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

6 April 2022 ( *1 )

State aid – Aid scheme implemented by the Government of Gibraltar concerning corporation tax – Tax exemption for interest income and royalties – Advance tax rulings benefiting multinationals – Commission decision declaring the aid incompatible with the internal market – Obligation to state reasons – Manifest error of assessment – Selective advantage – Right to submit comments

In Case T‑508/19,

Mead Johnson Nutrition (Asia Pacific) Pte Ltd, established in Singapore (Singapore),

MJN Global Holdings BV, established in Amsterdam (Netherlands),

Mead Johnson BV, established at Nijmegen (Netherlands),

Mead Johnson Nutrition Co., established in Chicago, Illinois (United States),

represented by C. Quigley, Barrister, M. Whitehouse and P. Halford, Solicitors,

applicants,

v

European Commission, represented by L. Flynn, B. Stromsky and P. Němečková, acting as Agents,

defendant,

APPLICATION based on Article 263 TFEU and seeking partial annulment of Commission Decision (EU) 2019/700 of 19 December 2018 on the State Aid SA.34914 (2013/C) implemented by the United Kingdom as regards the Gibraltar Corporate Income Tax Regime (OJ 2019 L 119, p. 151),

THE GENERAL COURT (Second Chamber, Extended Composition),

composed of V. Tomljenović (Rapporteur), President, F. Schalin, P. Škvařilová-Pelzl, I. Nõmm and G. Steinfatt, Judges,

Registrar: I. Pollalis, Administrator,

having regard to the written part of the procedure and further to the hearing on 28 June 2021,

gives the following

Judgment

I. Background to the dispute

A. Adoption of the Income Tax Act 2010 and granting of the 2012 MJN GibCo advance tax ruling

1 On 1 January 2011, the Income Tax Act 2010 (Gibraltar Corporation Tax Act 2010 (‘the ITA 2010’), came into force and repealed the Income Tax Act 1952 (Gibraltar Corporation Tax Act 1952) (‘the ITA 1952’). The ITA 2010 introduced a general corporate tax rate of 10%. Until the amendment to the ITA 2010, which came into force on 30 June 2013 in respect of passive interest and on 31 December 2013 in respect of royalty income (‘the 2013 amendment to the ITA 2010’), such income was not included in the categories of income chargeable to tax in Gibraltar listed in Schedule 1 of the ITA 2010.

2 Until its dissolution on 16 October 2018, MJN Holdings (Gibraltar) Ltd (‘MJN GibCo’) was a Gibraltar-based company belonging to the international Mead Johnson Nutrition group (‘the MJN group’), which was active in the manufacture of infant and child nutrition products. MJN GibCo’s business was to hold, as a limited partner, an interest in the capital of Mead Johnson Three CV (‘MJT CV’), a limited partnership under Dutch law (Commanditaire vennootschap; ‘Dutch CV’), established in the Netherlands until its dissolution on 15 December 2017.

3 MJT CV held licences for intellectual property rights (including patents, trade marks and technical information) which it sub-licensed to Mead Johnson BV (‘MJ BV’), a company incorporated in the Netherlands, in consideration of royalty fees.

4 The shareholders of MJT CV were, first, MJN GibCo (99.99%) and, secondly, MJN Asia Pacific Holding LLC (0.01%), a US limited liability company. MJN GibCo’s shareholding in MJT CV entitled it to 99.99% of the latter’s profits.

5 Until June 2017, the parent company of the MJN group was Mead Johnson Nutrition Co. (‘MJN US’), a company established in Delaware (USA). Mead Johnson Nutrition (Asia Pacific) Pte Ltd, based in Singapore (Singapore) and engaged in the manufacture and sale of infant nutrition products, was, in turn, the wholly owned parent company of MJN GibCo, until the latter’s dissolution.

6 On 11 September 2012, following an application made on the same day by counsel for MJN US, the parent company of the MJN Group (‘the application for an advance tax ruling’), the Gibraltar tax authorities granted MJN GibCo an advance tax ruling confirming the non-taxation, in respect of MJN GibCo, of MJT CV’s royalty income (‘the 2012 MJN GibCo ATR’).

7 The application for an advance tax ruling stated that MJT CV was considered to be a limited partnership for the purposes of Gibraltar tax law. According to the authors of the application for an advance tax ruling, since such a partnership was transparent for Gibraltar tax purposes, any royalty income received by MJT CV should be treated as being received directly by MJN GibCo. However, it was stated that, in their view, any royalty income that could be received would not fall within the heads of charge taxable under the ITA 2010. Accordingly, the Gibraltar authorities were asked to confirm that interpretation of the ITA 2010 and that any royalty income received by MJN GibCo as a result of its shareholding in MJT CV would not give rise to any liability to tax.

8 By the 2012 MJN GibCo ATR, the Income Tax Office responded that, ‘on the basis of the facts and circumstances set out in the [application for an advance tax ruling], [it was] confirmed on behalf of the Commissioner [of Gibraltar Income Tax] that … future royalty income received by [MNJ GibCo] would [not] be subject to tax under the provisions of [the ITA 2010]’.

B. Administrative procedure before the Commission

9 On 1 June 2012, the Kingdom of Spain filed a complaint with the European Commission regarding the State aid allegedly received by Gibraltar’s offshore companies under the tax regime established by the ITA 2010.

10 On 16 October 2013, the Commission initiated the formal investigation procedure (‘the opening decision’), in order to verify whether the non-taxation (‘tax exemption’ in the text of the opening decision) of passive interest and royalty income, provided for by the ITA 2010, selectively favoured certain undertakings, in breach of the European Union’s State aid rules.

11 On 1 October 2014, the Commission informed the United Kingdom of its decision to extend proceedings laid down in Article 108(2) TFEU to include the practice of advance tax rulings in Gibraltar and, more particularly, the adoption of 165 advance tax rulings (‘the decision to extend proceedings’).

C. The contested decision

12 On 19 December 2018, the Commission adopted Decision (EU) 2019/700 of 19 December 2018 on State aid SA.34914 (2013/C) implemented by the United Kingdom in respect of the Gibraltar corporate tax regime (OJ 2019 L 119, p. 151) (‘the contested decision’). In essence, the Commission found, first, that the ‘exemption’ for passive interest and royalty income applicable to Gibraltar between 2011 and 2013 under the ITA 2010 constituted an unlawfully implemented State aid scheme which was incompatible with the internal market and, secondly, that the tax treatment granted by the United Kingdom to Gibraltar was not compatible with the internal market, that the tax treatment adopted by the Government of Gibraltar on the basis of advance tax rulings granted to five Gibraltar-based companies holding shares in Dutch CVs and receiving passive interest and royalty income (‘the five advance tax rulings’) constituted unlawful and incompatible individual State aid.

1. ‘Exemption’ of passive interest and royalty income (aid scheme)

13 In the opening decision, the Commission concluded, on a preliminary basis, that the ‘exemption’ of passive interest (‘the non-taxation of passive interest’) and the ‘exemption’ of royalty income (‘the non-taxation of royalty income’) each constituted an aid scheme. In order to take account of the 2013 amendment to the ITA 2010 whereby royalty income and passive interest were introduced among the categories of income taxable in Gibraltar listed in Schedule 1 of the ITA 2010, which took place after the opening decision, the Commission limited the scope of the contested decision to passive interest and royalty income received or receivable between the entry into force of the ITA 2010 (1 January 2010) and 30 June 2013 (for passive interest) or 31 December 2013 (for royalty income).

14 As regards the assessment of the advantage criterion, the Commission found, in essence, that passive interest and royalty income received by an undertaking in Gibraltar was normally considered to be accrued in or derived from Gibraltar and, therefore, normally subject to tax in Gibraltar under the territoriality principle. Accordingly, it concluded that that ‘exemption’ introduced a mitigation from a charge which the companies benefiting from it would otherwise have had to pay (see recitals 81 to 83 of the contested decision).

15 As regards the analysis of selectivity, in application of the case-law on the material selectivity of tax measures, the Commission considered, first, that the reference framework to be taken into account in examining the non-taxation of passive interest and royalty income was the ITA 2010, the objective of which was to collect tax on the income of taxpayers receiving income accruing in or derived from Gibraltar. Furthermore, it clarified that the ‘exemption’ of passive interest and royalty income was not the result of a formal derogation provided for by the tax regime, but of the non-inclusion of such income in the categories of income chargeable to tax in Gibraltar listed in Schedule 1 of the ITA 2010, in other words, an ‘implicit exemption’ (recitals 89 to 93 of the contested decision).

16 Next, the Commission examined whether the non-taxation of passive interest and royalty income gave rise to a different tax treatment of companies in a comparable situation. It noted that, in the absence of the ‘exemption’ for royalty income and passive interest, those would have been subject to tax in Gibraltar in accordance with the territoriality principle.

17 In addition, after stating that, where the measure under examination did not arise from a formal derogation from the tax system, it was necessary to consider the effects of that derogation in order to assess whether it significantly benefited a particular group of undertakings, the Commission considered, in support of the figures, that the non-taxation of passive interest and royalty income favoured companies belonging to multinational groups carrying out activities such as the granting of intra-group loans or rights to use intangible assets. As those companies were, in the light of the objective of the ITA 2010, in the same legal and factual situation as other companies receiving income accruing in or derived from Gibraltar, the Commission concluded that those measures were a priori selective (see recitals 94 to 104 of the contested decision).

18 Finally, the Commission considered that the non-taxation of passive interest and royalty income was not justified by the intrinsic logic of the ITA 2010 tax system. In particular, it rejected the justifications put forward by the United Kingdom authorities, such as sound administrative management (see recitals 105 to 109 of the contested decision). Consequently, the Commission considered that each of those measures constituted an unlawful aid scheme that was incompatible with the internal market.

2. Five advance tax rulings (individual aid measures)

19 In the decision to extend proceedings, the Commission had identified 165 advance tax rulings granted by the Gibraltar tax authorities, which it had preliminarily concluded were materially selective and potentially constituted State aid.

20 In the contested decision, the Commission considered that 160 of the 165 advance tax rulings assessed corresponded to a normal application of Gibraltar’s ordinary tax system, without it being possible to conclude that there was State aid for any other reason (recitals 132 to 150 of the contested decision). By contrast, it considered that the five advance tax rulings, including the 2012 MJN GibCo ATR, which remained to be examined constituted individual aid measures. By the five advance tax rulings, which had remained in force after the 2013 amendment of the ITA 2010, including after audits conducted in 2015, the Gibraltar tax authorities had confirmed to their addressees that royalty income accrued at the level of Dutch CVs in which they held shares was not taxable under the ITA 2010.

21 First of all, the Commission stated, in recital 153 of the contested decision, that the five advance tax rulings related generally to the following group structure:

22 The Commission stated that, according to the communications from the United Kingdom authorities, the Gibraltar tax authorities considered that the income received by Dutch CVs was received directly by the Gibraltar companies holding an interest in those CVs. It added that, to the extent that, following the amendments to the ITA 2010, passive interest and royalty income was included in the categories of income listed in Schedule 1 of the ITA 2010 and was taxable in Gibraltar, irrespective of its origin, such income was taxable at the level of the Gibraltar-based partners. The Commission then identified, in recitals 161 and 162 of the contested decision, the shares of profits derived from passive income or intellectual property royalties which should have been included in the taxable base of the five Gibraltar-based recipient companies of those decisions and taxed under the ‘normal Gibraltar’ taxation rules. In the case of MJN GibCo, it stated that it held 99.99% of the shares and that its Gibraltar taxable profits were 330785 918.10 United States dollars (USD) for 2014, USD 254328 564.60 for 2015, and USD 232375 224.15 for 2016. Those shares should, in its view, have been included in MJN GibCo’s taxable base and taxed under Gibraltar’s tax rules.

23 As regards selective advantage, the Commission first considered that the relevant reference framework for the selectivity assessment was the ITA 2010 and referred, in that regard, to the considerations set out in section 7.1.3.1 of the contested decision, concerning the assessment of the selectivity of aid schemes consisting in the non-taxation of passive interest and royalty income. It added that it would have been necessary, under the rules of common law, to take into account the share of the profits or gains derived from a CV, as a partner undertaking, as if that share represented the profits or gains of undertakings established in Gibraltar.

24 The Commission then found, for the period prior to the 2013 amendment, that the advance tax rulings applied the aid schemes providing for the exemption of passive interest and royalty income, which had been examined in section 7 of the contested decision. For the period after that amendment, it noted that the five advance tax rulings allowed their beneficiaries to continue to benefit from the passive interest and royalty income exemption schemes and concluded that the Gibraltar tax authorities had extended the existence of that scheme in five individual cases, which constituted a derogation from the ordinary tax regime.

25 Finally, the Commission considered that the five Gibraltar companies which benefited from the five advance tax rulings were in a legal and factual situation comparable to that of all corporate taxpayers, accruing income in or from Gibraltar, subject to tax in Gibraltar, and that that derogation could not be justified by the nature and logic of the system.

26 As regards the beneficiaries of the aid measures identified, the Commission considered that the parent companies, owners of the partner companies established in Gibraltar, were ultimately beneficiaries of those measures. It noted that the five Gibraltar companies benefiting from the five advance tax rulings, including MJN GibCo, were part of large international groups and that the structure of the groups, which included a Dutch CV, favoured the parent companies by allowing them to generate profits from the exploitation of intellectual property rights without being taxed. The Commission added that the group structure comprising a Dutch limited liability company, a Dutch CV, Gibraltar partner companies and a parent company constituted a single economic unit within the meaning of the case-law, so that those different companies should all be considered beneficiaries of the aid measure from which that undertaking benefited.

D. The operative part of the contested decision

27 The operative part of the contested decision reads as follows: ‘Article 1 1. The State aid scheme in the form of the passive interest income tax exemption applicable in Gibraltar under the [ITA] 2010 between 1 January 2011 and 30 June 2013 and unlawfully put into effect by Gibraltar in contravention of Article 108(3) [TFEU] is incompatible with the internal market within the meaning of Article 107(1) [TFEU]. 2. The State aid scheme in the form of the royalty income tax exemption applicable in Gibraltar under the [ITA] 2010 between 1 January 2011 and 31 December 2013 and unlawfully put into effect by Gibraltar in contravention of Article 108(3) [TFEU] is incompatible with the internal market within the meaning of Article 107(1) [TFEU]. Article 2 The individual State aids granted by the Government of Gibraltar, on the basis of the tax rulings … to five Gibraltar companies with interests in Dutch [CVs] … in receipt of royalty and passive interest income, which were unlawfully put into effect by the United Kingdom in contravention of Article 108(3) [TFEU], are incompatible with the internal market within the meaning of Article 107(1) [TFEU]. … Article 5 1. The United Kingdom shall recover all incompatible aid granted on the basis of the aid schemes referred to in Article 1 or on the basis of the [five] tax rulings referred to in Article 2, from the beneficiaries of that aid. 2. Any individual aid granted on the basis of the [five] tax rulings referred to in Article 2 which cannot be recovered from the Gibraltar company in question shall be recovered from other entities forming a single economic unit with that Gibraltar company, i.e. the relevant Dutch BV, the Dutch CV or the parent company of the Gibraltar company. …’

II. Procedure and forms of order sought

28 By application lodged at the Registry of the Court on 15 July 2019, the applicants, Mead Johnson Nutrition (Asia Pacific), MJN Global Holdings BV, MJ BV and MJN US, brought the present action.

29 Pursuant to Article 106(2) of the Rules of Procedure of the General Court, the applicants submitted a reasoned request for a hearing on 27 March 2020.

30 On a proposal from the Second Chamber, the Court decided, pursuant to Article 28 of the Rules of Procedure, to refer the case to a Chamber sitting in extended composition.

31 On 12 May 2021, the Court put written questions to the parties by way of a measure of organisation of procedure, provided for in Article 89(3) of the Rules of Procedure. The parties complied with the Court’s request within the prescribed period.

32 The parties presented oral argument and replied to the questions put by the Court at the hearing on 28 June 2021.

33 The applicants claim that the Court should: – annul Article 1(2), Article 2 and Article 5(1) and (2) of the contested decision in so far as they apply to them; – order the Commission to pay the costs.

34 The Commission contends that the Court should: – dismiss the action as inadmissible or unfounded; – order the applicants to pay the costs.

III. Law

35 It should be noted at the outset that, in its rejoinder, the Commission waived the inadmissibility of the action as being out of time.

A. The structure of the action

36 As is clear from the operative part of the contested decision and from paragraphs 13 to 26 above, the contested decision relates, first, to two aid schemes, namely, on the one hand, the non-taxation of passive interest, referred to in Article 1(1) of that decision, and, on the other hand, the non-taxation of royalty income, referred to in Article 1(2) of that decision, and, secondly, to five individual measures granted on the basis of five advance tax rulings, referred to in Article 2 of that decision.

37 The classification of the five advance tax rulings as individual aid measures for the period after 31 December 2013 (the date from which the aid schemes were terminated) is entirely independent of the classification of the non-taxation of passive interest and royalty income as an aid scheme. The contested decision thus contains two separate sections in which the different criteria for the existence of State aid are examined separately.

38 Furthermore, Article 5(1) and (2) of the contested decision relates to the recovery of the aid measures referred to in Articles 1 and 2 of that decision.

39 By their application, the applicants seek the partial annulment of the contested decision and, more specifically, the annulment of Article 1(2), Article 2 and Article 5(1) and (2) of that decision in so far as they apply to them.

40 The application is divided into three parts. The first part of the application seeks the annulment of Article 1(2) of the contested decision, in so far as the Commission classified as an aid scheme the non-taxation of royalty income and the recovery order linked to that measure. The second part of the application seeks the annulment of Article 2 of the contested decision in so far as the Commission found that MJN GibCo had benefited from aid measures for the period up to 31 December 2013 and, for the period after that date, on the basis of the 2012 MJN GibCo ATR, as well as the recovery order linked to those measures. The third part of the application seeks the annulment of Article 5(2) of the contested decision in so far as the Commission ordered the recovery of the aid measures from MJN GibCo and, failing that, from the applicants.

41 It will therefore be appropriate to examine each of those parts in turn.

42 In that regard, the Commission submits that, in order for the present action to be successful, the applicants must effectively challenge both Article 1(2) and Article 2 of the contested decision. Furthermore, it stresses that, even if the action is partially upheld, the challenge to the recovery order in Article 5 of the contested decision can be accepted only in respect of the part of the aid for which the action was upheld and only in so far as the applicants are concerned. The applicants maintain that, since the application contains separate parts which seek to challenge different articles of the operative part of the contested decision, they could succeed on one or both of the articles which are the subject of the action.

43 According to the case-law, the mere fact that the Court considers a plea in law put forward by the applicant in support of its action for annulment to be well founded does not enable it automatically to annul the contested measure in its entirety. Annulment of the act in its entirety is not acceptable where it is obvious that that plea, directed only at a specific part of the challenged act, is such as to provide a basis only for partial annulment (judgment of 11 December 2008, Commission v Département du Loiret, C‑295/07 P, EU:C:2008:707, paragraph 104).

44 However, partial annulment of an EU act is possible only if the elements of which the annulment is sought may be severed from the remainder of the act. That requirement of separability is not satisfied where the partial annulment of an act would have the effect of altering its substance (see judgment of 11 December 2008, Commission v Département du Loiret, C‑295/07 P, EU:C:2008:707, paragraphs 105 and 106 and the case-law cited).

45 It should be noted, first of all, that the various parts of the action each seek partial annulment of the contested decision and relate to different parts of the operative part of that decision, each of which concerns completely separate and independent aid measures, so that, if some of the pleas in law relied on in support of those parts were to be upheld, they could only result in partial annulment of the contested decision. Next, as the applicants confirmed at the oral hearing, their action seeks only the annulment of Article 2 of the contested decision in so far as it relates to the aid granted to MJN GibCo and not to the individual aid granted to the beneficiaries of the other four advance tax rulings, so that, if the pleas in law seeking the annulment of that article were to be upheld, it would lead only to the annulment of that article in so far as it relates to the aid measure benefiting MJN GibCo and the applicants. Furthermore, if the pleas in law, seeking annulment of Article 1(2) of the contested decision or of Article 2 of that decision, in so far as it applies to the applicants, were to be upheld, that would have the effect of annulling Article 5 of the contested decision in so far as it seeks the recovery of the sums paid in respect of the aid measures referred to in those various parts of the operative part.

B. The first part of the application for annulment of Article 1(2) of the contested decision concerning the non-taxation of royalty income and the recovery order relating to that measure

46 In support of the first part of their application, seeking annulment of Article 1(2) and Article 5(1) of the contested decision, in so far as those provisions apply to the applicants, the latter raise, in substance, three sets of pleas in law.

47 The first plea in law alleges manifest errors of assessment, infringement of the principle of conferral of powers enshrined in Article 5 TEU, disregard for the principle of fiscal autonomy and fiscal sovereignty of the Member States and misuse of powers by the Commission (section (b) of the first part of the application).

48 The second, third and fourth pleas in law allege manifest errors of assessment and infringement of Article 107(1) TFEU, in that the Commission failed to establish the existence of an advantage or its selective nature (sections (c), (d) and (e) of the first part of the application).

49 The fifth plea in law alleges manifest errors of assessment and infringement of Article 1(c) 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), in that the Commission considered that the exemption scheme constituted existing aid (section (f) of the first part of the application).

50 Furthermore, in section (a) of the first part of the application, the applicants identify a number of manifest errors of assessment in relation to the interpretation of the provisions of the ITA 2010 and the ITA 1952, to which reference is made in the various pleas in law, seeking annulment of Article 1(2) of the contested decision.

51 The Court will examine in turn the various pleas in law identified in paragraphs 47 to 49 above, and will consider, in that context, the various errors identified in section (a) of the first part of the application.

1. The plea in law alleging a manifest error of assessment, infringement of Article 5 TEU, disregard of the principle of fiscal sovereignty and misuse of powers (first plea in law, seeking annulment of Article 1(2) of the contested decision)

52 In the context of their first plea in law, seeking annulment of Article 1(2) of the contested decision, the applicants claim, in essence, that the Commission infringed the principle of attribution of powers laid down in Article 5 TEU, pursuant to which the field of direct taxation falls within the sovereignty and competence of the Member States, and committed an abuse of power, in the light of Article 17(1) TEU, by using its powers in the field of State aid to combat an apparent double exemption. The Commission thus circumvented the procedure laid down in Article 116 TFEU, which allows it to act when it finds that a disparity between the laws of the Member States distorts the conditions of competition in the internal market.

53 The applicants emphasise that the control of State aid is without prejudice to the power of Member States to choose the tax system which they consider to be the most appropriate and, within that framework, to determine in a sovereign manner the categories and method of calculation of taxable income and profits (the tax base). It is clear from the case-law that the existence of an advantage must be established by reference to so-called ‘normal’ taxation as defined by national tax rules, as the Commission has no competence to define autonomously so-called ‘normal’ taxation. Therefore, while Member States must exercise their competence in tax matters in accordance with EU law, that does not give the Commission the power to extend the scope of the normal tax rules constituting the relevant reference framework, nor to interfere with the sovereign decisions of a Member State beyond the elimination of derogations from the rules constituting that framework.

54 First, the applicants claim that the Commission committed a manifest error of assessment by holding that the objective of the ITA 2010 is to tax companies on the full value of their profits or gains and in considering that the non-taxation of (passive) royalty income constitutes an exemption from the ITA 2010. Secondly, they argue that the Commission applied Article 107(1) TFEU and the principle that State aid is determined by its effects too broadly and that the present case is different from those which gave rise to the judgments 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), and 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), invoked in the contested decision.

55 The Commission contests those arguments.

56 In the first place, as regards the allegation of an infringement of Article 5 TEU, it should be recalled that, apart from the areas in which EU tax law is harmonised, the determination of the constituent features of each tax is a matter for the discretion of the Member States, with due regard for their fiscal autonomy, and that discretion must, in any event, be exercised in accordance with EU law. That applies, in particular, to the choice of the rate of tax, which may be proportional or progressive, but also to the determination of the tax base and the chargeable event (judgment of 16 March 2021, Commission v Poland, C‑562/19 P, EU:C:2021:201, paragraph 38).

57 However, according to settled case-law, even if direct taxation falls, in the current state of development of EU law, within the competence of the Member States, the latter must nevertheless exercise that competence in compliance 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). Therefore, interventions by Member States in areas which have not been subject to harmonisation within the European Union, such as direct taxation, are not excluded from the scope of the rules on State aid control.

58 Member States must exercise their competence in tax matters in accordance with EU law and, in that context, refrain from taking any measure which might constitute State aid incompatible with the internal market (see, to that effect, judgment of 3 June 2010, Commission v Spain, C‑487/08, EU:C:2010:310, paragraph 37).

59 Accordingly, the Commission may classify a tax measure as State aid provided that the conditions for such 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).

60 With regard to the condition that the measure at issue must grant an economic advantage, it should be recalled that, according to settled case-law, interventions which, in whatever form, are capable of favouring undertakings directly or indirectly, or which must be regarded as granting the recipient undertaking an economic advantage which it would not have obtained under normal market conditions, are to be 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).

61 More specifically, a measure by which the public authorities grant certain undertakings advantageous tax treatment which, although not involving a transfer of State resources, places the beneficiaries in a more favourable financial situation than that of other taxpayers constitutes 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). Furthermore, in the case of tax measures, the very existence of an advantage can only be established either by reference to so-called ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56) or by reference to the tax rules laid down by the Member State by virtue of its fiscal autonomy.

62 Consequently, the fiscal autonomy of Member States does not mean that all tax measures, which affect in particular the tax base taken into account by the tax authorities, escape the application of Article 107 TFEU. If a tax measure in fact discriminates between companies which are in a comparable situation with regard to the objective pursued by the normal tax regime, which is the reference framework to be taken into account, and thus confers on the beneficiaries of the measure selective advantages which favour ‘certain’ undertakings or ‘certain’ types of production, it may be regarded as 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).

63 It follows from the foregoing that, since the Commission is competent to ensure compliance with Article 107 TFEU, it did not exceed its powers when it examined the non-taxation of royalty income in order to verify whether that measure constituted an aid scheme and, if so, whether it was compatible with the internal market within the meaning of Article 107(1) TFEU.

64 None of the applicants’ arguments is such as to call that finding into question.

65 First, it follows from the case-law set out in paragraph 57 above that the Commission does not, at this stage in the development of EU law, have the power to define autonomously the so-called ‘normal’ taxation of an undertaking by disregarding national tax rules. However, it should be noted that, in analysing the criteria of advantage and selectivity, the Commission referred to the provisions of the tax law applicable to Gibraltar, namely, the provisions of the ITA 2010 and, in particular, Articles 11, 16 and 74 and Schedule 1 of that act, as well as to the observations of the United Kingdom and the Gibraltar authorities seeking to clarify the content and guiding principles of the tax regime introduced by the ITA 2010. Therefore, contrary to the applicants’ contention, the Commission did not autonomously define ‘normal’ taxation and cannot have infringed the principle of conferral of powers in the present case.

66 Secondly, the Commission cannot disregard the competence reserved to the Member States in matters of direct taxation when interpreting the tax provisions applicable to Gibraltar. The Commission is able, in the context of the control of tax measures in the field of State aid, to assess the national tax provisions itself, an assessment which may, if necessary, be challenged by the Member State concerned or by any interested parties in the context of an action for annulment before the Court.

67 It should be noted in that respect that the Commission based its assessment of the tax provisions applicable to Gibraltar on the information provided by the United Kingdom and Gibraltar authorities. In particular, as can be seen from recital 93 of the contested decision and footnote 46 of the contested decision, the Commission defined the reference framework, including the guiding principles of normal taxation, and the objective of that framework on the basis of the information provided to it by the United Kingdom authorities in the course of the administrative procedure.

68 Thirdly, as the Commission points out in paragraph 75 of the defence, its power to review the existence of State aid in tax matters is not limited to cases where there is a formal derogation from the national tax rule. The regulatory technique is irrelevant for the purposes of assessing the effects of a national measure under Article 107(1) TFEU (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). Thus, contrary to the applicants’ contention, the Commission did not exceed its powers in examining the non-taxation of a category of income, or its non-inclusion in the categories of taxable income, in the light of the guiding principles of the tax regime introduced by the ITA 2010.

69 Fourthly, the errors of assessment and breaches alleged by the applicants, in particular as regards the identification of the objective and guiding principles of the ITA 2010, the failure to demonstrate any discrimination and the application, to the present case, of the judgments 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), and 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), are inoperative for the purposes of establishing the Commission’s possible lack of competence. On the contrary, such arguments seek to establish either manifest errors of assessment and a breach by the Commission of Article 107 TFEU or errors and a breach committed in the exercise of its competence.

70 In the light of all the foregoing considerations, it must be held that the Commission did not infringe Article 5 TEU by adopting the contested decision.

71 In the second place, with regard to the allegation of misuse of powers, it is important to recall that, according to settled case-law, an act is vitiated by misuse of powers only if it appears, on the basis of objective, relevant and consistent evidence to have been taken exclusively, or at least decisively, for purposes other than those for which it is intended or with a view to evading a procedure specifically provided for by the Treaty (see, to that effect, judgments of 16 April 2013, Spain and Italy v Council, C‑274/11 and C‑295/11, EU:C:2013:240, paragraph 33, and of 12 July 2018, PA v Parliament, T‑608/16, not published, EU:T:2018:440, paragraph 42).

72 In the present case, the Commission cannot be accused of having misused its powers by adopting the contested decision, which, at the end of a formal investigation, seeks to find that the non-taxation of royalty income constitutes State aid incompatible with the internal market.

73 In addition, the mere assertion that the Commission used its powers in relation to State aid to combat an apparent double exemption does not constitute a body of objective, relevant and consistent evidence from which it can be inferred that it sought to circumvent the procedure laid down in Article 116 TFEU. Apart from the fact that the contested decision does not seek to call into question the application of the principle of territoriality, it should be noted, first, that the analysis according to which the non-taxation of royalty income constitutes an aid measure does not take account of the question whether or not that income is taxed in other tax jurisdictions and is based solely on the tax rules applicable to Gibraltar. Secondly, it does not appear from the contested decision that the Commission sought to align the tax law applicable in Gibraltar with the laws applicable in the various Member States.

74 In those circumstances, it must be concluded that the Commission has not misused its powers.

75 In the light of the foregoing considerations, the first plea in law, seeking annulment of Article 1(2) of the contested decision, must be rejected.

2. The pleas in law alleging manifest errors of assessment and infringement of Article 107(1) TFEU (second, third and fourth pleas in law, seeking annulment of Article 1(2) of the contested decision)

76 In essence, the second, third and fourth pleas in law, seeking the annulment of Article 1(2) of the contested decision, allege manifest errors of assessment and infringement of Article 107(1) TFEU, in that the Commission considered that the non-taxation of royalty income conferred a selective advantage on its beneficiaries. The applicants challenge, first, the assessment of advantage (second plea in law, seeking annulment of Article 1(2) of the contested decision), secondly, the findings of selectivity (third plea, seeking annulment of Article 1(2) of the contested decision) and, thirdly, the extent of the selective advantage found by the Commission (third plea in law, seeking annulment of Article 1(2) of the contested decision). The various pleas in law raised by the applicants refer to the manifest errors of assessment relating to the content and scope of Gibraltar’s tax law identified in section (a) of the first part of the application.

(a) Preliminary considerations

(1) The aid measure referred to in Article 1(2) of the contested decision

77 First of all, it should be noted that, as is apparent from recitals 28, 33 and 82 of the contested decision, the measure which is the subject of Article 1(2) of that decision is the non-taxation of royalty income, described by the Commission as ‘tax exemption of royalties’. As the Commission noted in recitals 28, 33 and 93 of the contested decision, that non-taxation results from the non-inclusion of royalty income in the categories of income taxable in Gibraltar listed in Schedule 1 of the ITA 2010, which exhaustively sets out the categories of income taxable in Gibraltar.

78 In that regard, it should be noted, first, that it is apparent from the opening decision (see, in particular, recital 34 of that decision), in the light of which the contested decision must be read, that the measure which is the subject of Article 1(2) of the contested decision is, more specifically, the non-taxation of royalty income as passive income. Such a reading is also apparent from recital 76 of the contested decision, read in conjunction with footnote 25 to that decision, in which the Commission explained that the assessment contained in the contested decision related only to passive interest and royalty income and that it did not cover other categories of passive income. Secondly, as stated in recital 76 of the contested decision, the examination of the non-taxation of royalty income was limited to the period between 1 January 2011 and 31 December 2013.

79 First, in so far as the applicants claim that the Commission erroneously characterised the non-taxation of royalty income as an ‘implicit exemption’ and disregarded the fact that, under Section 11 of the ITA 2010, only income falling within one of the categories listed in Schedule 1 was subject to tax in Gibraltar, it should be noted that, in recital 93 of the contested decision, the Commission did take into account the fact that, under Section 11 of the ITA 2010, only income falling within one of the categories listed in Schedule 1 of the ITA 2010 was subject to tax in Gibraltar. It pointed out, in the contested decision, that the non-taxation of royalty income constituted an ‘implicit exemption’, since royalty income was not included in the categories of income taxable in Gibraltar listed in Schedule 1 and falling within the scope of the ITA 2010 tax regime. It is also clear from recitals 28, 32 and 33 of, and footnote 17 to, the contested decision that the Commission took into account the fact that, between 1 January 2011 and 31 December 2013, royalty income was not included in the categories of income taxable in Gibraltar listed in Schedule 1 of the ITA 2010 and was not subject to tax.

80 Moreover, it is appropriate to recall in that regard the settled case-law according to which Article 107(1) TFEU does not distinguish according to the causes or objectives of State interventions, but defines them according to their effects and, therefore, independently of the techniques used (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 87 and the case-law cited).

81 Therefore, the fact that royalty income is not subject to income tax in Gibraltar, by reason of its non-inclusion in the categories of income listed in Schedule 1 of the ITA 2010, has the same effect as if that category of income had been listed in that schedule, but formally benefited from an exemption from tax. As Advocate General Campos Sánchez-Bordona pointed out in his Opinion in Wereldhave Belgium and Others (C‑448/15, EU:C:2016:808, points 40 and 42), in cases where a company is not subject to a tax, the chargeable event does not occur, whereas in cases of exemption it does. In cases of exemption, the principal tax liability has, in theory, arisen, but the taxable person is, by law, partially or completely excused from payment and, ultimately, cannot be required to pay. Therefore, ‘non-taxability’ and ‘exemption’ have the same effect, namely non-taxation. It follows that the Commission did not err in qualifying the non-taxation of royalty income as an ‘implicit exemption’.

82 Secondly, in so far as the applicants contest the assertion in recital 33 of the contested decision that royalty income was never taxable under the ITA 2010 and argue that such income fell, even before the 2013 amendment to the ITA 2010, under category A of income listed in Schedule 1 of the ITA 2010, namely profits of a ‘trade, business or professional’, the following must be noted.

83 As can be seen from paragraphs 77 and 78 above, the measure which is the subject of Article 1(2) of that decision is the non-taxation of royalty income, described by the Commission as the ‘royalty income tax exemption’, as it results from the non-inclusion of royalty income in the categories of income taxable in Gibraltar listed in Schedule 1 of the ITA 2010. That measure specifically concerns royalty income, in so far as it constitutes passive income. The applicants themselves admit that ‘purely passive’ royalty income, not derived from a business activity, did not fall within any of the categories of income listed in Schedule 1 of the ITA 2010 until the entry into force on 1 January 2014 of the 2013 amendments to the ITA 2010 and was therefore not taxable in Gibraltar.

84 It follows that the errors alleged by the applicants are not such as to call into question the finding that royalty income, which constitutes passive income, was not in principle included in the categories of income listed in Schedule 1 of the ITA 2010, in its version prior to 1 January 2014, and therefore not taxable in Gibraltar. Consequently, those arguments are not such as to call into question the lawfulness of Article 1(2) of the contested decision and must be rejected as being inoperative.

85 In any event, the Commission did not err in holding that royalty income was not taxable in Gibraltar, without examining whether that income could be taxed under category A of income listed in Schedule 1 of the ITA 2010.

86 The United Kingdom and Gibraltar authorities have consistently confirmed, in their various submissions in the administrative procedure, that royalty income is not taxable in Gibraltar under the ITA 2010, as in force between 1 January 2011 and 31 December 2013. Furthermore, the United Kingdom made it clear, in the presentation of the ITA 2010 annexed to its observations of 14 September 2012, that such royalty income was not included in the categories of income chargeable to tax in Gibraltar listed in Schedule 1 of the ITA 2010 and, in particular, that it could not be regarded as profits of a trade or business falling within category A of income listed in that schedule.

87 Furthermore, it should be noted that the interpretation of the ITA 2010 according to which royalty income was never taxable in Gibraltar is consistent with the contents of the application for an advance tax ruling, dated 11 September 2012, on the basis of which the 2012 MJN GibCo ATR was granted. In that document, the applicants had themselves indicated that, in their view, any royalty income received by MJN GibCo did not fall within any of the categories of income chargeable to tax in Gibraltar listed in Schedule 1 of the ITA 2010.

88 It follows that the Commission did not err in considering that the royalty income was not taxable in Gibraltar between 1 January 2011 and 31 December 2013, nor in examining whether such a non-taxation measure was likely to confer a selective advantage on its beneficiaries and thus to constitute State aid within the meaning of Article 107(1) TFEU.

(2) The examination of the criteria of advantage and selectivity

89 According to the case-law, the classification as State aid requires that all the conditions referred to in Article 107 TFEU be fulfilled. It is thus established that, in order for a measure to be classified as State aid within the meaning of that provision, first, it must be an intervention by the State or through State resources, secondly, that intervention must be liable to affect trade between Member States, thirdly, it must grant a selective advantage to its recipient and, fourthly, it must distort or threaten to distort competition (see judgment of 21 December 2016, Commission v HansestadtLübeck, C‑524/14 P, EU:C:2016:971, paragraph 40 and the case-law cited).

90 It should be noted in that regard that, in the context of the analysis of tax measures under Article 107(1) TFEU, both the examination of the advantage criterion and the examination of the selectivity criterion imply, in advance, determining the normal rules of taxation which form the relevant reference framework for that examination.

91 First, in the case of tax measures, the very existence of an advantage can be established only in relation to so-called ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Such a measure confers an economic advantage on its recipient where it relieves an undertaking of burdens which are normally borne by its budget and which, therefore, without being a subsidy in the strict sense of the word, is of the same nature and has identical effects (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22). Thus, it is precisely the so-called ‘normal’ taxation that is established by the reference framework.

92 Secondly, the classification of a national tax measure as selective presupposes, as a first step, prior identification and examination of the common or normal tax regime applicable in the Member State concerned (judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

93 Furthermore, the Commission clarified its interpretation of the concept of a reference framework in its notice on the notion of State aid referred to in Article 107(1) TFEU (OJ 2016 C 262, p. 1). That notice, while not binding on the Court, may nevertheless serve as a useful source of inspiration (see, to that effect and by analogy, judgment of 26 July 2017, Czech Republic v Commission, C‑696/15 P, EU:C:2017:595, paragraph 53).

94 In particular, point 133 of the notice on the notion of State aid states that the reference system is composed of a coherent set of rules which apply in a general way – on the basis of objective criteria – to all undertakings falling within its scope as defined by its objective. It is stated in that point of the notice on the notion of State aid that those rules usually define not only the scope of the system, but also the conditions under which the system applies, the rights and obligations of the undertakings subject to it and the technical aspects of the functioning of the system.

95 In the present case, while the applicants do not dispute that the Commission correctly considered that the ITA 2010 constituted the normal rules of taxation forming the relevant reference framework for examining the non-taxation of royalty income, they challenge, in support of the second to fourth pleas in law seeking annulment of Article 1(2) of the contested decision, the Commission’s interpretation of the content and objective of the ITA 2010.

96 Accordingly, it is necessary to examine, as a first step, the applicants’ arguments challenging the Commission’s interpretation of the content and objective of the normal rules for the taxation of corporate income in Gibraltar constituting the reference framework before examining successively, as a second step, the various pleas in law challenging the Commission’s assessment of the selective advantage.

(b) The Commission’s assessments of the reference framework and the normal rules for taxation in Gibraltar

97 As can be seen from recitals 28 to 30 of the contested decision, the relevant provisions of the ITA 2010 concerning the corporate income tax regime in Gibraltar were, primarily, sections 11, 16 and 74.

98 Part II of the ITA 2010, entitled ‘Charge to Tax’, included, inter alia, Section 11 of the ITA 2010, entitled ‘The Charge to Taxation’, which provided that: ‘(1) Tax shall, subject to the provisions of [the ITA 2010] and of the Rules, be payable at the rate or rates specified from time to time for each year of assessment or accounting period upon the income specified in tables A to C … of Schedule 1 accruing in or derived from Gibraltar of any person. …’

99 In the version applicable between 1 January 2011 and 31 December 2013, Schedule 1, entitled ‘Heads of Charge’, to which Section 11(1) of the ITA 2010 directly refers, identified three categories of income taxable in Gibraltar, namely: – category A, which included, first, the profits or gains of a company, a foundation or a trust from any trade, business, profession or vocation and, secondly, income from property; – category B, which referred to income from employment and self-employment; – category C, which referred to ‘other income’, including, in particular, dividends and income from pension funds.

100 In addition, Section 74 of the ITA 2010 defined the concept of ‘accruing in or derived from Gibraltar’, used in Section 11 of the ITA 2010, as follows: ‘(a) subject to (b) be defined by reference to the location of the activities or the preponderance of activities which give rise to the profits; (b) for the purpose of (a), the preponderance of activities which give rise to the profits of the business shall be deemed to take place in Gibraltar in the case of‐ (i) a business whose underlying activity that results in the income requires a licence and regulation under any law of Gibraltar; or (ii) a business which can lawfully be transacted in Gibraltar, through a branch or any form of permanent establishment, by virtue of the fact that it is licensed in another jurisdiction which enjoys passporting rights into Gibraltar and which would otherwise require such licence and regulation in Gibraltar; (c) subsection (b) shall not apply to any branch or permanent establishment of a Gibraltar company undertaking activities outside Gibraltar to the extent of the activities so conducted outside Gibraltar.’

101 Part III of the ITA 2010, entitled ‘Computation of assessments’, included Section 16(1), entitled ‘Basis of assessment’, which provided that: ‘(1) Save as otherwise provided hereafter, the assessable profits or gains of a company shall be the full amount of the profits or gains of the company for any accounting period of that company.’

102 First, the applicants claim that the Commission erroneously considered, in disregard of the ‘schedular’ nature of the corporate income tax regime in Gibraltar, that the objective of the ITA 2010 was to tax the accounting profit and thus all the income of the taxpaying companies. Secondly, they argue that the Commission erroneously concluded that, by virtue of the principle of territoriality, royalty income received by Gibraltar companies was considered to be accrued in or derived from Gibraltar.

103 In so far as the parties dispute the burden of proof and the extent of the review to be carried out by the Court of the Commission’s assessments of the content and scope of Gibraltar’s tax law, it is important to note that, in the context of the adoption of a decision on State aid, the determination of national law is a question of fact (see, to that effect, judgment of 21 December 2011, A2A v Commission, C‑318/09 P, not published, EU:C:2011:856, paragraph 125 and the case-law cited). Therefore, the question whether and to what extent the Commission has correctly interpreted the content and scope of a national rule is a matter for factual assessment by the EU judicature and is subject to the rules on the taking of evidence and on the apportionment of the burden of proof (see, to that effect, judgment of 26 November 2015, Comunidad Autónoma del País Vasco and Itelazpi v Commission, T‑462/13, EU:T:2015:902, paragraph 71 and the case-law cited).

104 It should be noted, in that regard, that, in the context of State aid control, it is, in principle, for the Commission to prove, in the contested decision, the existence of such aid (see, to that effect, judgment of 12 September 2007, Olympiaki Aeroporia Ypiresies v Commission, T‑68/03, EU:T:2007:253, paragraph 34, and of 25 June 2015, SACE and Sace BT v Commission, T‑305/13, EU:T:2015:435, paragraph 95). In that context, the Commission is required to conduct the procedure for examining the measures in question diligently and impartially, so that when it adopts a final decision establishing the existence and, where appropriate, the incompatibility or unlawfulness of the aid, it has at its disposal the most complete and reliable information possible (see, to that effect, judgments of 2 September 2010, Commission v Scott, C‑290/07 P, EU:C:2010:480, paragraph 90, and of 3 April 2014, France v Commission, C‑559/12 P, EU:C:2014:217, paragraph 63).

105 Furthermore, in State aid matters, the allocation of the burden of proof is subject to compliance with the respective procedural obligations on the Commission and the Member State concerned, in the context of the exercise by that institution of its power to require the Member State to provide it with all the necessary information (see judgment of 28 November 2008, Hotel Cipriani and Others v Commission, T‑254/00, T‑270/00 and T‑277/00, EU:T:2008:537, paragraph 232 and the case-law cited). In particular, it is for the Member State concerned, by virtue of its duty to cooperate with the Commission, and for the interested parties duly invited to submit their observations in accordance with Article 108(2) TFEU, to put forward their arguments and to provide the Commission with all the information likely to enlighten it on all the facts of the case (see, to that effect, judgment of 28 November 2008, Hotel Cipriani and Others v Commission, T‑254/00, T‑270/00 and T‑277/00, EU:T:2008:537, paragraph 233).

106 There is no obligation on the Commission to examine of its own motion and on the basis of prediction what matters of fact or law might have been submitted to it during the administrative procedure (see, to that effect, judgments of 2 April 1998, Commission v Sytraval and Brink’s France, C‑367/95 P, EU:C:1998:154, paragraph 60, and of 14 January 2004, Fleuren Compost v Commission, T‑109/01, EU:T:2004:4, paragraph 49).

107 Finally, it should be noted that, in the context of an action for annulment based on Article 263 TFEU, the lawfulness of a State aid decision must be assessed in the light of the information, in particular as regards the national legal framework, which was available to the Commission at the time when it adopted the decision (see, to that effect, judgment of 16 July 2014, Zweckverband Tierkörperbeseitigung v Commission, T‑309/12, not published, EU:T:2014:676, paragraph 97 and the case-law cited).

108 It is in the light of those principles that the various errors invoked by the applicants as to the Commission’s assessment of the content and scope of the ITA 2010 must be examined.

(1) The objective of the ITA 2010 and the identification of income taxable under that law

109 By a first set of arguments, the applicants seek, in essence, to challenge the Commission’s assessment that the ITA 2010 was intended to tax all accounting profits and thus all income accruing in or derived from Gibraltar. In particular, they criticise the Commission for failing to take account of the fact that only certain categories of income, listed in Schedule 1 of the ITA 2010, were taxable in Gibraltar.

110 The applicants submit that the Commission erroneously considered, in particular in recital 90 of the contested decision, that the accounting profit constituted the taxable base of companies established in Gibraltar and that the objective of the ITA 2010 was to tax the entirety of the ‘accounting profit’ of those companies, so that all their income would have fallen within the scope of the ITA 2010. The companies’ income would have been taxable in Gibraltar only if it fell within the ‘heads of charge’ listed in Schedule 1 of the ITA 2010 (Section 11 of the ITA 2010) and if it accrued in or derived from Gibraltar (Sections 11 and 74 of the ITA 2010). In that respect, the applicants submit that the Gibraltar tax regime was a ‘schedular’ regime, in that it consisted in taxing only certain categories of income precisely defined by law. There is no general rule under which the income of a company established in Gibraltar would generally have been taxed there. Furthermore, the Commission did not take sufficient account of Section 11 of the ITA 2010, which was the fundamental provision for determining the income which would have been taxable in Gibraltar, and against which the other provisions of the ITA 2010, including Section 16, should have been read.

111 In particular, the applicants insist that passive royalty income was not included in the tax base and therefore fell outside the scope of the ITA 2010. The objective of the ITA 2010 was not to tax companies on their entire accounting profit, but only on the categories of income listed in Schedule 1 of the ITA 2010.

112 In addition, the applicants submit that the Commission erroneously asserted, in particular in recital 28 of the contested decision, that companies which were ordinarily resident in Gibraltar were, in principle, taxable in Gibraltar. The Gibraltar tax regime was ‘source-based’ of the income received and not ‘residence-based’ of the company which received it and tax would have been due in Gibraltar only in respect of income which ‘accrued in or derived from Gibraltar’.

113 The Commission contests those arguments.

114 First of all, it should be noted that, contrary to what the applicants maintain, the Commission did not state, in recital 28 of the contested decision, that companies ordinarily resident in Gibraltar were, in principle, taxable there, or that the Gibraltar tax regime was based on the origin of the taxpayer. It merely stated that companies ordinarily resident in Gibraltar ‘may’ be taxable in Gibraltar. The Commission explained in recitals 28 and 30 of the contested decision that the categories of income taxable in Gibraltar were listed in Schedule 1 of the ITA 2010 and that such income could only be taxed in Gibraltar if it accrued in or derived from there.

115 Moreover, contrary to what the applicants maintain, the Commission did take account of the fact that Section 11 of the ITA 2010 provided that only income included in the categories of income listed in Schedule 1 of that law was taxable. That is apparent, in particular, from recital 28 of the contested decision, in which the Commission reproduced the three categories of income listed in Tables A, B and C of Schedule 1 of the ITA 2010, and from recital 93 of that decision, in which the Commission concluded, on the basis of the finding that royalty income was not included in the categories of income subject to tax in Gibraltar listed in Schedule 1 of the ITA 2010, that it was implicitly exempt from tax.

116 Similarly, contrary to what the applicants maintain, the Commission did not consider, in the contested decision, that the objective of the ITA 2010 was to tax taxpayers on their entire accounting profit. In recital 93 of the contested decision, the Commission stated that the objective of the ITA 2010 was ‘to collect revenue from taxpayers taxable in Gibraltar (i.e. taxpayers receiving income derived from or accruing in Gibraltar)’. Moreover, it is apparent from recital 82 of the contested decision that the Commission based its analysis of the non-taxation of royalty income on the finding that the ITA 2010 was based on the ‘general principle that corporate income tax [was] collected from all taxable persons that receive[d] income derived from or accrued in Gibraltar’.

117 In the light of those factors, and in so far as the applicants criticise the Commission for failing to take account of the fact that the Gibraltar tax regime was a schedular system whose objective was to tax companies only on the categories of income listed in Schedule 1 of the ITA 2010, it is necessary to analyse whether the Commission was justified in considering that the objective of the ITA 2010 was to tax income accruing in or derived from Gibraltar.

118 In that regard, it should be noted that the concept of the objective or nature of the normal tax regime forming the reference framework refers to the basic or guiding principles of that regime and does not refer either to the policies which may, where appropriate, be financed by means of the resources which it provides or to the aims which might be pursued by introducing derogations from that regime (judgment of 16 May 2019, Poland v Commission, T‑836/16 and T‑624/17, EU:T:2019:338, paragraph 62).

119 First, it is not disputed that it follows from Section 11 of the ITA 2010, entitled ‘The Charge to taxation’, as reproduced in paragraph 98 above, that the Gibraltar tax regime is based on the principle of territoriality, according to which income accruing in or derived from Gibraltar is taxable. Furthermore, the United Kingdom authorities have repeatedly stated, including in their comments of 14 September 2012, that the territorial basis of taxation is the central feature or ‘general norm’ of the Gibraltar tax regime.

120 Secondly, it is important to point out that Section 16 of the ITA 2010, entitled ‘Basis of assessment’, provides that the taxable income of a company is the total amount of accounting profits over an accounting period. Contrary to what the applicants maintain, and as the Commission rightly points out, it is clear from the title and wording of Section 16 of the ITA 2010 (see paragraph 101 above) that it concerns the identification, as such, of the tax base and not only the reference period to be taken into account in determining that base.

121 It follows from that provision that all accounting income received by the taxpayer is taken into account for the purposes of taxation in Gibraltar. However, it should be noted, as is apparent from recitals 30, 90 and 91 of the contested decision, that the calculation of the tax base of companies is carried out on a territorial basis, as set out in Section 11 of the ITA 2010, so that accounting income can only be taxed if it is ‘accruing in or derived from Gibraltar’.

122 In that context, it should be noted that, in their comments of 3 December 2012, the United Kingdom authorities clarified that all companies which received income that was accrued in or derived from Gibraltar were subject to tax under the ITA 2010. They added that the principle of territoriality generally applied to all companies and all types of company income. Similarly, in their comments of 18 April 2013, the United Kingdom authorities again stated that the territorial tax regime under the ITA 2010 applied to all companies in all sectors of industry, finance and commerce and that such a principle was universal in its application.

123 It therefore follows from a reading of Sections 11 and 16 of the ITA 2010, as cited in paragraphs 98 to 101 above, and from the comments submitted by the United Kingdom authorities in the course of the administrative procedure, that those provisions were to be interpreted as meaning that the tax regime introduced by the ITA 2010 was based on two guiding principles, namely the principle of territoriality, according to which income accrued in or derived from Gibraltar was subject to tax, and the principle according to which all the taxpayers’ accounting income was taxable. It follows that the Commission correctly held that the Gibraltar tax regime, as introduced by the ITA 2010, was based on the objective of taxing all taxable persons on their income accrued in or derived from Gibraltar.

124 Furthermore, it should be noted that neither the United Kingdom nor the Gibraltar authorities, in their respective observations on the opening decision, challenged the Commission’s reading of the objective of the ITA 2010 as being to tax all taxable persons on their income accrued in or derived from Gibraltar. The United Kingdom and Gibraltar authorities merely argued that the non-taxation of royalty income was not a selective measure, since it was a general measure, applying to all sectors of industry, commerce and finance, and available to all companies. They did not comment on recital 32 of the opening decision, in which the Commission expressly stated that the guiding principle of the Gibraltar tax regime was the taxation of all companies receiving income accrued in or derived from Gibraltar, thereby avoiding double taxation and allowing for simplification. Similarly, the United Kingdom and Gibraltar authorities have not contested the content of recital 35 of the opening decision, in which the Commission made it clear that the objective of the Gibraltar tax regime was to tax all companies with income accrued in or derived from Gibraltar.

125 In that regard, in so far as the applicants question the relevance of the United Kingdom’s observations and argue that the fact that neither the United Kingdom nor the Gibraltar authorities challenged the Commission’s interpretation of the provisions of the ITA 2010, during the formal investigation procedure, does not prevent them from challenging that interpretation, it should be noted that, as is clear from paragraphs 103 to 107 above, in the context of the examination of a tax measure under Article 107 TFEU, the review of the interpretation of national law adopted by the Commission, which constitutes a question of fact, must be carried out in the light of the information available on the day on which the contested decision was adopted, and taking into account the information communicated by the Member State concerned and the interested parties. In that context, it should be noted in particular that, in the context of the formal investigation procedure, it is for the Member State and the potential beneficiary of the measure which is the subject of that procedure to inform the Commission of all the facts of the case (see, to that effect, judgment of 18 November 2004, Ferriere Nord v Commission, T‑176/01, EU:T:2004:336, paragraph 93).

126 Since the information on which the Commission based its interpretation of national law came directly from the authorities of the Member State and territory concerned by the procedure and had been reiterated in several exchanges, and since the Commission’s understanding of the information communicated by those authorities had been implicitly confirmed at the end of the opening decision, the Commission cannot be criticised for considering that that information was sufficiently reliable and credible. Moreover, in so far as the observations made by the United Kingdom and Gibraltar authorities did not contradict the content of the relevant provisions of the ITA 2010 and the Commission did not have any information available to it which might call those observations into question, it could, at the time of the adoption of the contested decision, rely on them in order to interpret Gibraltar tax law.

127 Moreover, it should be noted that the applicants, although they were given the opportunity to comment on the opening decision and it was clear from that decision that the subject matter of the procedure was the royalty income received by Gibraltar companies between 1 January 2011 and 31 December 2013, did not consider it necessary to do so. Neither the expert report produced by the applicants as an annex to the reply (‘the expert report’), nor the information contained therein concerning the allegedly schedular nature of the Gibraltar tax regime, had been communicated to the Commission by the parties before the adoption of the contested decision. As can be seen from paragraph 106 above, in the absence of information which could call into question the interpretation of national tax law adopted in the opening decision, the Commission could not examine by guesswork all the arguments which could potentially have called into question its interpretation of national law, which, moreover, had been confirmed by the authorities of the Member State and the territory concerned. In addition, as is clear from all the foregoing considerations, the applicants have failed to establish that the information on which the Commission relied was erroneous or lacked reliability and credibility.

128 It follows from the above that the Commission was right to consider that the Gibraltar tax regime was a territorial tax regime, according to which all income accrued in or derived from Gibraltar should be taxed there.

129 That finding is not called into question by the applicants’ other arguments.

130 In particular, to the extent that the applicants argue that the Gibraltar tax regime was a schedular regime whose purpose was to tax the categories of income listed in Schedule 1 of the ITA 2010, it is, admittedly, relevant to note that, as the applicants contend, Section 11 of the ITA 2010 implies that, in order to be taxable, companies’ income must fall within one of the categories of income listed in Schedule 1 of the ITA 2010. Therefore, in the absence of such an inclusion, as in the case of royalty income, certain types of income could technically escape taxation under the ITA 2010.

131 However, it is important, first of all, to emphasise that neither the Gibraltar nor the United Kingdom authorities have ever asserted that the Gibraltar tax regime is a schedular regime. On the contrary, in their submissions of 14 November 2013, they stated that the ITA 2010 provided for a single tax regime, irrespective of the categories of taxable income set out in Tables A to C of Schedule 1 of the ITA 2010. Furthermore, in the various submissions made during the administrative procedure, the United Kingdom authorities solely defined the Gibraltar tax regime as a territorial tax regime.

132 Next, it should be noted that the normal rules of taxation or, in other words, the rules constituting the reference framework, must be examined as a whole and in the light of the guiding principles of the national tax regime. A tax measure cannot be assessed precisely in accordance with a few provisions which have been artificially removed from a broader legislative framework (see, to that effect, judgment of 28 June 2018, Andres (Bankruptcy Heitkamp BauHolding) v Commission, C‑203/16 P, EU:C:2018:505, paragraph 103).

133 To consider, as the applicants argue, that the Gibraltar tax regime established by the ITA 2010 is a schedular regime whose objective is to tax the categories of income listed in Schedule 1 of the ITA 2010 would be to disregard the other provisions of the ITA 2010 and thus the logic of the guiding principles of that tax regime. As observed in paragraph 121 above, the ITA 2010 is based not only on the principle of territoriality, as enshrined in Section 11 thereof, but also on the principle that all accounting income of taxpayers is subject to tax, as enshrined in Section 16 thereof. It is those two principles that must be taken into account when examining the objective pursued by the ITA 2010.

134 Finally, in accordance with the case-law, the use of a particular regulatory technique cannot allow national tax rules to escape from the outset the control provided for by the TFEU in the field of State aid. Similarly, unless the form of State interventions is to prevail decisively over their effects, the regulatory technique used cannot be a decisive factor for the purposes of examining the content and scope of the rules constituting the reference framework (see, by analogy, judgment of 28 June 2018, Andres (Bankruptcy Heitkamp BauHolding) v Commission, C‑203/16 P, EU:C:2018:505, paragraph 92).

135 In the present case, the fact that Section 11 of the ITA 2010, read in conjunction with Schedule 1 of the ITA 2010, provides for tax liability to be defined positively, so that only the categories of income expressly listed in Schedule 1 are subject to tax, has the same effects as an express exemption from taxation or a situation in which non-taxability is defined negatively, so that all income is subject to tax and only certain categories of income are excluded from the scope of the ITA 2010. As explained in paragraph 81 above, ‘non-taxability’ and ‘exemption’ produce the same effects, namely non-taxation. Therefore, what the applicants describe as a ‘schedular system’ was, in reality, only the choice of a regulatory technique and not a decisive tax rule for the purposes of analysing the Gibraltar tax regime.

136 It should be noted, in that regard that, as the Commission pointed out in recital 27 of the contested decision, the ITA 2010 introduced a general corporate tax rate of 10%, applicable to companies throughout the Gibraltar economy, with the exception of certain service providers. That meant that different categories of taxable income were subject to a single rate of 10% and were not subject to a separate tax regime. That analysis is also reflected in the comments of 14 November 2013, in which the United Kingdom authorities explained that Gibraltar’s legislation did not impose a charge by reference to a category of income. They stated that the Gibraltar tax regime did not require prior determination of the category of income received in order to apply taxation specific to a particular category of income, but that the tax regime only provided for a general tax regime for income accrued in or derived from Gibraltar.

137 It thus follows from the foregoing that Section 11 and Schedule 1 of the ITA 2010, in so far as they provide for categories of taxable income, constitute mere taxation arrangements, and that those provisions cannot be artificially taken out of their context for the purpose of defining the objective of the ITA 2010. Therefore, contrary to the applicants’ contention, it cannot be inferred from Section 11 of the ITA 2010 that the objective of the Gibraltar tax regime was to tax the categories of income listed in Schedule 1 of the ITA 2010.

138 In the light of the foregoing considerations, the applicants’ complaints that the Commission erred in identifying the objective of the ITA 2010 must be rejected.

(2) The application of the territoriality principle to royalties

139 The applicants claim that the Commission committed a manifest error of assessment by stating, in recitals 42, 82, 94 and 106 of the contested decision, that the application of the territoriality principle meant that the royalty income was accrued in or derived from Gibraltar merely because it was received by a Gibraltar company. The applicants submit that the statement in the United Kingdom’s communication of 14 September 2012, on which the Commission relied in making those assessments, is inconsistent and erroneous. According to the applicants, income derived by a Gibraltar company from activities carried on outside Gibraltar, including royalty income, was not taxable in Gibraltar. In the situation where none of the intellectual property rights are managed in Gibraltar, neither the rights nor the licensee are located in Gibraltar and the royalties are not paid in Gibraltar, the royalty income could not be regarded as having accrued in or derived from Gibraltar.

140 The Commission contests those arguments.

141 As noted in paragraph 125 above, in the context of the examination of a tax measure under Article 107 TFEU, the review of the Commission’s interpretation of national law, which constitutes a question of fact, must be carried out in the light of the information available on the day on which the decision in question was adopted, and taking into account the information communicated by the Member State concerned and the interested parties.

142 In the present case, it is true that the ITA 2010, in the version applicable between 1 January 2010 and 31 December 2013, did not contain a provision expressly providing that royalty income received by Gibraltar companies was considered to be accrued in or derived from Gibraltar. Such a rule was only expressly incorporated into the ITA 2010 following the 2013 amendment to the ITA 2010, which came into force on 1 January 2014.

143 However, as stated in footnote 49 to the contested decision, the assertion that royalty income received by Gibraltar companies was necessarily considered to be accrued in or derived from that territory is based on information directly from the Member State concerned. In their comments of 14 September 2012, the United Kingdom authorities expressly stated that the principle of territoriality implied that ‘all royalty income received by a Gibraltar company accrue[d] and derive[d] in Gibraltar’.

144 In that regard, it should be noted, first, that the assertion that the royalty income received by Gibraltar companies was accrued in or derived from Gibraltar was compatible with the content of Section 74 of the ITA 2010 and could thus result from a simple application of the principle of territoriality and the rule that it was necessary to take account of the place of the activity from which the income derived.

145 Section 74 of the ITA 2010 defined the notion of ‘accrued in or derived from Gibraltar’ in terms of ‘the location of the activities … which [gave] rise to the profits’.

146 In so far as the non-taxation of royalty income concerned passive income, that is to say, income which was received by entities which merely held the intellectual property rights, it was consistent to consider that the ‘activity which gave rise to the profits’, within the meaning of Section 74 of the ITA 2010, was located in the place of residence of the companies which held the intellectual property rights giving rise to those royalties. Therefore, contrary to the applicants’ contention, the assertion that the royalty income received by a Gibraltar company was considered to be accrued in or derived from Gibraltar indeed implied the existence of an element enabling that income to be linked to the territory of Gibraltar.

147 In addition, the assertion of the United Kingdom authorities is also not inconsistent with the case-law of the Judicial Committee of the Privy Council (United Kingdom) (‘the JCPC’) relied on in the administrative procedure, which, although not binding, was relevant to the interpretation of Section 74 of the ITA 2010. In the decision adopted by the JCPC, in relation to Hong Kong, in the case, Commissioner of Inland Revenue v HK-TVB International Ltd [1992] 2 AC 397, the JCPC stated that income received by a Hong Kong company which sub-licensed films to overseas companies and exploited them overseas was accrued in and derived from Hong Kong. Admittedly, like the applicants, the JCPC in that case took into account a number of factors specific to the case, including the fact that the sub-licensing agreements were prepared in Hong Kong and that certain additional services were sometimes provided from Hong Kong. However, it should be noted that the JCPC also took into account the fact that a fixed fee was paid to the taxpayer located in Hong Kong. Furthermore, as the United Kingdom authorities pointed out in their comments of 14 November 2013, that decision adopted by the JCPC clearly confirmed that royalty income received by a Gibraltar company could be accrued in or derived from Gibraltar, even if the intellectual property rights were exploited only outside Gibraltar.

148 Secondly, contrary to the applicants’ claim, the statement contained in the observations of 14 September 2012 was neither isolated nor inconsistent with the other information contained in that document.

149 That claim was supported by a graph at page 22 of the comments of 14 September 2012, which aimed to illustrate the impact of the non-taxation of passive interest and royalty income under the ITA 2010. That graph highlighted the amounts of passive interest and royalty income received by taxpayers for the period after 1 January 2010, distinguishing between income accrued in or derived from Gibraltar and income accrued or derived from outside Gibraltar. The fact that all of the royalty income was shown as accrued in Gibraltar confirmed that it was normally considered to be income accrued in Gibraltar.

150 Furthermore, in so far as the applicants claim that the assertion of the United Kingdom authorities, referred to in paragraph 143 above, was inconsistent with the statement, at page 10 of the observations of 14 September 2012, that ‘the 785 former exempt companies that ha[d] assessable income not accruing in or deriving from Gibraltar [were] principally engaged in either the ownership of commercial real estate outside Gibraltar (and therefore subject to taxation on their rental income in the country where the property is situate) or in receipt of dividends, interest or royalties’, it should be noted, admittedly, that that extract could give the impression that, in the view of the United Kingdom authorities, the royalty income constituted taxable income not accrued in Gibraltar.

151 However, it must be noted that that extract contains a clerical error. As the applicants point out, that sentence concerned the situation under the ITA 2010, as in force until 31 December 2013. The United Kingdom authorities explained on numerous occasions in the document in question that royalty income did not constitute taxable income at that time. In particular, it appears from page 10 of the comments of 14 September 2012 that the United Kingdom authorities did distinguish, among the undertakings which were not subject to tax in Gibraltar, between undertakings which did not have taxable income (namely, those which received passive income) and those whose income was not accrued in or derived from Gibraltar.

152 Therefore, the contradiction identified by the applicants is not such as to call into question the credibility of the United Kingdom authorities’ assertion that the royalty income is considered to be accrued in or derived from Gibraltar.

153 Thirdly, in recital 45 of the opening decision, the Commission expressly stated that the United Kingdom authorities had informed it that the principle of territoriality implied that any royalty income received by a Gibraltar company was accrued in or derived from Gibraltar. The fact that the United Kingdom and Gibraltar authorities did not dispute that statement in their comments on the opening decision confirms the Commission’s correct understanding of the information provided to it during the administrative procedure and of the application of the territoriality principle in relation to royalty income.

154 Furthermore, it should be noted that, in their comments on the opening decision, the United Kingdom and Gibraltar authorities distinguished between, on the one hand, foreign-source interest and, on the other hand, passive interest derived from Gibraltar and royalty income. The fact that the United Kingdom and Gibraltar authorities had not distinguished, with respect to royalty income, between that accrued in Gibraltar and that from a foreign source supported the contention that such income was considered to be accrued in or derived from Gibraltar.

155 Fourthly, it should be pointed out that neither the expert report nor any information tending to call into question the United Kingdom’s assertion as to the application of the principle of territoriality to royalties was communicated to the Commission during the administrative procedure. Moreover, it should be noted that the applicants did not consider it appropriate to comment on the opening decision, even though they had been invited to do so and were in a position to understand from the content of the opening decision that MJN GibCo was a potential recipient of the aid scheme as identified by the Commission in that decision. As can be seen from paragraph 106 above, the Commission could not examine, on the basis of speculation, all the arguments that could potentially have called into question the interpretation of national tax law set out in the opening decision, which had, furthermore, been confirmed by the Member State concerned.

156 It follows from the considerations set out in paragraphs 141 to 155 above that the United Kingdom’s assertion concerning the application of the territoriality principle to royalty income, which derives directly from the Member State concerned, could be considered by the Commission to be sufficiently reliable and credible information. Therefore, in accepting the interpretation of Gibraltar tax law provided by the United Kingdom authorities, the Commission did not commit any error of assessment.

157 Moreover, none of the other arguments raised by the applicants is such as to establish that the United Kingdom authorities’ assertion concerning the application of the territoriality principle to royalties was wrong.

158 First of all, the mere fact that the expert report argues that the assertion of the United Kingdom authorities is very strange and that the author of that report explains, as an experienced practitioner of Gibraltar tax law, that he was never aware of the existence, before the entry into force of the 2013 amendment, of a presumption concerning the application of the territoriality principle to royalties, is not sufficient to establish that the statement to that effect emanating directly from the Member State concerned and relating to the application of its own law was inaccurate.

159 Next, in so far as the applicants point out that it was not logical for there to have existed, between 1 January 2011 and 31 December 2013, a presumption that royalty income received by Gibraltar companies accrued there, although that category of income was not taxable in Gibraltar, it is sufficient to note that it is not apparent from the United Kingdom authorities’ claim that they maintained that there was a written rule providing for a specific regime for the application of the principle of territoriality to royalty income. As can be seen from paragraphs 144 to 146 above, the United Kingdom authorities’ claim reflected a simple application of the territoriality principle, as derived from Sections 11 and 74 of the ITA 2010.

160 Furthermore, in so far as the applicants refer, in their pleadings, to the Gibraltar Income Tax Commissioner’s ‘Guidance on Accrued and Derived 2018’ note, published on 25 October 2018, it should be noted that that note, which post-dated the 2013 amendment to the ITA 2010, was not relevant for the purposes of interpreting the ITA 2010, as it applied between 1 January 2011 and 31 December 2013.

161 Finally, contrary to what the applicants maintain, the fact that the passive income was considered to be accrued in the place where the company receiving it was located, although it implied taking into account the place where that company was established or registered, was no less an application of the principle of territoriality and could not be equated with taxation based on the criterion of residence. As explained in paragraph 146 above, in the case of royalties, which constitute passive income, namely, income received by entities that merely held the intellectual property rights, it was consistent to consider that the ‘activity that results in the income’, within the meaning of Article 74 of the ITA 2010, was located at the place of residence of the companies that held the intellectual property rights giving rise to those royalties.

162 It follows, therefore, from all the foregoing that the Commission was right to find that the royalty income received by Gibraltar companies was considered to be accrued in or derived from Gibraltar.

(c) Examination of the criterion of advantage (second plea in law, seeking annulment of Article 1(2) of the contested decision)

163 By their second plea in law, seeking annulment of Article 1(2) of the contested decision, the applicants submit that the Commission committed manifest errors of assessment and infringed Article 107(1) TFEU in so far as it failed to establish the existence of an economic advantage.

164 In the first place, the applicants submit that the Commission confused, in recital 82 of the contested decision, the concept of economic advantage and that of selectivity. First, it did not explain how the non-taxation of royalty income conferred an economic advantage, whereas, according to the case-law of the Court of Justice, it was required to identify, initially, the existence of an economic advantage, then to carry out an analysis of selectivity. Secondly, the analysis carried out by the Commission was part of the assessment of selectivity and not that of economic advantage.

165 In the second place, the applicants claim that the Commission erred in law in holding, in recital 83 of the contested decision, that the ‘exemption’ from tax of royalty income introduced a mitigation of a charge and thus conferred an advantage on its beneficiaries. Since royalty income did not fall within the scope of the ITA 2010, its non-taxation could not constitute an exemption, or a renunciation by the Gibraltar tax authorities of revenue which they could have collected. In that context, they argue that the Commission committed several manifest errors of assessment with regard to the content and objective of the ITA 2010 and, in particular, the assessment that royalty income received by Gibraltar companies was considered to be accrued in or derived from Gibraltar.

166 In addition, the applicants argue that the transparent tax treatment of the profits of a CV was provided for only by Section 18 of the ITA 2010 and on condition that a trade, business or professional activity was carried out through that CV. They added that, in the present case, if the income of MJT CV could fall within the category of business profits and be attributed to MJN GibCo, pursuant to Section 18 of the ITA 2010, it would not have been taxable in Gibraltar, since it was not accrued in or derived from that territory.

167 The Commission contests those arguments.

(1) The first complaint in the second plea in law, alleging confusion between the criteria of advantage and selectivity

168 By their first complaint, the applicants criticise the Commission for confusing the criterion of advantage with that of selectivity. It should be recalled in that regard that, in principle, selectivity and advantage are two separate criteria. So far as advantage is concerned, the Commission must show that the measure improves the financial position of the recipient (see, to that effect, judgment of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 33). By contrast, as regards selectivity, the Commission must show that the advantage is not enjoyed by other undertakings in a legal and factual situation comparable to that of the recipient in the light of the objective of the reference framework (see, to that effect, judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

169 However, it should be pointed out that, in tax matters, the examination of advantage overlaps with the examination of selectivity in so far as, in order for those two conditions to be satisfied, it must be shown that the contested tax measure leads to a reduction in the amount of tax which would normally have been payable by the beneficiary of the measure under the ordinary tax regime which would, therefore, have been applicable to other taxpayers in the same situation. Moreover, it follows from the case-law of the Court of Justice that those two criteria may be examined together, as the ‘third condition’ laid down by Article 107(1) TFEU, relating to the existence of a ‘selective advantage’ (see, to that effect, judgment of 30 June 2016, Belgium v Commission, C‑270/15 P, EU:C:2016:489, paragraph 32).

170 In the present case, it should be noted, with regard to the non-taxation of royalty income, that the Commission examined the criterion of advantage and the criterion of selectivity separately in two separate sections of the contested decision, namely section 7.1.2, entitled ‘Advantage’, and section 7.1.3, entitled ‘Selectivity’.

171 As regards the examination of the criterion of advantage, it is clear from recital 83 of the contested decision, which forms part of section 7.1.2 of that decision, that the Commission did examine the effect of the measure in question on the situation of the beneficiaries. In that recital, the Commission stated that the exemption introduced a reduction in the tax which the undertakings benefiting from the non-taxation of royalty income would otherwise have had to pay. It follows that the Commission did not, in any event, confuse the criterion of advantage with that of selectivity, but sought to establish that the non-taxation of royalty income improved the financial situation of the beneficiaries of that measure within the meaning of the case-law cited in paragraph 168 above.

172 The fact that the Commission stated, in recital 83 of the contested decision, that the beneficiaries of the non-taxation thus enjoyed a more favourable financial position than other taxpayers is not such as to call that finding into question. The fact that the Commission also referred to assessments that were more relevant to the examination of the selectivity criterion than to that of the advantage criterion has no bearing on the circumstance that it did examine whether the measure in question conferred an advantage on its beneficiaries.

173 Consequently, the first complaint in the second plea in law, seeking annulment of Article 1(2) of the contested decision, must be rejected.

(2) The second complaint in the second plea in law, which contests the existence of tax mitigation

174 By their second complaint, the applicants contest that the non-taxation of royalty income constituted an economic advantage within the meaning of Article 107(1) TFEU.

175 According to settled case-law, measures which, whatever their form, are likely directly or indirectly to benefit 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 Sept