled price (‘CUP’) method, which is a traditional transaction method. The Commission noted that the CUP method compares the price charged for the transfer of property or services in a transaction between two associated enterprises to the price charged for the transfer of property or services in a comparable transaction between independent enterprises conducted under comparable circumstances (recital 90 of the contested decision).

17 The second method is the TNMM, which is an indirect method used to approximate an arm’s length pricing of transactions and profit allocation between companies of the same group. The Commission described that method as one that involves estimating what would be an arm’s length profit for an entire activity, rather than for specific transactions. It explained that, 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 uncontrolled transactions (recital 91 of the contested decision).

4. Assessment of the contested measure

18 In Section 7 of the contested decision, entitled ‘Assessment of the contested measure’, the Commission concluded that State aid had been granted.

19 After recalling the conditions for a finding of State aid, according to which, in order for a measure to be categorised as State aid within the meaning of Article 107(1) TFEU, first, there must 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, the Commission found that the first condition had been fulfilled in this case. In that regard, it stated that the tax ruling at issue was imputable to the Grand Duchy of Luxembourg. Moreover, the Commission found that that ruling had given rise to a loss of State resources, since any reduction of FFT’s tax liability had resulted in a loss of tax revenue that would otherwise have been available to the Grand Duchy of Luxembourg (recitals 185 to 188 of the contested decision).

20 As regards the second and fourth conditions, the Commission found that since FFT was part of a group operating in all Member States, any aid in its favour was liable to affect intra-Union trade. Moreover, it found that, in so far as the tax ruling at issue relieved FFT of a tax liability, that ruling improved its financial position and, as a result, distorted or threatened to distort competition (recital 189 of the contested decision).

21 As regards the third condition for a finding of State aid, the Commission considered that the tax ruling at issue conferred a selective advantage on FFT, in so far as it had resulted in a lowering of FFT’s tax liability in Luxembourg by deviating from the tax which FFT would have been liable to pay under the ordinary corporate income tax system (recital 190 of the contested decision).

22 As a preliminary point, the Commission observed that the case-law had established a three-step analysis to be used in determining whether a tax measure is selective. The first step is to identify the common or normal regime applicable in the Member State (‘the reference system’). In the second step, it is necessary to determine whether the tax measure in question constitutes a derogation from that system, in so far as it differentiates between economic operators who, in the light of the objectives intrinsic to the system, are in a comparable factual and legal situation. The Commission then recalled that, in the third step, if the measure constitutes a derogation from the reference system, the State must establish whether that measure is justified by the nature or the general scheme of the reference system (recital 192 of the contested decision).

23 As regards the first step, identification of the reference system, the Commission considered that, in the present case, this was the general Luxembourg corporate income tax system, the objective of which was to tax the profits of all companies subject to tax in Luxembourg. It stated in that regard that the general Luxembourg corporate income tax system applied to domestic companies and foreign companies resident in Luxembourg, including Luxembourg branches of foreign companies. The Commission considered that the fact that there was a difference in determining the taxable profits of stand-alone companies and integrated companies had no bearing on the objective of the general Luxembourg corporate income tax system, which aimed to tax the profits of all companies resident in Luxembourg, whether or not integrated, and that both types of company are in a similar factual and legal situation in the light of the intrinsic objective of that system. The Commission rejected all the arguments put forward by the Grand Duchy of Luxembourg and by FFT to the effect that Article 164 of the Tax Code or the Circular constituted the relevant reference system, and also their argument that the reference system for determining whether the tax ruling at issue was selective had to be limited to undertakings subject to transfer pricing rules (recitals 193 to 215 of the contested decision).

24 As regards the second step, the Commission stated that 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 an unjustified reduction of the tax liability of a beneficiary who would otherwise be subject to a higher level of tax under the reference system, that reduction constitutes both the advantage granted by the tax measure and the derogation from the reference system. The Commission also noted that, according to the case-law, in the case of an individual measure, the identification of the economic advantage is, in principle, sufficient to support the presumption that it is selective (recitals 216 to 218 of the contested decision).

25 The Commission went on to state that a tax measure which results in a group company charging transfer prices that do not resemble prices which would be charged between independent undertakings under the arm’s length principle confers an advantage on that company, in so far as it results in a reduction of its taxable base and thus its tax liability under the ordinary corporate income tax system, which, according to the Commission, the Court of Justice had accepted. Therefore, the Commission explained that it was required to verify whether the methodology accepted by the Luxembourg tax administration by way of the tax ruling at issue for the determination of FFT’s taxable profits in Luxembourg departed from a methodology that led to a reliable approximation of a market-based outcome, and thus from the arm’s length principle. In that case the tax ruling at issue would be deemed to confer a selective advantage on FFT for the purposes of Article 107(1) TFEU (recitals 222 to 227 of the contested decision).

26 Consequently, the Commission found that the arm’s length principle necessarily formed part of its assessment, under Article 107(1) TFEU, of tax measures granted to integrated companies, irrespective of whether a Member State had incorporated that principle into its national legal system. The Commission then explained, in response to the arguments raised by the Grand Duchy of Luxembourg during the administrative procedure, that it had not examined whether the tax ruling at issue complied with the arm’s length principle, as laid down in Article 164(3) of the Tax Code or in the Circular, but that it had sought to determine whether the Luxembourg tax administration had conferred a selective advantage on FFT for the purposes of Article 107(1) TFEU (recitals 228 to 231 of the contested decision).

27 In the first place, the Commission considered that several of the methodological choices approved by the Grand Duchy of Luxembourg and underlying the transfer pricing analysis in the tax ruling at issue resulted in a reduction of the corporate income tax that stand-alone companies would have been obliged to pay (recitals 234 to 240 of the contested decision).

28 First, in relation to the capital to be remunerated, the Commission did not consider the tax adviser’s chosen profit level indicator, namely FFT’s hypothetical regulatory capital, to be appropriate in the application of the TNMM for estimating an arm’s length remuneration for the functions performed by FFT. The Commission went on to find that, by taking into account the hypothetical regulatory capital of EUR 28.5 million, instead of the accounting equity, which was EUR 287.5 million in 2011, on the basis of which the CAPM was applied, the tax adviser had divided FFT’s taxable remuneration by 10. The Commission made clear that it had rejected all the arguments of the Grand Duchy of Luxembourg and FFT in that respect (recitals 248 to 266 of the contested decision).

29 Second, as regards the application of the Basel II framework in order to determine the hypothetical regulatory capital, the Commission considered that the Grand Duchy of Luxembourg had made errors that led to FFT’s hypothetical regulatory capital being underestimated and resulted in a lowering of FFT’s tax liability (recitals 267 to 276 of the contested decision).

30 Third, the Commission found that the tax adviser had made several deductions from FFT’s remaining capital that departed from a market-based outcome. First of all, it observed that if the hypothetical regulatory capital had been correctly estimated, it was likely that no capital in excess of regulatory capital would have been found. Next, the Commission took the view that the tax adviser’s decision to isolate the equity component designated as ‘equity supporting the financial investments in FFNA and FFC’ and to accord it a zero remuneration for the purpose of estimating FFT’s tax base was inappropriate. The Commission indicated that it did not regard the Grand Duchy of Luxembourg’s arguments on this point as convincing (recitals 277 to 291 of the contested decision).

31 Fourth, the Commission considered that the tax adviser’s choice of a beta of 0.29 when using the CAPM to determine the return on capital to be applied to FFT’s hypothetical regulatory capital resulted in a profit allocation to FFT that was not in line with the arm’s length principle (recitals 292 to 301 of the contested decision).

32 Among the conclusions reached by the Commission in the light of those findings are: (i) the appropriate level of remuneration for the financing and treasury functions of FFT should be established on the basis of FFT’s accounting equity; (ii) 2012 was an appropriate reference year for assessing FFT’s tax base in Luxembourg; (iii) the pre-tax return on equity of 6.05% (and the post-tax return of 4.3%) accepted by the tax ruling at issue and calculated using the CAPM was well below the required returns on capital in the financial sector, which had remained consistently at or above 10%; and (iv) the required post-tax return on equity was 10%, applied to the full amount of the accounting equity (recitals 302 to 311 of the contested decision).

33 In the second place, the Commission rejected FFT’s argument that there was no advantage for the Fiat/Chrysler group because any increase in the tax base in Luxembourg would have been offset in full by an increased tax deduction in other Member States (recitals 312 to 314 of the contested decision).

34 In the third place, as a subsidiary point, the Commission found that, in any event, the tax ruling at issue also granted a selective advantage under the more limited reference system, invoked by the Grand Duchy of Luxembourg and by FFT, consisting of Article 164(3) of the Tax Code and the Circular, which laid down the arm’s length principle in Luxembourg tax law (recitals 315 to 317 of the contested decision).

35 In the fourth place, the Commission rejected FFT’s argument that, in order to prove selective treatment benefiting FFT as a result of the tax ruling at issue, the Commission should have compared that ruling to the practice of the Luxembourg tax administration under the Circular and, in particular, to the tax rulings granted to other financing and treasury companies that the Grand Duchy of Luxembourg had submitted to the Commission as part of a representative sample of its tax ruling practice (recitals 318 to 336 of the contested decision).

36 In the fifth place, neither the Grand Duchy of Luxembourg nor FFT had, according to the Commission, advanced any possible justification for the selective treatment of FFT as a result of the tax ruling at issue. Nor had the Commission identified any ground justifying the preferential treatment from which FFT had benefited (recitals 337 and 338 of the contested decision).

37 The Commission thus concluded, in the light of the foregoing considerations, that the tax ruling at issue had conferred a selective advantage on FFT in that it had resulted in a lowering of FFT’s tax liability, principally, under the general Luxembourg corporate income tax system as compared to stand-alone companies and, as a subsidiary point, under the tax regime applicable to integrated companies (recitals 339 and 340 of the contested decision).

38 Finally, the Commission considered that the beneficiary of the advantage at issue was the Fiat/Chrysler group as a whole, in so far as FFT formed an economic unit with the other entities within the group, and that those entities had benefited from the tax reduction granted to FFT, given that that tax reduction necessarily had the effect of reducing the pricing conditions of its intra-group loans (recitals 341 to 345 of the contested decision).

39 In the light of all of the foregoing considerations, the Commission concluded that the tax ruling at issue constituted State aid and that the aid in question was operating aid (recitals 346 and 347 of the contested decision).

40 In Section 8 of the contested decision, entitled ‘Compatibility of the aid’, the Commission concluded that the aid granted to FFT was incompatible with the internal market. In this respect, it noted that the Grand Duchy of Luxembourg had not invoked any of the derogations provided for in Article 107(2) and (3) TFEU and, moreover, that the aid in question, which had to be considered to be operating aid, could not normally be considered compatible with the internal market (recitals 348 to 351 of the contested decision).

41 In Section 9 of the contested decision, entitled ‘Unlawfulness of the aid’, the Commission observed that the Grand Duchy of Luxembourg had not notified it, in accordance with Article 108(3) TFEU, of any plan to grant the tax ruling at issue, nor had it complied with the standstill obligation laid down in that provision. Consequently, the tax ruling at issue constituted unlawful State aid, put into effect in contravention of that provision (recitals 352 and 353 of the contested decision).

42 In Section 10 of the contested decision, entitled ‘Recovery’, the Commission stated, first, that the arguments advanced by the Grand Duchy of Luxembourg as to observance of the principles of protection of legitimate expectations and legal certainty were without merit (recitals 354 to 364 of the contested decision).

43 Second, the Commission pointed out that it was not required to state the exact amount of the aid to be recovered, and that it was sufficient for the contested decision to include information enabling the addressee to work out the amount itself without overmuch difficulty. In the present case, the Commission proposed one possible methodology in the contested decision for eliminating the selective advantage granted to FFT by the tax ruling at issue, and made clear that it would also be prepared to accept another method of calculation should the Grand Duchy of Luxembourg propose one before the deadline for implementation of the contested decision, provided that that method resulted in a reliable approximation of a market-based outcome (recitals 365 to 369 of the contested decision).

44 Third, the Commission found that, in the first instance, the Grand Duchy of Luxembourg was required to recover from FFT the unlawful and incompatible aid granted by means of the tax ruling at issue. Should FFT not have been in a position to repay the aid in full, the Grand Duchy of Luxembourg was to recover the balance from Fiat Chrysler Automobiles NV, the successor of Fiat SpA, since it was that entity which controlled the group to which FFT belonged (recital 370 of the contested decision).

45 In conclusion, the Commission found that the Grand Duchy of Luxembourg had, by way of the tax ruling at issue, unlawfully granted State aid to FFT and to the group to which it belonged, in breach of Article 108(3) TFEU, that that aid was incompatible with the internal market and that, consequently, the Grand Duchy of Luxembourg was required to recover it from FFT or, in the event of FFT failing to repay the full amount of the aid, from Fiat Chrysler Automobiles (recital 371 of the contested decision).

46 The operative part of the contested decision is worded as follows: ‘Article 1 The tax ruling [at issue], which enables [FFT] to determine its tax liability in Luxembourg on a yearly basis for a period of five years, constitutes aid within the meaning of Article 107(1) [TFEU] that is incompatible with the internal market and that was unlawfully put into effect by [the Grand Duchy of] Luxembourg in breach of Article 108(3) [TFEU]. Article 2 1. [The Grand Duchy of] Luxembourg shall recover the incompatible and unlawful aid referred to in Article 1 from [FFT]. 2. Any sums that remain unrecoverable from [FFT], following the recovery described in the paragraph 1, shall be recovered from Fiat Chrysler Automobiles NV. 3. 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. 4. The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004. Article 3 1. Recovery of the aid granted referred to in Article 1 shall be immediate and effective. 2. [The Grand Duchy of] Luxembourg shall ensure that this Decision is implemented within four months following the date of notification of this Decision. Article 4 1. Within two months following notification of this Decision, [the Grand Duchy of] Luxembourg shall submit to the Commission information regarding the methodology used to calculate the exact amount of aid. 2. [The Grand Duchy of] Luxembourg 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. Article 5 This Decision is addressed to the Grand Duchy of Luxembourg.’

II. Procedure and forms of order sought

A. The written part of the procedure and the forms of order sought in Case T‑755/15

47 By application lodged at the Court Registry on 30 December 2015, the Grand Duchy of Luxembourg brought the action in Case T‑755/15 seeking annulment of the contested decision.

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

48 By document lodged at the Court Registry on 6 June 2016, the Grand Duchy of Luxembourg requested that the case 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‑755/15 had been referred to the Fifth Chamber, Extended Composition.

49 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, to which Case T‑755/15 was accordingly allocated.

50 Since a member of the Seventh Chamber, Extended Composition, of the General Court was unable to sit in the present case, the President of the General Court, by decision of 6 February 2017, designated the Vice-President of the General Court to complete the Chamber.

51 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‑755/15 be given priority under Article 67(2) of the Rules of Procedure.

2. Request that the case be dealt with under the expedited procedure

52 By separate document lodged at the Court Registry on 30 December 2015, the Grand Duchy of Luxembourg requested that Case T‑755/15 be dealt with under the expedited procedure provided for in Article 151 of the Rules of Procedure. On 2 February 2016, the Court decided not to grant that request.

3. Interventions

53 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 support of the form of order sought by the Commission.

54 By document lodged at the Court Registry on 7 April 2016, Ireland applied for leave to intervene in support of the form of order sought by the Grand Duchy of Luxembourg.

55 By order of 25 May 2016, the President of the Fifth Chamber of the General Court granted the applications to intervene of the United Kingdom and Ireland.

56 By document lodged at the Court Registry on 9 November 2016, the United Kingdom withdrew its intervention.

57 By order of 15 December 2016, the President of the Seventh Chamber, Extended Composition, of the General Court removed the United Kingdom as intervener from Case T‑755/15.

4. Applications for confidential treatment

58 By documents lodged at the Court Registry on 29 April, 27 June and 24 October 2016, the Grand Duchy of Luxembourg requested that certain information contained in the application, in the reply, in the rejoinder and in certain annexes to those pleadings be treated as confidential vis-à-vis the United Kingdom and Ireland. By document lodged at the Court Registry on 3 January 2017, the Grand Duchy of Luxembourg informed the Court that it wished to maintain its applications for confidential treatment vis-à-vis Ireland, in the event of any joinder of Cases T‑755/15 and T‑759/15.

5. Forms of order sought

59 The Grand Duchy of Luxembourg claims that the Court should: – declare the present action admissible and well founded; – principally, annul the contested decision; – alternatively, annul the contested decision in so far as it orders the recovery of the aid; – order the Commission to pay the costs.

60 Ireland, intervening in support of the form of order sought by the Grand Duchy of Luxembourg, claims that the Court should annul the contested decision in whole or in part.

61 The Commission contends that the Court should: – declare the action unfounded; – order the Grand Duchy of Luxembourg to pay the costs.

B. The written part of the procedure and the forms of order sought in Case T‑759/15

62 By application lodged at the Court Registry on 29 December 2015, FFT brought the action in Case T‑759/15 seeking annulment of the contested decision.

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

63 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, to which Case T‑759/15 was accordingly allocated.

64 On a proposal from the Seventh Chamber, the Court decided, on 15 February 2017, to refer the case to a Chamber sitting in extended composition.

65 Since a member of the Seventh Chamber, Extended Composition, of the General Court was unable to sit in the present case, the President of the General Court, by decision of 23 February 2017, designated the Vice-President of the General Court to complete the Chamber.

66 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‑759/15 be given priority under Article 67(2) of the Rules of Procedure.

2. Request that the case be dealt with under the expedited procedure

67 By separate document lodged at the Court Registry on 29 December 2015, FFT requested that Case T‑759/15 be dealt with under the expedited procedure provided for in Article 151 of the Rules of Procedure. On 2 February 2016, the Court decided not to grant that request.

3. Interventions

68 By document lodged at the Court Registry on 6 April 2016, the United Kingdom applied for leave to intervene in support of the form of order sought by the Commission.

69 By document lodged at the Court Registry on 7 April 2016, Ireland applied for leave to intervene in support of the form of order sought by FFT.

70 By order of 18 July 2016, the President of the Fifth Chamber of the General Court granted the applications to intervene of the United Kingdom and Ireland.

71 By document lodged at the Court Registry on 9 November 2016, the United Kingdom withdrew its intervention.

72 By order of 15 December 2016, the President of the Seventh Chamber, Extended Composition, removed the United Kingdom as intervener from Case T‑759/15.

4. Applications for confidential treatment

73 By documents lodged at the Court Registry on 20 May, 11 June, 27 July and 28 July 2016, FFT requested that certain information contained in the application, in the defence, in the reply and in certain annexes to those pleadings be treated as confidential vis-à-vis the United Kingdom and Ireland.

74 By document lodged at the Court Registry on 17 January 2017, FFT stated that it maintained its claims of confidentiality with regard to Ireland, in the event of the case being joined with Case T‑755/15.

5. Forms of order sought

75 FFT claims that the Court should: – declare the action admissible; – annul Articles 1 to 4 of the contested decision; – order the Commission to pay the costs.

76 Ireland, intervening in support of the form of order sought by FFT, claims that the Court should annul the contested decision in whole or in part.

77 The Commission contends that the Court should: – declare the action unfounded; – order FFT to pay the costs.

C. Joinder for the purposes of the oral part of the procedure, and the oral part of the procedure in Cases T‑755/15 and T‑759/15

1. Joinder

78 By document lodged at the Court Registry on 1 December 2016, the Grand Duchy of Luxembourg applied for Cases T‑755/15 and T‑759/15 to be joined for the purposes of the oral part of the procedure and of the decision which closes the proceedings.

79 By document lodged at the Court Registry on 1 December 2016, FFT also applied for Cases T‑755/15 and T‑759/15 to be joined for the purposes of the oral part of the procedure and of the decision which closes the proceedings.

80 By order of the President of the Seventh Chamber, Extended Composition, of the General Court of 27 April 2018, the parties having been heard, Cases T‑755/15 and T‑759/15 were joined for the purposes of the oral part of the procedure, in accordance with Article 68(1) of the Rules of Procedure. By the same order, it was decided to exclude the confidential information from the case file to be made available to Ireland.

2. Oral part of the procedure in Cases T‑755/15 and T‑759/15

81 By letter lodged at the Court Registry on 7 February 2017, the Grand Duchy of Luxembourg requested that a hearing be held, in accordance with Article 106(2) of the Rules of Procedure.

82 By letter lodged at the Court Registry on 10 February 2017, FFT requested that a hearing be held, in accordance with Article 106(2) of the Rules of Procedure.

83 Acting on a report from the Judge-Rapporteur, the Court decided to open the oral part of the procedure in Cases T‑755/15 and T‑759/15. By way of measures of organisation of procedure under Article 89 of the Rules of Procedure, the Court asked the parties to answer questions in writing. The parties complied with those requests within the prescribed periods.

84 On 24 May 2017, FFT lodged a submission containing further evidence, on which the parties submitted their observations.

85 The parties presented oral argument and their answers to the questions put by the Court at the hearing on 21 June 2018.

III. Law

A. Joinder of the cases for the purposes of the present judgment

86 In accordance with Article 19(2) of the Rules of Procedure, the President of the Seventh Chamber, Extended Composition, of the General Court referred the decision as to whether Cases T‑755/15 and T‑759/15 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.

87 The parties having been heard at the hearing with respect to a possible joinder of the cases, it is appropriate for Cases T‑755/15 and T‑759/15 to be joined for the purposes of the decision which closes the proceedings, on account of the connection between them, in accordance with Article 68(1) of the Rules of Procedure.

B. Pleas in law relied on and the structure of the examination of the present actions

88 By the actions brought in Cases T‑755/15 and T‑759/15, annulment is sought of the contested decision in so far as it classifies the tax ruling at issue as State aid within the meaning of Article 107(1) TFEU and in so far as it orders the recovery of sums which have allegedly not been collected from FFT and the Fiat/Chrysler group by the Grand Duchy of Luxembourg as corporate income tax.

89 In support of its action, the Grand Duchy of Luxembourg puts forward three pleas in law.

90 The first plea in law, which covers, in essence, the condition for a finding of selective aid and the Commission’s competence in fiscal matters, is divided into three parts. First, the Grand Duchy of Luxembourg submits that, in the context of its examination of the selectivity of the contested measure, the Commission incorrectly considered the relevant reference framework to be the general corporate income tax regime (first part). Second, the Grand Duchy of Luxembourg claims that the Commission failed to demonstrate that the tax ruling at issue constituted a derogation from the reference framework used, or that it derogated from the arm’s length principle (second part). Third, the Grand Duchy of Luxembourg submits that the Commission infringed Articles 4 and 5 TEU and Article 114 TFEU by engaging in tax harmonisation in disguise, consisting in the imposition of a sui generis arm’s length principle (third part).

91 The second plea in law, which is divided into two parts, alleges infringement of Article 107(1) TFEU and of the Commission’s obligation to state reasons as provided for in Article 296 TFEU, in that the Commission failed to demonstrate that there was any advantage (first part) or any restriction of competition (second part).

92 The third plea in law, advanced in the alternative, alleges infringement of Article 14(1) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article [108 TFEU] (OJ 1999 L 83, p. 1). However, since that regulation has been repealed by Council 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), which was applicable at the date of the contested decision, this plea must be understood as alleging infringement of Article 16(1) of the latter regulation. The plea is divided into two parts. The Grand Duchy of Luxembourg claims that the Commission ordered recovery of the aid contrary to the principle of legal certainty (first part) and to its rights of defence (second part).

93 In support of its action, FFT puts forward four pleas in law.

94 The first plea in law, which is divided into two parts, alleges infringement of Article 107 TFEU. In support of the first part of its first plea, FFT submits that the Commission misapplied the concept of selective advantage. In that respect, it raises four complaints. The first alleges an error in the determination of the relevant reference framework. The second alleges an error in that an unprecedented and undefined concept of the arm’s length principle was applied. The third alleges that there was no proof that an advantage had been given to the Fiat/Chrysler group. The fourth complaint is that, even if the tax ruling at issue derogates from the general corporate income tax system, that derogation is justified. In support of the second part of its first plea, FFT claims that the Commission failed to show that the tax ruling at issue was liable to distort competition.

95 The second plea in law, which is also divided into two parts, alleges infringement of the second paragraph of Article 296 TFEU. FFT claims that the Commission failed to fulfil its obligation to state reasons through its failure to explain in the contested decision how it derived the arm’s length principle from EU law and what that principle is (first part). Next, it claims that the Commission failed to set out the reasons for its view that the tax ruling at issue distorted competition (second part).

96 The third plea in law alleges breach of the principle of legal certainty. FFT submits that the Commission’s formulation of the arm’s length principle introduces legal uncertainty and confusion as to when a tax ruling might breach the rules on State aid.

97 The fourth plea in law alleges breach of the principle of protection of legitimate expectations, in so far as the Commission did not assess the tax ruling at issue in the light of the relevant OECD rules.

98 It is apparent from all of the above that the Grand Duchy of Luxembourg and FFT are advancing, albeit in a different order, five series of pleas, alleging, in essence: – in the first series, infringement of Articles 4 and 5 TEU, in so far as the Commission’s analysis would lead to tax harmonisation in disguise (third part of the first plea in Case T‑755/15); – in the second series, infringement of Article 107 TFEU, of the obligation to state reasons provided for in Article 296 TFEU and breach of the principles of legal certainty and protection of legitimate expectations, in so far as the Commission considered that the tax ruling at issue conferred an advantage, notably on the ground that that tax ruling did not comply with the arm’s length principle (second part of the first plea and first part of the second plea in Case T‑755/15, second and third complaints in the first part of the first plea, first part of the second plea, third plea and fourth plea in Case T‑759/15); – in the third series, infringement of Article 107 TFEU, in so far as the Commission found that that advantage was selective (first part of the first plea in Case T‑755/15 and first complaint in the first part of the first plea in Case T‑759/15); – in the fourth series, infringement of Article 107 TFEU and of the obligation to state reasons provided for in Article 296 TFEU, in so far as the Commission found that the measure at issue restricted competition and distorted trade between Member States (second part of the second plea in Case T‑755/15 and second part of the first and second pleas in Case T‑759/15); – in the fifth series, breach of the principle of legal certainty and infringement of the rights of the defence, in so far as the Commission ordered that the aid at issue be recovered (third plea in Case T‑759/15).

99 The Court will examine the pleas in the order of the series of pleas set out in paragraph 98 above.

C. First series of pleas, alleging infringement of Articles 4 and 5 TEU, in so far as the Commission has allegedly engaged in tax harmonisation in disguise

100 The Grand Duchy of Luxembourg claims, in essence, that the Commission exceeded its powers and infringed Articles 4 and 5 TEU by engaging in tax harmonisation in disguise, despite direct taxation falling within the exclusive competence of the Member States pursuant to Article 114 TFEU. It adds that the Commission established itself as a national ‘tax administrations appeal chamber’, by reviewing whether the tax ruling at issue was abnormal having regard to Luxembourg law and the OECD.

101 Ireland submits that the contested decision disturbs the division of powers between the European Union and the Member States established, in particular, by Article 3(6) TEU and Article 5(1) and (2) TEU, direct taxation being a matter that falls within the exclusive competence of the Member States. In its view, therefore, the Commission is engaging in harmonisation in disguise.

102 The Commission contests those arguments.

103 In essence, the parties disagree as to whether the Commission infringed the rules on the allocation of powers in so far as it allegedly engaged in tax harmonisation in disguise in the contested decision.

104 In that regard, it should be recalled that, 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 areas which have not been harmonised in the European Union, such as direct taxation, is not excluded from the scope of the rules on the monitoring of State aid. Accordingly, the Commission can classify a tax measure as State aid provided that the conditions for that classification are met (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 28; of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81; and of 25 March 2015, Belgium v Commission, T‑538/11, EU:T:2015:188, paragraphs 65 and 66).

105 It is true that, 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).

106 However, that 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. If such a measure in fact discriminates between companies that are in a comparable situation with regard to the objective of that tax measure and as a result confers selective advantages on the beneficiaries of the measure which favour ‘certain’ undertakings or the production of ‘certain’ goods, it can be considered State aid within the meaning of Article 107(1) 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).

107 It follows from the foregoing that, since the Commission has the power to monitor compliance with Article 107 TFEU, it cannot be accused of having exceeded its powers when it examined the tax ruling at issue in order to determine whether it constituted State aid and, if it did, whether it was compatible with the internal market, within the meaning of Article 107(1) TFEU.

108 The Grand Duchy of Luxembourg is therefore wrong to claim that the Commission established itself as a tax appeal chamber for the Grand Duchy of Luxembourg, since the Commission merely exercised its powers under Article 107 TFEU in examining whether the tax ruling at issue complied with the law on State aid.

109 In those circumstances, it must be concluded that the Commission did not infringe Articles 4 and 5 TEU or Article 114 TFEU by adopting the contested decision.

110 That conclusion is not undermined by the arguments of the Grand Duchy of Luxembourg and Ireland.

111 First, in so far as the Grand Duchy of Luxembourg and Ireland claim that the Commission has engaged in tax harmonisation in disguise by disregarding the Luxembourg rules in order to conclude that the tax calculation did not comply with the arm’s length principle and by relying on rules that are not part of the Luxembourg tax system, that argument must be rejected as unfounded.

112 It does indeed follow from the case-law set out in paragraph 105 above that the Commission does not, at this stage of the development of EU law, have the power autonomously to define the ‘normal’ taxation of an integrated undertaking, disregarding national tax rules.

113 However, although ‘normal’ taxation is defined by the national tax rules and the actual existence of an advantage must be demonstrated by reference thereto, the fact remains that, as is recalled in paragraph 106 above, a tax measure which affects the tax base that is taken into account by the tax authorities may come within the scope of Article 107(1) TFEU. Thus, when considering whether the tax ruling at issue complied with the rules on State aid, the Commission did not engage in any ‘tax harmonisation’ but exercised the power conferred on it by Article 107(1) TFEU notably by verifying, in a specific case, whether that tax ruling conferred on its beneficiary an advantage as compared to ‘normal’ taxation, as defined by national tax law.

114 Second, the Grand Duchy of Luxembourg and Ireland claim that the contested decision creates ‘total legal uncertainty’, not only in the Member States but also in third countries, that that measure has been strongly criticised notably by leaders of the United States of America, that it is a ‘first’ which is illegal and that it will cause the Member States to notify all their tax rulings and to question existing tax rulings. Such arguments must be rejected as unfounded.

115 First, it does not follow from the contested decision that the Commission has concluded that every tax ruling necessarily constitutes State aid within the meaning of Article 107 TFEU. Provided that it does not grant any selective advantage, notably in that it does not result in a reduction of the tax burden of its beneficiary by derogating from the ‘normal’ taxation rules, such a tax ruling does not constitute State aid within the meaning of Article 107 TFEU and is not subject to a notification obligation under Article 2 of Regulation 2015/1589.

116 Second, contrary to what is maintained by the Grand Duchy of Luxembourg and Ireland, the contested decision does not create ‘total legal uncertainty’ in the Member States or third countries. It merely represents the application to the tax ruling at issue of Articles 107 and 108 TFEU, according to which a State measure which constitutes aid that is incompatible with the internal market is prohibited and the aid must be recovered.

117 It follows from all of the foregoing that the plea intended to establish that the Commission has engaged in tax harmonisation in disguise must be rejected as unfounded.

D. Second series of pleas, alleging the absence of an advantage

1. Preliminary observations

118 As a preliminary point, it must be borne in mind that, according to the case-law, classification as State aid requires all the conditions referred to in Article 107 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).

119 In the present case, it must be noted that, as is apparent from paragraphs 21 to 37 above, in the contested decision, the Commission examined the two criteria of the existence of an advantage and the selectivity of the measure at issue concurrently.

120 Specifically, principally, the Commission considered that the tax ruling at issue conferred a selective advantage on FFT with regard to the general Luxembourg corporate income tax system, because the methodology accepted in that tax ruling did not comply with the arm’s length principle, which necessarily formed part of the Commission’s assessment under Article 107(1) TFEU of tax measures granted to group companies, independently of whether a Member State had incorporated that principle into its national legal system, and according to which intra-group transactions should have been remunerated as if they had been negotiated between independent undertakings (‘the arm’s length principle as described by the Commission in the contested decision’) (see recitals 219 to 231 of the contested decision and, in particular, recital 228 of that decision). The Commission then set out, in recitals 234 to 311 of the contested decision, its reasoning according to which the methodology for determining FFT’s taxable profit, accepted by the tax ruling at issue, could not result in a reliable approximation of an outcome obtained under market conditions (arm’s length outcome).

121 Moreover, as a subsidiary point, the Commission considered that the tax ruling at issue conferred an advantage on FFT because it derogated from Article 164(3) of the Tax Code and the Circular, which established the arm’s length principle under Luxembourg law (see recitals 316 and 317 of the contested decision). The Commission then referred to its analysis, according to which the method validated by the tax ruling at issue could not result in a reliable approximation of a market-based outcome, as set out in the context of its main line of reasoning (see recitals 234 to 311 of the contested decision).

122 The Commission’s approach of examining the criteria of advantage and selectivity concurrently is not in itself incorrect, in so far as, as the Commission observes, 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.

123 In that regard, it must be noted that, although some of the arguments raised by the Grand Duchy of Luxembourg and FFT, including those put forward in the second part of the first plea of the Grand Duchy of Luxembourg, are presented as relating to the selectivity of the measure at issue, the Court considers that they are also intended to elicit a finding that the Commission wrongly concluded that the measure at issue conferred an advantage on FFT. The Court will therefore examine the arguments raised in the second part of the first plea of the Grand Duchy of Luxembourg in conjunction with the pleas challenging the Commission’s conclusion that the tax ruling at issue conferred an advantage on FFT.

124 In the light of these observations, the Court will examine the pleas put forward in support of the argument that FFT did not enjoy an advantage, distinguishing, first, the complaints made in respect of the Commission’s principal line of reasoning and, second, those relating to what was set out as a subsidiary line of reasoning. Third, the Court will examine the complaint by which the Grand Duchy of Luxembourg argues that the Commission has failed to prove the existence of an advantage at the level of the Fiat/Chrysler group.

2. The Commission’s principal line of reasoning, that the tax ruling at issue derogated from the general Luxembourg corporate income tax system

125 The pleas put forward by the Grand Duchy of Luxembourg and FFT to challenge the examination of the advantage, the principal facet of the Commission’s approach, may be summarised as follows. First, the Grand Duchy of Luxembourg and FFT, supported by Ireland, dispute the existence of the arm’s length principle as described by the Commission in the contested decision and the Commission’s application of that principle as a criterion for assessing the existence of a selective advantage. Second, the Grand Duchy of Luxembourg disputes the Commission’s conclusion that the method validated by the tax ruling at issue for determining the amount of tax payable by FFT does not comply with the arm’s length principle.

(a) Pleas alleging an error in the application of the arm’s length principle in the monitoring of State aid

126 In essence, the Grand Duchy of Luxembourg and FFT claim that the Commission identified an arm’s length principle that is specific to EU law, in breach of the fiscal autonomy of the Member States, and that it examined the tax ruling at issue in the light of that principle, without taking account of Luxembourg law. They also submit that, by applying the arm’s length principle as described in the contested decision, the Commission breached the principles of legal certainty and protection of legitimate expectations, and failed to fulfil its obligation to state reasons.

127 The Commission contests those arguments.

128 It will be recalled that, in recitals 219 to 231 of the contested decision, the Commission explained that it was entitled, in order to identify a selective advantage, to examine whether a tax ruling, such as that at issue, deviated from the arm’s length principle as described in the contested decision. It then outlined the scope of that arm’s length principle.

129 First and foremost, it must be noted that, as is apparent in particular from recitals 216, 231 and 311 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 is apparent from recitals 216, 219 and 301 of the contested decision, that analysis entails examining whether the tax ruling at issue derogates from the general Luxembourg corporate income tax system. It must be noted in that regard that the Commission had previously indicated, in recitals 194 to 199 of the contested decision, that the objective of the general Luxembourg corporate income tax system was to tax the profits of all companies resident in Luxembourg, whether or not integrated, and that both types of company are in a similar factual and legal situation in the light of that objective.

130 As regards the definition of the arm’s length principle, the Commission asserted, in recitals 222 and 225 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 226 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.

131 With regard to the legal nature of the arm’s length principle, the Commission considered, in recital 228 of the contested decision, that the arm’s length principle necessarily formed part of the 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 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 effect of the method of assessment of the taxable income of the centres ‘[was] that the transfer prices [did] not resemble those which [were] charged in conditions of free competition’.

132 As regards the application of the arm’s length principle, in recital 227 of the contested decision, the Commission indicated that, ‘the Commission’s assessment of whether [the Grand Duchy of] Luxembourg [had] granted a selective advantage to FFT [had] therefore [to] consist in verifying whether the methodology accepted by the Luxembourg tax administration by way of the [tax ruling at issue] for the determination of FFT’s taxable profits in Luxembourg depart[ed] from a methodology that [led] to a reliable approximation of a market-based outcome and thus from the arm’s length principle’. It added, in recital 228 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.

133 The Court must thus consider 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 and set out in paragraphs 130 to 132 above, which consists in verifying whether intra-group transactions are remunerated as if they had been negotiated under market conditions.

134 As has been stated in paragraph 104 above, 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.

135 It follows that the Commission can classify a tax measure as State aid provided that the conditions for that 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, Member States must refrain from taking, in that context, any measure likely to constitute State aid that is incompatible with the internal market.

136 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 and Navantia, C‑522/13, EU:C:2014:2262, paragraph 21).

137 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).

138 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).

139 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.

140 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.

141 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 undertaking, 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 the national law of an undertaking placed in a comparable factual situation, carrying on its activities under market conditions.

142 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’.

143 In that context, although, through that fiscal measure granted to an integrated company, the 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, as a result, charges normally included in the budget of the undertaking concerned are mitigated, 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 225 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.

144 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.

145 In the present case, the tax ruling at issue concerns the determination of FFT’s remuneration for its intra-group financing and treasury activities for the purpose of establishing its taxable profit under the Luxembourg Tax Code 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 Luxembourg in the same way with regard to corporate income tax. The Commission was therefore in a position to verify whether FFT’s taxable profit pursuant to the tax ruling at issue was lower than its tax burden in the absence of that tax ruling and under the normal rules of taxation in Luxembourg law. Given that FFT is an integrated undertaking and that the Luxembourg Tax Code 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 tax ruling at issue, to compare FFT’s taxable profit as a result of the application of that tax ruling with the position, as it would be if the normal tax rules under Luxembourg 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 tax ruling at issue 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.

146 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 forming part of the contested measure. The Commission is nevertheless required to justify its choice of methodology.

147 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 real practical significance in the interpretation of issues relating to transfer pricing, as the Commission acknowledged in recital 87 of the contested decision.

148 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 Grand Duchy of Luxembourg and FFT.

149 First, as regards FFT’s argument that the Commission failed to provide any legal basis for its arm’s length principle, it must admittedly be pointed out that, in recitals 228 and 229 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 tax ruling at issue complied with the arm’s length principle laid down in Article 164(3) of the Tax Code or in the Circular, which incorporate the arm’s length principle into Luxembourg law. The Commission also confirmed that the arm’s length principle which it applied was distinct from that enshrined in Article 9 of the OECD Model Tax Convention.

150 However, the Commission also made clear, in recital 228 of the contested decision, that the arm’s length principle necessarily formed 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.

151 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.

152 It is true that, at the hearing, the Commission 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.

153 In that regard, the Grand Duchy of Luxembourg and FFT 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 Grand Duchy of Luxembourg and FFT 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). In all events, it must be noted that the clarification provided at the hearing does not call into question the finding in paragraph 151 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 Grand Duchy of Luxembourg and FFT 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.

154 The Court must therefore reject FFT’s argument that the Commission did not provide any legal basis for the arm’s length principle as described in the contested decision.

155 Second, in so far as FFT maintains that the Commission failed to define the content of the arm’s length principle as described in the contested decision, suffice it to note that it is apparent from the contested decision that that principle is a tool for checking that intra-group transactions are remunerated as though they had been negotiated between independent undertakings (see paragraph 151 above). That argument must therefore be rejected.

156 Third, the Grand Duchy of Luxembourg criticises the Commission, in essence, for having examined the tax ruling at issue in the light of the arm’s length principle as described in the contested decision even though that is a criterion that is extraneous to Luxembourg tax law. It maintains that the arm’s length principle as described by the Commission in the contested decision would enable the Commission to prescribe methodological standards for determining taxable profit which do not appear in national legislation, and that that would result in the harmonisation in disguise of direct taxation, contrary to the fiscal autonomy of the Member States. That argument must, however, be rejected.

157 Suffice it to note in that regard that, as has been stated in paragraphs 138 and 141 above, although ‘normal’ taxation is defined by the national tax rules and the actual existence of an advantage must be demonstrated by reference thereto, the fact remains that if those national rules provide that integrated companies are to be taxed on the same terms as stand-alone companies, Article 107(1) TFEU allows the Commission to check whether the pricing of intra-group transactions, accepted by the national authorities for determining the taxable base of an integrated undertaking, corresponds to prices that would have been charged at arm’s length.

158 Consequently, when the Commission examines whether the method validated by a national tax measure leads to an outcome that has been achieved in a manner consistent with the arm’s length principle as defined in paragraph 151 above, it is not exceeding its powers.

159 In addition, to the extent that the Grand Duchy of Luxembourg and FFT maintain that the Commission made an assessment in the light of the arm’s length principle without considering the existence of an advantage having regard to national tax law, suffice it to note that it is clear from recitals 231, 266, 276, 291, 301 and 339 of the contested decision that the Commission examined whether the tax ruling at issue resulted in a reduction of FFT’s tax burden as compared with the tax that it would otherwise have had to pay under Luxembourg rules of taxation. It did therefore examine whether the tax ruling at issue had resulted in a lowering of the tax burden under national legislation. While the Commission did, in that context, carry out its examination in the light of the arm’s length principle, it used that principle, as has been noted in paragraph 151 above, as a tool enabling it to verify whether FFT’s transfer pricing had been artificially lowered in comparison with a situation in which prices would have been established under market conditions. Consequently, the argument that the Commission substituted an extraneous rule for Luxembourg rules of tax law must be rejected.

160 Fourth, FFT 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.

161 It is true that the Commission indicated, in recital 228 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.

162 In any event, it is implicitly but necessarily evident from recitals 222 to 231 of the contested decision, and in particular from recitals 226 and 229 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 FFT and Ireland does not alter the finding in paragraph 146 above that the Commission 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.

163 Accordingly, the Court must reject the argument of FFT and Ireland in that respect.

164 Fifth, FFT claims that the Commission deviated in the contested decision from the conception of the arm’s length principle that it had used in the opening decision. It submits, in that regard, that the Commission had referred, in recitals 14 and 62 of the opening decision, to Article 9 of the OECD Model Tax Convention.

165 It must be pointed out in that regard that FFT does not draw any legal inference from its claim that the arm’s length principle as described by the Commission in the contested decision differs from the arm’s length principle to which the Commission referred in the opening decision. Consequently, that argument must be rejected as ineffective.

166 In any event, that argument must also be rejected as unfounded.

167 First, although the Commission referred, in recital 14 of the opening decision, to the ‘“arm’s length principle” as set [out] in Article 9 of the OECD Model Tax Convention’, that reference appeared in the section entitled ‘Introduction to transfer pricing rulings’. It is not evident from recital 14 of the opening decision, invoked by FFT, that the Commission based its provisional assessment on Article 9 of the OECD Model Tax Convention. Likewise, although the Commission referred, in recital 62 of the opening decision, invoked by FFT, to the OECD Guidelines, the Commission presents them only as a ‘reference document’ or as ‘appropriate guidance’. This presentation is no different from the Commission’s presentation of those guidelines in the contested decision.

168 Second, it must be noted that it is apparent from recitals 58 and 59 of the opening decision that, even at that stage of the procedure, the Commission explained its stance that it can apply the arm’s length principle, in the context of its review under Article 107 TFEU, for the purpose of examining whether a tax measure confers a selective advantage on an integrated undertaking.

169 In that regard, it must be noted that, in recital 61 of the opening decision, the Commission explained that a method of taxation applied to transfer pricing that does not comply with the arm’s length principle and leads to a lowering of the taxable base of its beneficiary would confer an advantage. It 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), as it subsequently did in the contested decision.

170 Sixth, the Court must reject FFT’s argument that the Commission’s position on the arm’s length principle departed from its previous practice in taking decisions, in so far as that practice in other cases cannot affect the validity of a contested decision, which can be assessed only in the light of the objective rules of the FEU Treaty (see, to that effect, judgment of 20 May 2010, Todaro Nunziatina & C., C‑138/09, EU:C:2010:291, paragraph 21).

171 Seventh, inasmuch as FFT indicates that the Commission was very opaque with regard to the concept of the arm’s length principle adopted by the Commission, refusing to provide FFT with the slides the Commission had used at a conference on State aid in Brussels, that argument must be rejected as ineffective. The Commission’s position concerning the arm’s length principle can be seen from recitals 219 to 231 of the contested decision, and therefore the fact that it failed to provide slides after a conference has no bearing on the lawfulness of the contested decision.

172 Eighth, FFT submits that the arm’s length principle as described by the Commission in the contested decision is distinct from that used by the OECD. It submits that the OECD allows for ‘appropriate adjustments’, such as shareholdings in its subsidiaries not being taken into account in calculating the remuneration of FFT’s functions. According to FFT, that is, moreover, explained in the report by an economic consultancy company that is annexed to the application. That argument must be rejected as, in part, inadmissible and, in part, unfounded.

173 As regards the assertion that the arm’s length principle is distinct from that used by the OECD, FFT does not advance any specific argument, with the exception of that relating to the taking into account of its shareholdings. In so far as FFT claims that the Commission disregarded paragraph 2.74 of the OECD Guidelines, according to which appropriate adjustments must be made in applying the TNMM, it must be noted not only that the Commission, as has been stated in paragraph 147 above, is not formally bound by those guidelines but that, contrary to FFT’s contention, the Commission did not rule out the possibility of making ‘appropriate adjustments’. The Commission merely found that, in the present case, the exclusion of FFT’s shareholdings in FFNA and FFC was not justified, an issue which will, moreover, be examined in paragraphs 273 to 278 below.

174 Furthermore, in so far as FFT refers to the report of an economic consultancy company in which an expert put forward arguments to show that the Commission should not have taken into account FFT’s shareholdings in the subsidiaries, the reference to that line of argument is, in accordance with settled case-law, inadmissible, as it does not appear in the actual body of the application. It should be borne in mind that, according to the case-law, although the text of the application may be supported and supplemented in regard to specific points by references to particular passages in documents appended thereto, a general reference to other documents cannot compensate for the lack of essential information in the application itself, even if those documents are attached to the application, since the annexes have a purely evidential and instrumental function (see judgment of 30 January 2007, France Télécom v Commission, T‑340/03, EU:T:2007:22, paragraph 167 and the case-law cited).

175 Moreover, and in any event, even on the assumption that the Commission failed, wrongly, to make the ‘appropriate adjustments’ to which FFT refers, it should be noted that that would not alter the finding that FFT has not put forward any argument that would serve to explain why the arm’s length principle used by the Commission is allegedly incorrect. The fact that ‘appropriate adjustments’ are provided for by the OECD Guidelines to take account of each factual situation, and that the circumstances giving rise to such adjustments may exist in the present case, does not call into question the finding that, in essence, the arm’s length principle requires integrated undertakings to charge transfer prices that reflect those which would be charged under conditions of competition, which corresponds to the examination undertaken by the Commission in the contested decision.

176 Ninth, the Court must reject the argument of the Grand Duchy of Luxembourg that the arm’s length principle as described by the Commission in the contested decision is subjective and arbitrary. First, it is sufficient to note that the examination in the light of the arm’s length principle consists, as is evident from recital 231 of the contested decision, in examining whether the methodology for the determination of transfer pricing accepted in the tax ruling at issue can result in a reliable approximation of a market-based outcome. Second, the Commission refers broadly, for the purposes of its analysis, to the OECD Guidelines, about which there is a broad consensus. The Grand Duchy of Luxembourg and FFT do not, moreover, dispute that last point.

177 Tenth, FFT submits that the Commission failed to explain how it had derived the arm’s length principle as described in the contested decision, or the content of that principle, contrary to its obligation to state reasons, as laid down in Article 296 TFEU.

178 In that regard, it should be borne in mind that, according to settled case-law, the statement of reasons required by Article 296(2) TFEU must be appropriate to the measure at issue and disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure, in such a way as to enable the persons concerned to ascertain the reasons for it and to enable the competent court to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296(2) TFEU must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (see judgment of 15 July 2004, Spain v Commission, C‑501/00, EU:C:2004:438, paragraph 73 and the case-law cited).

179 In the present case, it has already been found, in paragraphs 149 to 151 and 154 above, that, contrary to FFT’s submission, the Commission specified the legal basis and the content of the arm’s length principle in recitals 219 to 231 of the contested decision. It must therefore be held that, so far as those issues are concerned, the reasons given for the contested decision are sufficient. As has been stated in paragraph 153 above, it is, moreover, apparent from all of the written submissions of the Grand Duchy of Luxembourg and FFT that they understood the contested decision to mean that the arm’s length principle as described by the Commission in that decision was being applied in the context of the examination of a national tax measure under Article 107(1) TFEU.

180 Eleventh, in so far as FFT claims that the arm’s length principle as described by the Commission in the contested decision in recitals 219 to 231 and, specifically, in recital 228 of the contested decision introduces legal uncertainty and confusion so that it is difficult to understand whether a tax ruling based on transfer pricing will infringe the law on State aid or not, that argument must be rejected.

181 According to the case-law, the principle of legal certainty, which is a general principle of EU law, requires that legal rules be clear and precise, and aims to ensure that situations and legal relationships governed by EU law remain foreseeable (judgment of 15 February 1996, Duff and Others v Commission, C‑63/93, EU:C:1996:51, paragraph 20).

182 It must be borne in mind that the concept of State aid is defined on the basis of the effects of the measure on the competitive position of its beneficiary (see, to that effect, judgment of 22 December 2008, British Aggregates v Commission, C‑487/06 P, EU:C:2008:757, paragraph 87). It follows from this that Article 107 TFEU prohibits any aid measure, irrespective of its form or the legislative means used to grant such aid (see, to that effect, judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 79).

183 Moreover, it should be noted that Luxembourg tax law provides that integrated undertakings and stand-alone undertakings are subject, under the same conditions, to corporate income tax. In those circumstances, it was foreseeable that the Commission would be able to verify, in the examination provided for by Article 107 TFEU, whether the methodology for determining transfer pricing accepted in the tax ruling deviated from pricing that would have been set under market conditions, in order to examine whether that tax ruling conferred an advantage on its beneficiary.

184 In any event, in so far as FFT merely asserts that, in its view, the wording of recital 228 of the contested decision lacks clarity and generates legal uncertainty, it is sufficient to observe that the contested decision must be read as a whole. As is apparent from paragraphs 130 to 132 above, the Commission specified, in the contested decision, the definition, scope and legal nature of the arm’s length principle. In addition, as has been stated in paragraph 115 above, it does not follow from the contested decision that the Commission found that every tax ruling necessarily constitutes State aid within the meaning of Article 107 TFEU. Provided that it does not grant any selective advantage, notably in that it does not result in a reduction of the tax burden of its beneficiary, such a tax ruling does not constitute State aid within the meaning of Article 107 TFEU and is not subject to a notification obligation under Article 2 of Regulation 2015/1589.

185 Twelfth, in so far as FFT maintains that the Commission breached the principle of protection of legitimate expectations since no one foresaw, or could have foreseen, that the Commission would apply an arm’s length principle other than that of the OECD, this complaint must be rejected.

186 Suffice it to recall that, according to settled case-law, any economic operator whom an institution has, by giving him precise assurances, caused to entertain justified expectations may rely on the principle of protection of legitimate expectations (see judgment of 24 October 2013, Kone and Others v Commission, C‑510/11 P, not published, EU:C:2013:696, paragraph 76 and the case-law cited). In the present case, however, FFT has neither established nor even claimed in what respect it might have received precise assurances from the Commission that the tax ruling at issue would not fulfil the requirements for aid within the meaning of Article 107 TFEU. Furthermore, the mere fact that, in FFT’s view, the Commission expressly based certain earlier State aid decisions on the arm’s length principle laid down in Article 9 of the OECD Model Tax Convention does not amount to precise assurances within the meaning of the case-law set out above.

187 In those circumstances, all the complaints put forward by the Grand Duchy of Luxembourg and FFT concerning the arm’s length principle as described by the Commission in the contested decision must be rejected as, in part, unfounded and, in part, ineffective.

(b) Plea regarding an incorrect method of calculation in the determination of FFT’s remuneration

188 The Grand Duchy of Luxembourg claims, in essence, that the tax ruling at issue did not confer an advantage on FFT, as it did not involve a reduction of the amount of tax paid by FFT. In that context, the Grand Duchy of Luxembourg disputes the existence of alleged errors in the methodology for calculating FFT’s remuneration that were allegedly validated by the Luxembourg tax authorities, and to which the Commission referred in the contested decision.

189 The Commission contests the arguments of the Grand Duchy of Luxembourg.

(1) Preliminary observations

190 By the second part of its first plea, the Grand Duchy of Luxembourg states that the Commission failed to demonstrate that the methodology validated in the tax ruling at issue did not comply with the arm’s length principle, whether that is the arm’s length principle incorporated into Luxembourg national law, the OECD Guidelines or the arm’s length principle as described by the Commission in the contested decision.

191 In essence, the Grand Duchy of Luxembourg disputes the five errors in the methodology for calculating FFT’s remuneration that were identified by the Commission.

192 First of all, the Grand Duchy of Luxembourg challenges, in essence, the Commission’s assessment that FFT’s capital should not have been segmented, as a single rate should have been applied to FFT’s accounting equity in its entirety (‘the first error’).

193 Next, the Grand Duchy of Luxembourg submits that, contrary to the Commission’s assertion in the contested decision, it did not make an error by endorsing the use of hypothetical regulatory capital (‘the second error’) or in calculating the amount of that hypothetical regulatory capital (‘the third error’). Further, it denies that it made an error in accepting the deduction of FFT’s shareholdings in FFC and FFNA (‘the fourth error’). The second, third and fourth errors are connected to the first error, relating to the segmentation of the capital.

194 Last, the Grand Duchy of Luxembourg takes issue with a fifth error identified by the Commission, concerning the calculation of the rate of return of 6.05%, applied to the hypothetical regulatory capital (‘the fifth error’).

195 Although the five errors contested by the Grand Duchy of Luxembourg were not clearly identified as such in the contested decision, i