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

12 May 2021 ( *1 )

[Text rectified by order of 16 September 2021]

(State aid – Aid implemented by Luxembourg in favour of ENGIE – Decision declaring the aid incompatible with the internal market and unlawful and ordering its recovery – Tax rulings – State resources – Advantage – Combined effect of two tax measures – Participation exemption regime – Taxation of profit distributions – Abuse of law – Selectivity – Reference framework – Finding of a derogation – Comparability of situations – Parent-subsidiary arrangement – Group of companies – Recovery – Indirect harmonisation – Procedural rights – Obligation to state reasons)

In Cases T‑516/18 and T‑525/18,

Grand Duchy of Luxembourg, represented by T. Uri, acting as Agent, and by D. Waelbroeck, lawyer,

applicant in Case T‑516/18,

supported by

Ireland, represented by J. Quaney, M. Browne and A. Joyce, acting as Agents, and by P. Gallagher and S. Kingston, Senior Counsel, as well as B. Doherty, Barrister,

intervener,

Engie Global LNG Holding Sàrl, established in Luxembourg (Luxembourg),

Engie Invest International SA, established in Luxembourg,

Engie, established in Courbevoie (France),

represented by B. Le Bret, M. Struys and C. Rydzynski, lawyers,

applicants in Case T‑525/18,

v

European Commission, represented by B. Stromsky and S. Noë, acting as Agents,

defendant,

APPLICATION under Article 263 TFEU seeking annulment of Commission Decision (EU) 2019/421 of 20 June 2018 on State aid SA.44888 (2016/C) (ex 2016/NN) implemented by Luxembourg in favour of ENGIE (OJ 2019 L 78, p. 1),

THE GENERAL COURT (Second Chamber, Extended Composition),

composed of M. van der Woude, President, V. Tomljenović (Rapporteur), F. Schalin, P. Škvařilová-Pelzl and I. Nõmm, Judges,

Registrar: M. Marescaux, Administrator,

having regard to the written part of the procedure and further to the hearing on 15 September 2020,

gives the following

Judgment

I. Background to the dispute

1 On 23 March 2015, the European Commission sent the Grand Duchy of Luxembourg a request for information regarding its tax ruling practice in relation to companies in the Engie group, including Engie (‘Engie SA’), Engie Global LNG Holding Sàrl and Engie Invest International SA (together, ‘Engie’).

2 By its request, the Commission asked that State to provide it with all tax rulings in force or which had been in force in the previous 10 years and which had been granted to Engie group companies between 2004 and 23 March 2015.

3 The Commission also requested that the annual accounts of the Engie group and of its constituent companies for 2011 to 2013 be sent to it together with copies of their tax returns.

A. The Engie group

4 In the light of recitals 16 to 22 of Commission Decision (EU) 2019/421 of 20 June 2018 on State aid SA.44888 (2016/C) (ex 2016/NN) implemented by Luxembourg in favour of ENGIE (OJ 2019 L 78, p. 1; ‘the contested decision’), the Engie group consists of Engie SA, a company established in France, and all companies directly or indirectly controlled by Engie SA, collectively referred to in the contested decision as ‘ENGIE’.

5 In Luxembourg, Engie SA controls various companies. The same is true of Compagnie européenne de financement C.E.F. SA (‘CEF’), incorporated in Luxembourg in 1933 and renamed Engie Invest International SA in 2015.

6 The purpose of the latter company is the acquisition of participating interests in Luxembourg and foreign entities and the management, exploitation and control of such interests.

7 CEF owns, first, GDF Suez Treasury Management Sàrl (‘GSTM’) and, secondly, Electrabel Invest Luxembourg SA (‘EIL’).

8 With effect from 2010, CEF transferred its financing and treasury management business to GSTM.

9 CEF also owns, thirdly, GDF Suez LNG Holding Sàrl (‘LNG Holding’), incorporated in Luxembourg in 2009 and renamed Engie Global LNG Holding Sàrl in 2015.

10 The purpose of the latter company is the acquisition of participating interests in Luxembourg and foreign entities and the management of such interests.

11 At the end of 2009, LNG Holding replaced another Engie group company, Suez LNG Trading (‘LNG Trading’), at the head of GDF Suez LNG Supply SA (‘LNG Supply’) and GDF Suez LNG Luxembourg Sàrl (‘LNG Luxembourg’).

12 LNG Luxembourg and LNG Supply were established in Luxembourg in 2009 for the purpose, inter alia, of ensuring, on 30 October 2009, the financing and subsequent transfer of business activities in the sector of liquefied natural gas and gas derivatives from LNG Trading to LNG Supply via LNG Luxembourg.

13 The intra-group transfer of the business of CEF and LNG Trading to their respective subsidiaries was financed within the Engie group by interest-free loans mandatorily convertible into shares, known as ‘ZORAs’, taken out by LNG Supply and GSTM (together, ‘the subsidiaries’) with LNG Luxembourg and EIL (together, ‘the intermediary companies’).

14 Both the transfer of CEF’s financing and treasury management business to GSTM and the transfer of the business of purchase, sale and trading of liquefied natural gas and gas derivatives from LNG Trading to LNG Supply resulted in the Luxembourg tax authorities issuing two sets of tax rulings.

B. The tax rulings

15 In response to the request for information of 23 March 2015, the Grand Duchy of Luxembourg sent the Commission two sets of tax rulings (together, ‘the tax rulings at issue’): – a series of tax rulings concerning the transfer of the business of purchase, sale and trading of liquefied natural gas and gas derivatives from LNG Holding to LNG Supply and its financing by means of a loan granted by LNG Luxembourg, all companies involved being resident in Luxembourg; – a series of tax rulings concerning the transfer of the business of financing and treasury management of assets from CEF to GSTM and its financing by means of a loan granted by EIL, all companies involved being resident in Luxembourg.

1. The tax rulings concerning the transfer of business activities to LNG Supply

16 The tax rulings relating to the transfer of business activities related to liquefied natural gas and gas derivatives to LNG Supply are set out in recitals 23 to 58 of the contested decision and are annexed to the file in Case T‑516/18.

17 The first tax ruling was issued on 9 September 2008. It gives an account of the establishment of LNG Supply and thereafter of LNG Luxembourg and the plan to transfer the business of LNG Trading first to LNG Luxembourg and then to LNG Supply.

18 In broad outline, LNG Supply acquired LNG Trading’s business by taking out a ZORA with LNG Luxembourg. When it was converted, LNG Supply issued shares incorporating the nominal amount of the ZORA plus/minus the loan accretions (‘the ZORA accretions’).

19 For tax purposes, it is apparent from the tax ruling of 9 September 2008 that LNG Supply is taxed only on a margin agreed with the Luxembourg tax authorities. That margin corresponds to a proportion [confidential] ( 1 ) of LNG Supply and may not be lower than [confidential]. The difference between the profits made each year and the margin agreed with the Luxembourg tax authorities corresponds to the ZORA accretions, which are a deductible expense.

20 By way of illustration, the Commission stated, in recital 48 of the contested decision, that, for 2011, with a turnover of [confidential], LNG Supply’s taxable income had been set at [confidential], namely [confidential]. Consequently, LNG Supply paid corporation tax of EUR [confidential] in respect of 2011.

21 For its part, LNG Luxembourg finances the loan at issue by entering into a prepaid forward sale contract with LNG Trading, under which LNG Luxembourg agrees to transfer all the shares issued by LNG Supply on the conversion date in return for a price corresponding to the nominal amount of the ZORA in question.

22 For tax purposes, the Luxembourg authorities afford LNG Luxembourg the possibility, during the lifetime of the ZORA in question, not to record in its accounts any taxable income or tax-deductible expense related to that ZORA. The tax ruling also provides that the conversion of the ZORA in question, assuming that LNG Luxembourg chooses to apply Article 22bis of the loi modifiée concernant l’impôt sur le revenu (Amended Law on income tax; ‘the LIR’) of 4 December 1967, as described in recital 89 of the contested decision, will not give rise to any taxable capital gain. In other words, if the choice is made to apply Article 22bis of the LIR, the ZORA accretions will not be taxed on the conversion date.

23 It also follows from the tax ruling of 9 September 2008 that LNG Trading will record in its accounts the payment received under the prepaid forward sale contract as financial fixed assets and that those assets will be valued at cost price, so that, before conversion of the ZORA in question, LNG Trading will not record in its accounts any income or any deductible expense in relation to that ZORA. Furthermore, the tax authorities confirm that Article 166 of the LIR, as set out in recitals 83 to 86 of the contested decision, which allows certain participation income to be exempted from tax, applies to the participating interest purchased under the forward contract.

24 The second tax ruling was issued on 30 September 2008 and concerns the transfer of the effective management of LNG Trading to the Netherlands.

25 The third tax ruling was issued on 3 March 2009 and confirms the amendments made to the financing structure laid down in the tax ruling of 9 September 2008, in particular the replacement of LNG Trading by LNG Holding and the implementation of the ZORA taken out by LNG Supply with LNG Luxembourg and LNG Holding.

26 The fourth tax ruling was issued on 9 March 2012 and clarifies a number of accounting terms used to calculate the margin on which LNG Supply is taxed.

27 The last tax ruling was issued on 13 March 2014 and confirms a request submitted on 20 September 2013. It concerns the tax treatment of the partial conversion of the ZORA taken out by LNG Supply. It follows from it that, upon conversion of that loan, LNG Supply will reduce its capital by an amount equal to the amount of that conversion.

28 From a tax perspective, the Luxembourg tax authorities confirm that the partial conversion in question will have no effect on LNG Luxembourg. LNG Holding will enter in its accounts a profit equal to the difference between the nominal amount of the converted shares and the amount of that conversion. Furthermore, it is provided that that profit will be covered by the participation exemption under Article 166 of the LIR.

2. The tax rulings concerning the transfer of business activities to GSTM

29 The tax rulings relating to the transfer of the financing and treasury management business to GSTM are set out in recitals 59 to 77 of the contested decision and are annexed to the file in Case T‑516/18.

30 The first tax ruling, issued on 9 February 2010, endorses a structure similar to the one established by LNG Holding to finance the transfer of its business activities in the liquefied natural gas sector to LNG Supply. The structure in question is based on a ZORA taken out by GSTM with EIL and used to finance the acquisition of CEF’s financing and treasury management business.

31 Like LNG Supply, GSTM is taxed during the implementation of the ZORA on a margin agreed with the Luxembourg tax authorities. That margin corresponds to a proportion [confidential].

32 By way of illustration, the Commission stated, in recital 74 of the contested decision, that, for 2011, with net earnings before tax and before accretions of EUR 45522581 and an average value of assets of EUR 3.7 billion, GSTM was taxed [confidential].

33 The second tax ruling, issued on 15 June 2012, endorses the tax treatment of the financing transaction and is based on an analysis identical to that set out in the tax ruling of 9 September 2008 concerning the transfer of LNG Trading’s business to LNG Supply. However, it differs from the tax ruling of 9 September 2008 as regards the possible increase in the amount of the ZORA taken out by GSTM.

3. Summary of the financing structures established by the Engie group companies

34 It is apparent from recitals 23 to 77 of the contested decision that the tax rulings at issue endorse various intra-group transactions in the light of Luxembourg tax law. In addition, the Commission draws attention to the fact that it follows from those tax rulings that those transactions constitute a set implementing, for LNG Supply and GSTM, a single transaction, namely, respectively, the intra-group transfer of business activities related to liquefied natural gas and those related to financing and treasury, which were also financed within the same group. In the same vein, the Commission states that those transactions were designed from the outset to be implemented in three successive but interdependent stages, involving the intervention of holding companies, intermediary companies and subsidiaries of the Engie group. The main features of those transactions are described below.

35 First, a holding company transfers a set of assets to its subsidiary.

36 It is apparent from recital 34 of the contested decision that the transfer of LNG Trading’s business to LNG Supply resulted in the latter issuing two promissory notes in favour of the former on 30 October 2009. The first promissory note covers a claim in the amount of USD 11 million (approximately EUR 9.26 million) and the second a claim in the amount of USD 646 million (approximately EUR 544 million). Only the second claim was transferred by LNG Trading to LNG Holding.

37 It also follows from recital 61 of the contested decision that the transfer of CEF’s business to GSTM resulted in the issue of a promissory note in favour of CEF. That promissory note covers a claim in the amount of EUR 1036912 506.84.

38 Secondly, in order to finance the assets transferred, the subsidiary takes out a ZORA with an intermediary company. Under that agreement, apart from the fact that the loan granted generates no periodic interest, the subsidiary that has taken out the ZORA is to repay the loan, upon its conversion, by issuing shares in an amount equivalent to the nominal amount of the loan, plus a premium representing all of the profits made by the subsidiary during the term of the loan, namely the ZORA accretions, minus a limited margin agreed with the Luxembourg tax authorities.

39 It follows from recital 34 of the contested decision that, on 30 October 2009, LNG Supply and LNG Luxembourg concluded a ZORA for a nominal amount of USD 646 million and a term of 15 years.

40 In addition, in accordance with recital 61 of the contested decision, two agreements – one dated 17 June 2011 and the other dated 30 June 2014 – were concluded under which GSTM took out a ZORA with EIL with a maturity date of 2026 and for a nominal amount of EUR 1036912 506.84.

41 Thirdly, the intermediary company finances the loan granted to the subsidiary by entering into a prepaid forward sale contract with the holding company. Under that contract, the holding company is to pay to the intermediary company an amount equal to the nominal amount of the loan in exchange for the acquisition of the rights to the shares that the subsidiary will issue upon conversion of the ZORA in question. Therefore, if the subsidiary makes profits during the lifetime of the ZORA in question, the parent company will own the rights to all the shares issued, which will incorporate the value of any profits made as well as the nominal amount of the loan.

42 In practice, as is apparent from recital 34 of the contested decision, LNG Luxembourg and LNG Holding concluded a prepaid forward sale contract on 30 October 2009. That contract involves, first, the purchase by LNG Holding of all of LNG Luxembourg’s rights to LNG Supply’s shares for USD 646 million and, secondly, the transfer of LNG Supply’s shares immediately upon issue.

43 Recital 61 of the contested decision refers to the conclusion, on 17 June 2011, of an identical prepaid forward sale contract between CEF and EIL.

44 The ZORA taken out by GSTM with EIL and that taken out by LNG Supply with LNG Luxembourg, together with the conclusion by EIL and LNG Luxembourg of a prepaid forward sale contract with, respectively, CEF and LNG Holding (‘the holding companies concerned’), replace the initial financing of the transfer of the business sectors by means of the issue, by GSTM and LNG Supply, of promissory notes of which the holders were CEF and LNG Holding, respectively.

45 The diagram set out in recital 27 of the contested decision, reproduced below, illustrates those three successive transactions.

4. Effect of the partial conversion of the ZORA concluded by LNG Supply

46 In recitals 46, 47, 49, 53 and 57 of the contested decision, the Commission provided details of the effect of the partial conversion in 2014 of the ZORA concluded by LNG Supply, that ZORA being the only loan to have been converted before the adoption of the contested decision.

47 For the purposes of the partial conversion of the ZORA it had concluded, LNG Supply repaid part of the nominal amount of that ZORA and part of the ZORA accretions.

48 In order to do so, in September 2014 LNG Supply performed a capital increase of USD 699.9 million (approximately EUR 589.6 million), of which USD 193.8 million (approximately EUR 163.3 million) repaid part of the nominal amount of the ZORA in question and, on that date, [confidential] repaid part of the ZORA accretions. However, the Commission observed, in the light of LNG Supply’s tax returns for 2014, that the aggregated ZORA accretions were in fact reduced [confidential].

49 As regards LNG Luxembourg, the partial conversion of the ZORA in question resulted in a reduction in the value of that ZORA, entered in its accounts as an asset, in the amount of USD 193.8 million and, accordingly, in a reduction in the value of the prepaid forward sale contract, entered in its accounts as a liability, in the same amount.

50 Lastly, following cancellation of the shares received under the prepaid forward sale contract, LNG Holding recorded in its accounts [confidential], the capital gain to which the exemption in respect of participation income was applied.

51 As regards the ZORA concluded by GSTM, the Commission stated, in recital 165 of the contested decision, that the existence of the advantage did not depend on the conversion of the ZORA, even though, for the purposes of determining the amount to be recovered, the advantage was considered to have materialised only when the income received by CEF was exempted.

C. The formal investigation procedure

52 By letter of 1 April 2016, the Commission informed the Grand Duchy of Luxembourg of its doubts as to the compatibility of the tax rulings at issue with State aid law.

53 On 23 May 2016, the Grand Duchy of Luxembourg submitted its comments to the Commission.

54 On 19 September 2016, the Commission initiated the formal investigation procedure pursuant to Article 108(2) TFEU (‘the opening decision’). The opening decision was published in the Official Journal of the European Union on 3 February 2017.

55 By letter dated 21 November 2016, the Grand Duchy of Luxembourg submitted its comments on the initiation of the formal investigation procedure and sent the requested information.

56 On 27 February 2017, Engie submitted its comments on the opening decision.

57 By letter of 10 March 2017, the Commission forwarded Engie’s comments to the Luxembourg authorities, which were given the opportunity to react to them.

58 By letter of 22 March 2017, the Commission asked the Grand Duchy of Luxembourg to provide additional information.

59 On 10 April and 12 May 2017, the Grand Duchy of Luxembourg informed the Commission that it endorsed the comments which had been forwarded to it and submitted the additional information sought.

60 On 1 June 2017, a tripartite meeting, which was recorded in minutes, was held between the Commission, the Grand Duchy of Luxembourg and Engie.

61 On 16 June 2017, following the meeting of 1 June 2017, the Grand Duchy of Luxembourg forwarded additional information.

62 By letter of 11 December 2017, the Commission made a further request for additional information, which both the Grand Duchy of Luxembourg and Engie complied with on 31 January 2018.

63 On 20 June 2018, the Commission adopted the contested decision.

II. The contested decision

64 By the contested decision, the Commission found, in essence, that the Grand Duchy of Luxembourg had granted, through its tax authorities, in breach of Articles 107(1) and 108(3) TFEU, a selective advantage to an entity comprising, in accordance with recitals 16, 316 and 317 of the contested decision, all the companies in the Engie group, regarded as a single economic unit.

65 Without calling into question the lawfulness under Luxembourg tax law of the entire financing structure established by the Engie group in order to transfer the two business sectors, the Commission disputed the practical effects of that structure on the group’s total tax liability, the fact being that, in essence, almost all of the profits made by the subsidiaries in Luxembourg are not actually taxed.

A. Imputability to the State

66 As regards whether the tax rulings at issue are imputable to the State and whether State resources are involved, the Commission stated in recitals 156 and 157 of the contested decision that the tax rulings at issue had been adopted by the Luxembourg tax authorities and resulted in a loss of tax revenue, so that the economic advantage granted through those tax rulings was imputable to the Grand Duchy of Luxembourg and was financed out of State resources.

B. Grant of an advantage

67 As regards the grant of an economic advantage to the holding companies concerned, the Commission considered, inter alia in recitals 163 and 166 of the contested decision, that that advantage lies in the fact that, following the tax rulings at issue, those companies’ participation income is not taxed, income which corresponds, from an economic perspective, to the ZORA accretions that the subsidiaries deducted from their taxable income as expenses.

68 Specifically, according to the Commission, the ZORA accretions are not taxed at the level of the subsidiaries, at the level of the intermediary companies or at the level of the holding companies concerned.

69 For tax purposes, as is apparent from recitals 35, 47 and 62 of the contested decision, the subsidiaries pay corporation tax, the basis of assessment for which is a limited margin agreed with the tax authorities.

70 The Commission observed that, on account of the future conversion of the ZORA in question, the subsidiaries made accounting provisions on a yearly basis corresponding to the ZORA accretions, which were essentially the difference between the profits actually made by the subsidiaries and the margin agreed with the tax authorities as the taxable income. The ZORA accretions are regarded as deductible expenses. Thus, according to the Commission, the contested measures in fact enabled the subsidiaries to exclude from the basis of assessment for the corporation tax for which they are liable almost all of the profits made during the term of the loan.

71 In the light of recitals 39 and 52 of the contested decision, the intermediary companies are also not taxed on the ZORA accretions.

72 Upon conversion of the ZORA, and under the prepaid share purchase contract concluded with the holding companies concerned, the intermediary companies incur a loss in their accounts equal to the ZORA accretions.

73 Lastly, the holding companies concerned, which hold the subsidiaries’ shares under the prepaid share purchase contract, are also not taxed on an amount corresponding to the ZORA accretions, according to recital 56 of the contested decision, since the income generated by the cancellation of those shares is covered, under the tax rulings at issue, by Article 166 of the LIR, exempting participation income from corporation tax. Thus, in recital 57 of the contested decision, the Commission stated that, following the partial conversion of LNG Supply’s ZORA in 2014, a capital gain of [confidential] was generated, which remained entirely untaxed.

C. Selectivity of the tax rulings at issue

74 In order to prove the selectivity of the tax rulings at issue, the Commission principally relied, as is apparent in particular from recitals 163 to 170 and 237 of the contested decision, on three lines of reasoning. Two of those lines concern the existence of a selective advantage at the level of the holding companies, in the light, first, of a reference framework encompassing the Luxembourg corporate income tax system and, secondly, of a reference framework limited to the provisions on the taxation of profit distributions and the participation exemption. A third line of reasoning concerns the existence of an advantage at the level of the Engie group. In addition, it follows from recital 289 of the contested decision that, in the alternative, the Commission considered that a selective advantage resulted from the non-application of Article 6 of the Steueranpassungsgesetz (Law on fiscal adaptation) of 16 October 1934 (Mémorial A 901) (‘the provision on abuse of law’). The Commission also found that there was no justification for the selective treatment arising from the tax rulings at issue.

1. Selectivity at the level of the holding companies

75 To begin with, the Commission considered, first, in recitals 171 to 199 of the contested decision, that the tax rulings at issue conferred on the Engie group, at the level of the holding companies, a selective advantage inasmuch as they derogated from the Luxembourg corporate income tax system.

76 Secondly, in recitals 200 to 236 of the contested decision, the Commission considered that the tax rulings at issue conferred on the Engie group, at the level of the holding companies, a selective advantage inasmuch as they derogated from the provisions on the participation exemption and the taxation of profit distributions. According to the Commission, those derogations could not be justified by the overall structure of the tax system.

(a) The derogation from the reference framework encompassing the Luxembourg corporate income tax system

77 Concerning the Luxembourg corporate income tax system, the Commission considered that that system was based on Articles 18, 23, 40, 159 and 163 of the LIR, as described in recitals 78 to 81 of the contested decision, according to which companies resident in Luxembourg which are liable to corporation tax in that State are taxed on their profits, as recorded in their accounts. It stated that the identification, for the purposes of defining a reference framework, of an objective or principle deriving from that system’s constituent provisions was consistent with the case-law of the Court and that that objective, namely the taxation of the profits of all companies subject to tax in Luxembourg, as recorded in their accounts, was clearly apparent from Luxembourg law.

78 The Commission added that the use of a reference framework encompassing the Luxembourg corporate income tax system was also consistent with the case-law of the Court. It maintained that the Court has repeatedly held, in relation to measures concerning the taxation of companies, that the reference framework could be defined in the light of the corporate income tax system, and not in the light of the specific provisions applicable to certain taxpayers or certain transactions.

79 The tax rulings at issue thus derogated from the Luxembourg corporate income tax system by endorsing the non-taxation, at the level of the holding companies, of participation income which, from an economic perspective, corresponded to the ZORA accretions.

80 The tax rulings at issue also gave rise to discrimination in favour of the holding companies. Unlike the holding companies, companies subject to corporation tax in Luxembourg are taxed on their profits, as recorded in their accounts.

(b) The derogation from the reference framework limited to the provisions on the taxation of profit distributions and the participation exemption

81 The Commission found that the tax rulings at issue also derogate from the Luxembourg provisions on the participation exemption and the taxation of profit distributions, namely Articles 164 and 166 of the LIR, as set out in recitals 82 to 87 of the contested decision.

82 According to the Commission, the participation exemption is available to a parent company only if the distributed profits have been taxed beforehand at the level of its subsidiary. Participation income exempted from tax at the level of the holding companies corresponds, from an economic perspective, to the ZORA accretions deducted by the subsidiaries from their taxable income as expenses.

83 Although the ZORA accretions do not formally correspond to profit distributions, the Commission observed that participation income exempted from tax had been recorded by LNG Holding as ‘exempted dividends’ and that, from an economic perspective, having regard to the direct and clear link between the exempted income at the level of LNG Holding and the ZORA accretions deducted at the level of LNG Supply, those accretions were equivalent to profit distributions.

84 According to the Commission, that derogation from the limited reference framework gave rise to discrimination in favour of the holding companies. In essence, parent companies which may receive participation income and which are, in that respect, in a legal and factual situation comparable to that of the holding companies are not eligible for an exemption on such income if it has not been taxed beforehand at the level of their subsidiaries.

85 According to the Commission, the absence of an express link between Articles 164 and 166 of the LIR cannot call that finding into question. If the same income could be exempted at the level of a parent company and deducted as an expense at the level of a subsidiary, it would escape all liability to tax in Luxembourg, which would run counter to the objective of the Luxembourg corporate income tax system and the objective of avoiding double taxation.

86 Furthermore, the Commission essentially stated that, although the directive in force when the tax rulings at issue were adopted, namely, first, Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6), then Council Directive 2011/96/EU of30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 2011 L 345, p. 8) (together, ‘the parent-subsidiary directive’), did not intend to make the exemption of participation income at the level of a parent company formally dependent on the taxation of the income distributed at the level of its subsidiary, that system applied only in the case of cross-border profit distributions where mismatches between the tax systems of two different countries could arise and result in no tax being levied at all. Accordingly, that directive could not properly be relied on to justify, in a purely internal situation, the exemption of participation income which has not been subject to any taxation at the level of a subsidiary.

2. Selectivity at the level of the Engie group

87 Next, the Commission submitted that, without prejudice to the conclusion relating to the existence of a selective advantage at the level of the holding companies, the selectivity of the tax rulings at issue was also apparent, in the light of recitals 237 to 244 of the contested decision, from an analysis at the level of the Engie group, comprising the holding companies concerned, the intermediary companies and the subsidiaries. That approach was justified by the fact that, from 2015 onwards, the holding companies concerned, the intermediary companies and the subsidiaries formed a single tax unit. In any event, according to the Commission, since the economic effects of State measures must be analysed in relation to undertakings rather than separate legal entities, the holding companies concerned, the intermediary companies and the subsidiaries must be regarded as forming part of the same undertaking for the purposes of State aid law. The Commission added that the tax ruling requests related to the tax treatment of all the entities of the Engie group and that the economic advantage which that group enjoyed at the level of the holding companies concerned lay in the combination of a participation exemption at the level of those companies and a deduction of the ZORA accretions as expenses at the level of the subsidiaries.

88 According to the Commission, the tax rulings at issue confer a selective advantage on the Engie group, inasmuch as they derogate from a reference framework corresponding to the Luxembourg corporate income tax system, the aim of which is to tax companies subject to tax in Luxembourg on their profits, as recorded in their accounts.

89 The Commission observed that the reduction in the tax burden at the level of the subsidiaries, as a result of the deduction of the ZORA accretions as expenses from the taxable income of those subsidiaries, was not offset by an increase in the tax burden at the level of the holding companies concerned or by a genuine increase in the taxable income of the intermediary companies, which, in practice, had led to a reduction in the combined taxable income of the Engie group in Luxembourg.

90 The Commission maintained that other groups of companies in a comparable legal and factual situation were not entitled to a combined reduction in their taxable income, regardless of the type of financing instrument or contract used or the amount of the remuneration.

91 According to the Commission, the same was true for groups of companies which had recourse to a direct ZORA. Article 22bis(2) of the LIR, as cited in recital 89 of the contested decision, was not applicable to the ZORA accretions and, even if it were, it could result only in a deferral of tax.

3. Selectivity resulting from non-application of the provision on abuse of law

92 Lastly, and in the alternative, the Commission added, in recitals 289 to 312 of the contested decision, that the tax rulings at issue derogated from the Luxembourg tax provision on abuse of law, as cited in recital 90 of the contested decision. It maintained that the financing structure established was abusive. According to the Commission, the four criteria identified by the case-law of the Luxembourg courts in order to establish an abuse of law were met: the use of forms or institutions governed by private law, the reduction in the tax burden, the use of inappropriate legal means and the absence of non-tax related reasons.

93 Concerning the last two criteria in particular, the Commission stated that the legal means chosen by the Engie group permitted the non-taxation of almost all the profits made by the subsidiaries in Luxembourg, which would not have been possible if the business sectors had been transferred using an equity instrument or a loan between the subsidiaries and the holding companies concerned. Moreover, apart from the achievement of significant tax savings, there were no genuine economic reasons offering a sufficient level of economic benefit to warrant the Engie group’s decision to opt for the complex financing structures established and endorsed by the tax rulings at issue.

4. Lack of justification

94 In recitals 285 to 287 of the contested decision, the Commission stated that, since the Grand Duchy of Luxembourg had not put forward any justification for the favourable treatment endorsed by the tax rulings at issue, it had to conclude that that treatment could not be justified by the general scheme of the Luxembourg tax system. In any event, it observed that a hypothetical justification based on the avoidance of economic double taxation could not, in essence, be accepted.

D. Distortion of competition

95 In recital 160 of the contested decision, the Commission stated that, since the Engie group was active in the electricity, natural gas and liquefied natural gas sectors, in energy efficiency services and in other related markets in several Member States, the tax treatment granted on the basis of the tax rulings at issue had relieved that group of a tax burden which it would otherwise have had to bear in the day-to-day management of its business activities. By strengthening the Engie group’s situation, the tax rulings at issue distorted or threatened to distort competition.

E. Beneficiary of the aid

96 In recitals 314 to 318 of the contested decision, the Commission found that the selective advantage enjoyed by the Engie group at the level of the holding companies concerned had also benefited all the companies in the Engie group, in that it had provided additional financial resources to the entire group. Although that group is split into different legal persons and the tax rulings at issue concerned the tax treatment of separate entities, the Commission considered that that group had to be regarded as one economic unit, namely a single undertaking, in receipt of State aid.

F. Recovery of the aid

97 In recitals 318 to 365 of the contested decision, the Commission stated that, since the aid granted was incompatible with the internal market and unlawful, the Grand Duchy of Luxembourg was required to take immediate action to recover from LNG Holding or, failing which, from Engie SA or one of its successors, the aid which had already materialised as a result of the partial conversion in 2014 of the ZORA concluded in favour of LNG Supply, and was also to refrain from applying the tax rulings at issue as regards the exemption of any participation income received by the holding companies concerned upon full conversion of the ZORAs concluded in favour of the subsidiaries.

98 The Commission considered that such recovery did not infringe the principles of legal certainty, protection of legitimate expectations, equal treatment and good administration. It also rejected the complaints put forward by the Grand Duchy of Luxembourg and Engie alleging procedural defects affecting the formal investigation procedure, stating that their procedural rights had been duly respected.

III. Procedure and forms of order sought

A. Written part of the procedure in Case T‑516/18

99 By document lodged at the Court Registry on 30 August 2018, the Grand Duchy of Luxembourg brought the action registered under Case number T‑516/18.

100 On 23 November 2018, the Commission lodged its defence.

1. Composition of the Chamber hearing the case

101 By decision of the Court of 28 September 2018, Case T‑516/18 was assigned to the Seventh Chamber of the General Court, former composition.

102 By document lodged at the Court Registry on 28 January 2019, the Grand Duchy of Luxembourg made a request, pursuant to Article 28(5) of the Rules of Procedure of the General Court, that Case T‑516/18 be heard and determined by a Chamber sitting in extended composition. By decision of the Court of 13 February 2019, formal note was taken of the Grand Duchy of Luxembourg’s request and Case T‑516/18 was referred to the Seventh Chamber, Extended Composition, former composition.

103 By decision of the Court of 16 October 2019, Case T‑516/18 was assigned to the Second Chamber, Extended Composition, pursuant to Article 27(5) of the Rules of Procedure.

104 Since a member of the Second Chamber, Extended Composition, was unable to sit, by decision of 21 January 2020, the President of the General Court designated himself to replace that member and to assume the duties of President of the Second Chamber, Extended Composition.

2. Application for leave to intervene

105 By document lodged at the Court Registry on 20 December 2018, Ireland applied for leave to intervene, in accordance with Articles 142 and 143 of the Rules of Procedure, in support of the form of order sought by the Grand Duchy of Luxembourg.

106 By order of 15 February 2019, the President of the Seventh Chamber, Extended Composition, granted Ireland leave to intervene.

107 By document lodged at the Court Registry on 12 April 2019, Ireland lodged a statement in intervention.

3. Application for confidential treatment

108 On 30 January 2018 and 18 February 2019, the Grand Duchy of Luxembourg applied for a number of annexes to the application and to the reply to be treated as confidential with regard to Ireland.

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

4. Forms of order sought

110 The Grand Duchy of Luxembourg claims that the Court should: – principally, annul the contested decision; – in the alternative, annul Article 2 of the contested decision; – order the Commission to pay the costs.

111 The Commission contends that the Court should: – dismiss the action; – order the applicant to pay the costs.

112 Ireland claims that the Court should annul the contested decision, in whole or in part, in line with the form of order sought by the Grand Duchy of Luxembourg.

B. Written part of the procedure in Case T‑525/18

113 By document lodged at the Court Registry on 4 September 2018, Engie brought the action registered under Case number T‑525/18.

114 On 14 December 2018, the Commission lodged its defence.

115 On 4 June 2019, in accordance with Article 106(2) of the Rules of Procedure, Engie requested to be heard at a hearing.

1. Composition of the Chamber hearing the case

116 By decision of the Court of 28 September 2018, Case T‑525/18 was assigned to the Seventh Chamber of the General Court, former composition.

117 By decision of the Court of 11 September 2019, Case T‑525/18 was referred to the Seventh Chamber, Extended Composition, former composition, pursuant to Article 28 of the Rules of Procedure.

118 By decision of the Court of 16 October 2019, Case T‑525/18 was assigned to the Second Chamber, Extended Composition, pursuant to Article 27(5) of the Rules of Procedure.

119 Since a member of the Second Chamber, Extended Composition, was unable to sit, by decision of 21 January 2020, the President of the General Court designated himself to replace that member and to assume the duties of President of the Second Chamber, Extended Composition.

2. Application for confidential treatment

120 On 3 July 2019, Engie applied to the Court for Annexes A.1 and A.9 to the application and Annex C.1 to the reply to be treated as confidential with regard to Ireland, intervener in Case T‑516/18, should the present case be joined to Case T‑516/18.

121 On 3 July 2019, Engie lodged confidential versions of the annexes to the application and to the reply at the Court Registry.

3. Forms of order sought

122 Engie claims that the Court should: – principally, annul the contested decision; – in the alternative, annul Article 2 of the contested decision; – order the Commission to pay the costs.

123 The Commission contends that the Court should: – dismiss the action; – order the applicant to pay the costs.

IV. Law

A. Joinder of Cases T‑516/18 and T‑525/18 and the outcome of the applications for confidential treatment

124 By documents lodged at the Court Registry on 4 June and 25 June 2019 respectively, Engie and the Grand Duchy of Luxembourg applied for the joinder of Cases T‑516/18 and T‑525/18 for the purposes of the oral part of the procedure and of the decision closing the proceedings.

125 The Commission and Ireland raised no objection to the joinder of Cases T‑516/18 and T‑525/18.

126 By order of the President of the Second Chamber, Extended Composition, of the Court of 12 June 2020, the parties having been heard, Cases T‑516/18 and T‑525/18 were joined for the purposes of the oral part of the procedure, in accordance with Article 68(1) of the Rules of Procedure. By the same order, it was decided to exclude the confidential information from the case file to be made available to Ireland.

127 By order of the Court of 28 September 2020, the oral part of the procedure in Joined Cases T‑516/18 and T‑525/18 was reopened in order to ask the Commission, by way of a measure of organisation of procedure, whether the cases should be joined for the purposes of the decision closing the proceedings.

128 In view of the possible risk of extrapolation of some of the parties’ arguments, the Commission expressed reservations about the joinder of Cases T‑516/18 and T‑525/18. However, the Court considers it appropriate, in the light of the connection between them, to join the cases for the purposes of the judgment closing the proceedings, in accordance with Article 68 of the Rules of Procedure, and again to exclude the confidential information from the case file to be made available to Ireland.

B. Substance

129 In support of its action in Case T‑516/18, the Grand Duchy of Luxembourg relies, in essence, on six pleas in law: – the first alleges that the selectivity of the tax rulings at issue was incorrectly assessed; – the second alleges infringement of the concept of advantage; – the third alleges disguised tax harmonisation; – the fourth alleges infringement of procedural rights; – the fifth, put forward in the alternative, alleges infringement of the general principles of EU law in the context of the recovery of the aid allegedly granted; – the sixth alleges infringement of the obligation to state reasons.

130 In support of its action in Case T‑525/18, Engie relies, in essence, on eight pleas in law: – the first alleges that the tax rulings at issue cannot be imputed to the State; – the second alleges infringement of the concept of advantage; – the third alleges that the selectivity of the tax rulings at issue was incorrectly assessed; – the fourth alleges that the tax rulings at issue were incorrectly classified as individual aid; – the fifth alleges, in essence, disguised tax harmonisation; – the sixth alleges infringement of procedural rights; – the seventh, put forward in the alternative, alleges infringement of the general principles of EU law in the context of the recovery of the aid allegedly granted; – the eighth alleges infringement of the obligation to state reasons.

131 For the purposes of the present judgment, the Court considers it appropriate, in the first place, to examine the merits of the pleas, first, referring to disguised tax harmonisation, since, if substantiated, the Commission would not be competent to assess the tax rulings at issue under State aid law, secondly, arguing that the Commission did not comply with its obligation to state reasons and, thirdly, relating to an alleged infringement of procedural rights.

132 In the second place, the Court will consider the pleas claiming that the tax rulings at issue cannot be imputed to the Grand Duchy of Luxembourg, that there was no selective advantage, that the tax rulings at issue were incorrectly classified as individual aid, and that the obligation to recover the aid allegedly granted was misconstrued.

1. The fifth plea in Case T‑525/18 and the third plea in Case T‑516/18, alleging, in essence, the existence of disguised tax harmonisation

133 The fifth plea in Case T‑525/18 can essentially be divided into two parts. By the first part, Engie alleges infringement of Articles 3 to 5 and 113 to 117 TFEU and, by the second, misuse of powers by the Commission. In Case T‑516/18, the Grand Duchy of Luxembourg alleges disguised tax harmonisation in breach of Articles 4 and 5 TEU.

(a) Alleged infringement of Articles 4 and 5 TEU and Articles 3 to 5 and 113 to 117 TFEU

134 Engie submits that the Commission interfered in the Grand Duchy of Luxembourg’s tax policy in so far as it classified the tax rulings at issue as State aid even though they implement general measures of direct taxation which do not give rise to discrimination and which are therefore not selective. In so doing, the Commission infringed Articles 3 to 5 and 113 to 117 TFEU.

135 It also claims that, by interpreting the concept of selectivity broadly, the Commission assumed the role of the Grand Duchy of Luxembourg in the definition and interpretation of the reference frameworks used.

136 The Grand Duchy of Luxembourg adds that, by imposing its own interpretation of Luxembourg tax law and of the objective which that law should pursue, the Commission misused the State aid rules, in disregard of the sovereign power of the Member States in the field of direct taxation and the principles governing the division of competences between the Member States and the European Union.

137 The Commission disputes the merits of all those arguments. It draws special attention to the obligation on the Member States to comply with EU law in general and with State aid law in particular in the exercise of their reserved competence in the field of direct taxation. It also emphasises that the contested decision does not in any way call into question the power of the Grand Duchy of Luxembourg to devise its own system of taxation.

138 In that regard, it should be recalled that, according to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 47 and the case-law cited).

139 Thus, intervention by the Member States in areas which have not been harmonised in the European Union, such as direct taxation, is not excluded from the scope of the State aid rules. Accordingly, the Commission can classify a tax measure as State aid provided that the conditions for that classification are met (judgment of 25 March 2015, Belgium v Commission, T‑538/11, EU:T:2015:188, paragraphs 65 and 66; also see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 13, and of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81).

140 If tax measures in fact discriminate between companies which are in a comparable situation in the light of the objective pursued by those tax measures and confer on the recipients of those measures selective advantages favouring ‘certain’ undertakings or the production of ‘certain’ goods, they may be regarded as State aid for the purposes 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).

141 It follows from the foregoing that, since the Commission is competent to ensure compliance with Article 107 TFEU, it cannot be accused of having exceeded its powers by examining the tax rulings at issue in order to determine whether they constituted State aid and, if they did, whether they were compatible with the internal market, for the purposes of Article 107(1) TFEU.

142 Engie and the Grand Duchy of Luxembourg are therefore wrong to claim that the Commission interfered in that State’s tax policy, since, in examining whether the tax rulings at issue complied with State aid law, the Commission merely exercised its powers under Article 107 TFEU.

143 The arguments put forward by Engie and the Grand Duchy of Luxembourg cannot call that finding into question.

144 First, contrary to Engie and the Grand Duchy of Luxembourg’s submissions, the Commission did not impose its own interpretation of Luxembourg tax law when establishing the selectivity of the tax rulings at issue. The Commission strictly adhered to the provisions of Luxembourg tax law, which it set out in recitals 78 to 90 of the contested decision. It was specifically on the basis of the provisions of Luxembourg tax law that the Commission defined, inter alia, the various reference frameworks used, as is apparent from recitals 171 to 176, 200 to 205, 245 and 292 to 298 of the contested decision.

145 Furthermore, in its examination, the Commission relied not on its own interpretation of the Luxembourg tax rules, but on that of the Luxembourg tax authorities, as demonstrated inter alia by recital 283 of the contested decision.

146 It follows that the Commission examined the tax rulings at issue in the light not of its own interpretation of the Luxembourg tax rules, but of the provisions of Luxembourg tax law, as applied by the Luxembourg tax authorities.

147 Secondly, the Commission did not disregard the competence reserved to the Member States in the field of direct taxation merely because it carried out its own examination of the tax rulings at issue having regard to the Luxembourg tax provisions, in order to ascertain whether those tax rulings conferred a selective advantage on their beneficiaries.

148 It is true that it follows from the case-law set out in paragraph 138 above that, as EU law currently stands, the Commission does not have the power autonomously to define the rules on the direct taxation of companies, disregarding national tax rules.

149 However, although ‘normal’ taxation is defined by national tax rules and the very existence of a selective advantage must be demonstrated by reference thereto, it remains the case that, as noted in paragraph 139 above, tax measures that in fact discriminate between companies which are in a comparable situation in the light of the objective pursued by those measures may fall within the scope of Article 107(1) TFEU.

150 Thus, when investigating whether the tax rulings at issue complied with the rules on State aid, the Commission could only carry out an assessment of ‘normal’ taxation, defined by Luxembourg tax law as applied by the Luxembourg tax authorities. In so doing, it did not engage in any ‘tax harmonisation’, but exercised the power conferred on it by Article 107(1) TFEU.

151 As part of its review of tax measures involving State aid, the Commission is able to conduct its own assessment of national tax provisions, an assessment which may, where appropriate, be challenged by the Member State concerned or by any interested parties by means of an action for annulment before the General Court.

152 Thirdly, the alleged failure to demonstrate that there was discrimination in favour of Engie is irrelevant for the purposes of proving that the Commission lacked competence. On the contrary, that argument seeks to demonstrate that the Commission infringed Article 107 TFEU in the actual exercise of its competence.

153 In those circumstances, the Commission did not infringe Articles 4 and 5 TEU or Articles 3 to 5 and 113 to 117 TFEU by adopting the contested decision.

(b) Alleged misuse of powers

154 Engie claims that the Commission used the powers conferred on it by Articles 107 and 108 TFEU to compel the Grand Duchy of Luxembourg to change its tax policy ‘in relation to the exemption of profits’ and thus indirectly engage in tax harmonisation.

155 According to Engie, the following factors demonstrate that an underlying tax harmonisation objective was being pursued: the definition, for the purposes of establishing the selectivity of the tax rulings at issue, of the reference framework in the light of an objective determined in a discretionary manner; the Commission’s failure to take into account the principle of fiscal legality, the tax treatment of cross-border situations and the specific nature of ZORAs; the Commission’s interpretation of the criteria for abuse of law; and the adoption of the contested decision concomitantly with the lodging of a bill to amend Article 22bis of the LIR before the Luxembourg Chamber of Deputies.

156 The Commission disputes the merits of all those arguments. It contends that, since the contested decision is not a harmonisation measure, it cannot be accused of any misuse of powers.

157 In that regard, it should be borne in mind that a measure is vitiated by misuse of powers only if it appears, on the basis of objective, relevant and consistent evidence, to have been taken with the exclusive or main purpose of achieving an end other than that stated or of evading a procedure specifically prescribed by the Treaty (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).

158 In addition, under Article 108 TFEU, the Commission is competent to examine the compatibility with the internal market of State measures constituting State aid.

159 In the present case, the Commission cannot be accused of having misused its powers by adopting the contested decision, which, at the end of the formal investigation procedure in respect of the tax rulings at issue, found that the Grand Duchy of Luxembourg had granted State aid incompatible with the internal market by means of those tax rulings.

160 First, the contested decision cannot be regarded as a disguised tax harmonisation measure, as held in paragraph 153 above.

161 More specifically, as regards the lodging of a bill to amend Article 22bis of the LIR before the Luxembourg Chamber of Deputies concomitantly with the adoption of the contested decision, it should be noted that Engie has not put forward any arguments demonstrating how that legislative initiative of the Grand Duchy of Luxembourg constitutes evidence that the Commission misused its powers. The amendment of Article 22bis of the LIR by the Grand Duchy of Luxembourg cannot in itself be regarded as sufficient evidence of such a misuse of powers.

162 Secondly, the other evidence adduced by Engie in support of the claim of a possible misuse of powers is intended above all to challenge the Commission’s assessment of the selectivity of the tax rulings at issue and is, therefore, ineffective for the purposes of establishing an alleged misuse of powers, in accordance with the case-law cited in paragraph 157 above.

163 Consequently, the argument alleging misuse of powers must be rejected as unfounded, as must, therefore, the fifth plea in Case T‑525/18 and the third plea in Case T‑516/18.

2. The eighth plea in Case T‑525/18 and the sixth plea in Case T‑516/18, alleging infringement of the obligation to state reasons

164 The Grand Duchy of Luxembourg and Engie refer to multiple deficiencies which they claim vitiate the finding, in the contested decision, that the tax rulings at issue were selective. Thus, the Commission failed to give sufficient reasons in its assessment relating to the existence of a selective advantage in favour of the holding companies concerned and in its assessment of the existence of a selective advantage as a result of the non-application by the Grand Duchy of Luxembourg of the provision on abuse of law.

165 Engie adds that the Commission failed to fulfil its obligation to state reasons by not explaining clearly why it had disregarded the fact that other undertakings received the same tax treatment as the Engie group companies.

166 More generally, the absence of reference to legislation and to administrative and judicial practice and the lack of evidence of divergent tax rulings show that the Commission failed to fulfil its obligation to state reasons.

167 The Commission disputes the merits of all those arguments. It submits that Engie and the Grand Duchy of Luxembourg have not identified any shortcomings affecting the contested decision. It also observes that Engie was in a position to understand its reasoning and to challenge that reasoning effectively before the Court.

168 In that regard, it should be borne in mind that the statement of reasons must enable the persons concerned to ascertain the reasons for the measure so that they can defend their rights and ascertain whether or not the measure is well founded and so that the EU judicature can exercise its power of review. It is not necessary for the statement of reasons to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296 TFEU must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (judgments of 15 June 2005, Corsica Ferries France v Commission, T‑349/03, EU:T:2005:221, paragraphs 62 and 63; of 16 October 2014, Eurallumina v Commission, T‑308/11, not published, EU:T:2014:894, paragraph 44; and of 6 May 2019, Scor v Commission, T‑135/17, not published, EU:T:2019:287, paragraph 80).

169 In particular, the Commission is not obliged to adopt a position on all the arguments relied on by the parties concerned and it is sufficient if it sets out the facts and the legal considerations having decisive importance in the context of the decision (judgments of 15 June 2005, Corsica Ferries France v Commission, T‑349/03, EU:T:2005:221, paragraph 64; of 16 October 2014, Eurallumina v Commission, T‑308/11, not published, EU:T:2014:894, paragraph 44; and of 6 May 2019, Scor v Commission, T‑135/17, not published, EU:T:2019:287, paragraph 80).

170 In the present case, in addition to the fact that Engie and the Grand Duchy of Luxembourg were closely involved in the formal investigation procedure, it must be stated first of all that they were, in the light of their pleadings before the Court, in a position effectively to challenge the merits of the contested decision.

171 Next, there are no lacunae in the contested decision that prevent the Court from fully exercising its power of review.

172 It is apparent from the contested decision that the Commission stated to the requisite legal and factual standard the reasons for its view that, in the present case, the tax rulings at issue constituted State aid incompatible with the internal market, within the meaning of Article 107 TFEU.

173 Specifically, as regards the third condition relating to the existence of a selective advantage in the case in point, the Commission explained, in section 6.2 of the contested decision (recitals 163 to 236 thereof), why it considered that there was a selective advantage benefiting the Engie group at the level of the holding companies.

174 In essence, the Commission found that the tax rulings at issue conferred a selective advantage on the holding companies concerned by derogating, first, from a reference framework encompassing the Luxembourg corporate income tax system and, secondly, from a reference framework limited to the Luxembourg provisions on the taxation of profit distributions and the participation exemption.

175 In section 6.3 of the contested decision (recitals 237 to 288 thereof), the Commission set out the reasons for its finding that there was a selective advantage as a result of the preferential tax treatment given to the Engie group. According to the Commission, such an advantage existed because the tax burden of the Engie group, comprising the subsidiaries, intermediary companies and holding companies, had been reduced following the tax rulings at issue, when, in principle, that tax burden should have remained constant at group level. In the Commission’s view, the reduction in the group’s tax burden again derogated from the Luxembourg corporate income tax system.

176 In section 6.4 of the contested decision (recitals 289 to 312 thereof), the Commission also set out the reasons for its finding that there was a selective advantage as a result of the non-application of the provision on abuse of law.

177 The Commission based its assessment on the criteria for abuse of law, as identified from administrative and judicial practice in Luxembourg, and sought to show that each of those criteria was duly met in the present case. Thus, because of the non-application of the provision on abuse of law by the Luxembourg tax authorities, the Grand Duchy of Luxembourg granted a selective advantage to the holding companies concerned.

178 Finally, neither the Commission’s failure to take account of Luxembourg administrative practice in relation to tax rulings, nor its failure to take account of undertakings which potentially enjoyed the same advantage as the Engie group companies, leads to a finding that the Commission infringed its obligation to state reasons. Such an argument seeks to challenge the substance, rather than the form, of the contested decision.

179 Accordingly, the eighth plea in Case T‑525/18 and the sixth plea in Case T‑516/18, alleging infringement of the obligation to state reasons, must be rejected as unfounded.

3. The sixth plea in Case T‑525/18 and the fourth plea in Case T‑516/18, alleging infringement of procedural rights

180 Both Engie and the Grand Duchy of Luxembourg complain that the Commission infringed their procedural rights.

181 In the first place, Engie claims that the Commission infringed its procedural rights by failing to send it the Grand Duchy of Luxembourg’s reply to the Commission’s letter of 22 March 2017. That reply could have put Engie in a better position to defend itself, since it showed that other undertakings enjoyed the same tax treatment.

182 In particular, that information was decisive for establishing a selective advantage based on the individual application of a general law tax system, in accordance with the judgment of 12 November 2013, MOL v Commission (T‑499/10, EU:T:2013:592), and the Commission’s recent decision-making practice in relation to tax rulings.

183 In that regard, it follows from the case-law of the Court that interested parties other than the Member State concerned have, in the procedure for reviewing State aid, only the opportunity to send to the Commission all information intended for the guidance of the latter with regard to its future action and they cannot themselves seek to engage in an adversarial debate with the Commission in the same way as is offered to that Member State (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 181).

184 Thus, irrespective of the arguments put forward by Engie explaining why it needed a copy of the Grand Duchy of Luxembourg’s reply, it cannot seek to engage in an adversarial debate with the Commission or require the Commission to disclose the replies of the other parties to the procedure.

185 The only possibility open to interested parties other than the Member State concerned is to submit comments either on their own initiative or in reply to documents and questions raised by the Commission during the formal investigation procedure. In that regard, as stated in paragraphs 56 to 62 above, Engie availed itself of that possibility, since it submitted comments on several occasions during the formal investigation procedure.

186 In the second place, Engie and the Grand Duchy of Luxembourg submit that the Commission infringed their procedural rights by, in essence, failing to adopt a new opening decision or, at the very least, a correcting decision. Such a decision would have allowed the inaccuracies affecting the opening decision to be rectified and would have enabled the parties effectively to submit their comments during the administrative procedure on the basis of the reasoning that was ultimately adopted in the contested decision to establish the selectivity of the tax rulings at issue.

187 The changes which the Commission made to the contested decision could not have been anticipated. According to Engie, the Commission did not simply develop its reasoning, but also developed the main complaints and the subject matter of the decision itself.

188 The Grand Duchy of Luxembourg states that, by failing to adopt a new opening decision or a correcting decision, despite the circumstances requiring it to do so, the Commission infringed its rights of defence and Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 TFEU (OJ 2015 L 248, p. 9).

189 The Grand Duchy of Luxembourg adds that the Commission based the contested decision solely on the incomplete considerations mentioned in the opening decision, considerations which appeared to form part of complaints which the Commission had withdrawn. If the complaints had been sufficiently substantiated, that State would have been able to provide further information to justify a different outcome.

190 Furthermore, according to the Grand Duchy of Luxembourg, the Commission’s letter of 11 December 2017, which was not a correcting decision, did not remove any of the ambiguities affecting the opening decision.

191 The Commission disputes the merits of all those arguments. It submits, by reference to the case-law, that it was entitled to modify its position between the opening decision and the final decision without having to initiate the formal investigation procedure again and adds, in essence, that the opening decision covered all the points raised in the contested decision.

192 In that regard, it should be borne in mind that, according to settled case-law, observance of the rights of defence during the formal investigation procedure conducted under Article 108(2) TFEU requires the Member State concerned to be placed in a position in which it may effectively make known its views on the truth and relevance of the facts and circumstances alleged and on the documents obtained by the Commission to support its claim that there has been an infringement of EU law, as well as on the observations submitted by interested third parties, in accordance with Article 108(2) TFEU. In so far as the Member State has not been afforded the opportunity to comment on those observations, the Commission may not use them in its decision against that State (see judgment of 13 December 2017, Greece v Commission, T‑314/15, not published, EU:T:2017:903, paragraph 25 and the case-law cited).

193 In accordance with Article 6 of Regulation 2015/1589, where the Commission decides to initiate the formal investigation procedure, the opening decision may be confined to summarising the relevant issues of fact and law, to including a preliminary assessment as to the character of the State measure in issue as aid, and to setting out the doubts as to the measure’s compatibility with the internal market (see, to that effect, judgment of 13 December 2017, Greece v Commission, T‑314/15, not published, EU:T:2017:903, paragraph 26).

194 It should also be pointed out that the formal investigation procedure makes it possible to examine in greater depth and clarify the issues raised in the opening decision.

195 It follows from Article 9 of Regulation 2015/1589 that, at the end of the formal investigation procedure, the Commission’s analysis may have changed, as it may ultimately decide that the measure does not constitute aid or that the doubts as to the compatibility of the measure have been removed. Consequently, the final decision may differ somewhat from the opening decision, without, however, those differences affecting the legality of the final decision (see, to that effect, judgment of 13 December 2017, Greece v Commission, T‑314/15, not published, EU:T:2017:903, paragraph 27).

196 In the present case, it should be noted at the outset that, in the opening decision, the Commission drew the preliminary conclusion that a selective advantage existed in favour both of the subsidiaries, namely LNG Supply and GSTM, and of the Engie group as a whole.

197 Thus, the Commission submitted, as its principal argument, that, by permitting the non-taxation of the ZORA accretions, the tax rulings at issue derogated from the first paragraph of Article 109 and Article 164 of the LIR, which are tax rules applicable to all companies subject to tax in Luxembourg.

198 In the alternative, the Commission considered that the tax rulings at issue derogated from the provisions on the taxation of capital gains arising from a loan convertible into shares, namely Articles 22bis and 97 of the LIR, in so far as they endorsed the non-taxation of income generated by the subsidiaries by treating the ZORA accretions in the same way as deductible interest.

199 Furthermore, the Commission observed that the combined effect of the derogations from Articles 22bis and 109 of the LIR, permitting the non-taxation of the ZORA accretions, resulted in a derogation from the provision on abuse of law.

200 Those considerations having been set out, it should be noted first of all that, in the contested decision, the Commission admittedly did not reproduce all of the arguments put forward at the stage of the opening decision as regards the analysis of the selectivity of the tax rulings at issue.

201 However, that narrowing of the scope of the Commission’s analysis cannot be interpreted as a modification of the subject matter of the opening decision, which continues to be the compatibility of the tax rulings at issue with State aid law.

202 Next, the assumptions underpinning the analysis that was ultimately adopted in the contested decision in respect of the selectivity of the tax rulings at issue were set out in the opening decision, and Engie and the Grand Duchy of Luxembourg do not seek to challenge them.

203 As stated in recitals 91 to 100 of the contested decision, the opening decision identified the following as factors capable of giving rise to a selective advantage: first, the possibility for a subsidiary that has taken out a ZORA to deduct the ZORA accretions as interest, under Article 109 of the LIR, and, secondly, the application to the present case of Article 22bis of the LIR, inasmuch as it could enable those accretions to escape tax when the ZORA in question is converted. Moreover, the combined effect of the deductibility of the ZORA accretions at the level of the subsidiaries and the non-taxation of the corresponding income at the level of the holding companies was identified.

204 In other words, the opening decision already referred to the misapplication of Article 166 of the LIR at the level of the holding companies concerned in respect of participation income corresponding, from an economic perspective, to profits not taxed at the level of the subsidiaries, as well as to the misapplication of Article 22bis of the LIR, which is intended only to defer taxation of the ZORA accretions to a later point in time, not to exempt them from tax for good. Similarly, the Commission had already alleged non-application of the provision on abuse of law.

205 Therefore, since the decisive arguments relied on by the Commission in the contested decision concerning the existence of a selective advantage could already be discerned from the opening decision, the Grand Duchy of Luxembourg cannot accuse the Commission of failing to place it in a position in which it could effectively make known its views on the existence of a selective advantage, in accordance with the case-law cited in paragraph 192 above.

206 It should be added that, by letter of 11 December 2017, the Commission sought to clarify its reasoning in a structured manner and to obtain comments from Engie and the Grand Duchy of Luxembourg in that regard.

207 That is clearly the case with regard to the definition of the reference frameworks used in the contested decision for the purposes of establishing the selectivity of the tax rulings at issue at the level of both the holding companies concerned and the Engie group.

208 In addition, although the Commission did not provide a summary in the letter of 11 December 2017 of its arguments regarding the non-application of the provision on abuse of law, which it had raised in the opening decision, it made a further request to the parties to submit additional comments on that matter.

209 Finally, the narrowing of the scope of the analysis of the selectivity of the tax rulings at issue between the opening decision and the contested decision stems from exchanges between the Commission’s services, the Grand Duchy of Luxembourg and Engie, which illustrates, if such illustration were needed, the very purpose of the formal investigation procedure and the usefulness and effectiveness of the exchanges which take place during that procedure.

210 Accordingly, in the light of those considerations, the Commission did not infringe the procedural rights of the Grand Duchy of Luxembourg and Engie in the present case by not adopting a new opening decision or, at the very least, a correcting decision.

211 Consequently, the sixth plea in Case T‑525/18 and the fourth plea in Case T‑516/18 must be rejected as unfounded.

4. The first plea in Case T‑525/18 alleging that there was no commitment of State resources and that the tax rulings at issue cannot be imputed to the State

212 In the first place, Engie submits that the tax rulings at issue cannot be regarded as involving an intervention by the State. They are optional and are strictly limited to drawing inferences from the application of Luxembourg tax law to a given situation.

213 According to Engie, that finding cannot be called into question by the non-application of the provision on abuse of law, inasmuch as the Commission did not in any way demonstrate that the practice of the Luxembourg authorities, which were shown in the present case at most to have refrained from intervening, would have been different in comparable situations.

214 In that regard, it should be noted that, for it to be possible to classify advantages as ‘aid’ within the meaning of Article 107(1) TFEU, they must be granted directly or indirectly through State resources and be imputable to the State (judgment of 28 March 2019, Germany v Commission, C‑405/16 P, EU:C:2019:268, paragraph 48).

215 In order to assess whether a measure is imputable to the State, it is necessary to examine whether the public authorities were involved in the adoption of that measure (judgment of 28 March 2019, Germany v Commission, C‑405/16 P, EU:C:2019:268, paragraph 49).

216 In the present case, the tax rulings at issue were adopted by the Luxembourg tax authorities, as the Commission rightly pointed out in recital 156 of the contested decision.

217 Therefore, in the light of that finding alone, it cannot reasonably be disputed that those tax rulings are imputable to the Grand Duchy of Luxembourg.

218 In the second place, according to Engie, the tax rulings at issue do not involve the commitment of State resources. They do not result in a reduction in the amount of tax normally payable.

219 It follows from the case-law that it is not necessary to establish in every case that there has been a transfer of State resources for the advantage conferred on one or more undertakings to be capable of being regarded as State aid, for the purposes of Article 107(1) TFEU (judgment of 19 March 2013, Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others, C‑399/10 P and C‑401/10 P, EU:C:2013:175, paragraph 100).

220 Thus, measures which, in various forms, mitigate the charges that are normally included in the budget of an undertaking and which therefore, without being subsidies in the strict meaning of the word, are similar in character and have the same effect are considered to constitute aid (judgment of 19 March 2013, Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others, C‑399/10 P and C‑401/10 P, EU:C:2013:175, paragraph 101).

221 By the tax rulings at issue, as is apparent from recital 158 of the contested decision, the Luxembourg tax authorities made it possible for the holding companies concerned not to be taxed on some of their participation income. In other words, those tax rulings mitigate the charges that are generally included in the budget of an undertaking, in accordance with the case-law cited in paragraph 220 above.

222 Accordingly, the condition relating to the use of State resources is also met.

223 In consequence, the first plea in Case T‑525/18 must be rejected as unfounded.

5. The first and second pleas in Case T‑516/18 and the second and third pleas in Case T‑525/18, alleging, in essence, errors of assessment and of law in the identification of a selective advantage

(a) Preliminary remarks

224 It is apparent from recitals 162, 171, 200, 237 and 289 of the contested decision that, as it confirmed in response to a question put by the Court at the hearing, the Commission demonstrated that the Engie group enjoyed a selective advantage on the basis of four lines of reasoning, one of which, in the light of recital 289 of the contested decision, was submitted in the alternative.

225 Thus, first, the Commission considered that the tax rulings at issue conferred a selective advantage on the Engie group at the level of the holding companies concerned by derogating from a reference framework encompassing the Luxembourg corporate income tax system.

226 Secondly, the Commission considered that the Engie group also enjoyed a selective advantage at the level of the holding companies concerned because the tax rulings at issue derogated from a reference framework limited to the Luxembourg provisions on the taxation of profit distributions and the participation exemption.

227 Thirdly, in the light of a reference framework encompassing the Luxembourg corporate income tax system, the Commission found that the tax rulings at issue also conferred a selective advantage on the Engie group, comprising in this instance the holding companies concerned, the intermediary companies and the subsidiaries.

228 Fourthly, and in the alternative, the Commission considered that the tax rulings at issue conferred a selective advantage on all the companies in the Engie group, collectively referred to as ‘Engie’ in the contested decision, inasmuch as they derogated from the provision on abuse of law, an integral part of a reference framework encompassing the Luxembourg corporate income tax system.

229 By their actions, Engie and the Grand Duchy of Luxembourg dispute all of the Commission’s arguments seeking to establish the existence of a selective advantage in the present case. To that end, the applicants put forward pleas in law and arguments which, although presented differently in their respective applications, display significant similarities as to their substance.

230 In that regard, it should be recalled at the outset that, where some of the grounds in a decision on their own provide a sufficient legal basis for the decision, any errors in the other grounds of the decision have no effect on its operative part (judgment of 14 December 2005, General Electric v Commission, T‑210/01, EU:T:2005:456, paragraph 42).

231 Moreover, where the operative part of a Commission decision is based on several pillars of reasoning, each of which would in itself be sufficient to justify that operative part, that decision should, in principle, be annulled only if each of those pillars is vitiated by an illegality. In such a case, an error or other illegality which affects only one of the pillars of reasoning cannot be sufficient to justify annulment of the decision at issue because that error could not have had a decisive effect on the operative part adopted by the Commission (judgment of 14 December 2005, General Electric v Commission, T‑210/01, EU:T:2005:456, paragraph 43).

232 Thus, in the instant case, if only one of the Commission’s lines of reasoning is well founded, the arguments put forward by Engie and the Grand Duchy of Luxembourg against the Commission’s other lines of reasoning will be ineffective.

233 For the purposes of this judgment, the Court considers it appropriate to examine, at the outset, the arguments put forward by Engie and the Grand Duchy of Luxembourg alleging that the Commission confused the conditions for finding an advantage and for finding that the tax rulings at issue were selective by failing to conduct a clear assessment of those two conditions separately.

234 Next, the Court will examine the arguments put forward to challenge the Commission’s assessment concerning the existence of a selective advantage, beginning with the finding of a derogation from the reference framework limited to the provisions on the taxation of profit distributions and the participation exemption.

(b) The alleged confusion of the conditions concerning the existence of an advantage and the selectivity of the tax rulings at issue

235 Engie and the Grand Duchy of Luxembourg allege that the Commission confused the concepts of advantage and selectivity.

236 Instead of examining the existence of an advantage first, followed by the existence of different treatment, Engie claims that the Commission inferred the existence of an advantage from an alleged derogation not from the provisions of the general law for determining the taxable income, but from an objective, being to tax, in all circumstances, the profits of companies liable to corporation tax.

237 However, reference to the objective of a tax system can be made only at the stage of assessing the selectivity of the tax rulings at issue, and not at the stage of identifying an advantage.

238 The Commission contends that, although the condition relating to the existence of an advantage differs from the condition relating to its selectivity, the fact remains that fulfilment of one of those conditions partly overlaps with fulfilment of the other. If a tax measure derogates from a normal tax system, the condition relating to the existence of an advantage will be satisfied, as will the first two stages of the reasoning relating to its selectivity. The Commission adds in particular that, as to the alleged confusion between the rules making up the reference system and the objective of that system, the general rules of the tax system, namely the rules applicable to all undertakings, are the very reflection of the objective of the tax system.

239 In that regard, it should be borne in mind that, in principle, selectivity and advantage are two separate conditions. 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 15).

240 On the other hand, so far as selectivity is concerned, 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 (judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

241 However, in tax matters, the examination of an advantage overlaps with the examination of selectivity in so far as, for those two conditions to be satisfied, it must be shown that the tax measure at issue results in a reduction in the amount of tax which would normally have been payable by the recipient of the measure under the ordinary tax system, which, as such, applies to other taxpayers in the same situation. Furthermore, it is apparent from the Court’s case-law that those two criteria may be examined together, as the ‘third condition’ laid down in 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).

242 In the present case, the Commission sought to demonstrate, irrespective of the merits of the body of reasons set out in the contested decision, that the tax rulings at issue resulted in a reduction in the amount of tax which would normally have been payable, particularly by the holding companies concerned, under ordinary tax systems and that, consequently, those measures amounted to a derogation from the tax rules applicable to other taxpayers in a comparable factual and legal situation.

243 First of all, the Commission considered that, by confirming that it was possible for the holding companies concerned to be exempted from paying tax on participation income that, under the Luxembourg corporate income tax system and in the absence of the tax rulings at issue, should have been taxed, those tax rulings conferred an advantage on those companies and also derogated from the Luxembourg corporate income tax system.

244 The reference in recitals 166 and 176 of the contested decision to the objective of the Luxembourg corporate income tax system, as ascertained from Articles 18, 23, 40, 159 and 163 of the LIR, as set out in recitals 78 to 81 of the contested decision, cannot be usefully relied on to demonstrate that the Commission confused the condition of advantage and the condition of selectivity.

245 It is true that the objective of a tax system is used primarily to establish the selectivity of a tax measure, inasmuch as it is in the light of such an objective that taxpayers in a factual and legal situation comparable to that of the aid beneficiary are identified.

246 Nevertheless, the objective put forward by the Commission, in particular in recitals 166 and 176 of the contested decision, namely ‘the taxation of the profit of all companies subject to tax in Luxembourg, as determined in their accounts’, is more akin to a principle governing the general provisions making up the Luxembourg corporate income tax system used by the Commission than to an objective of the system in question.

247 Thus, irrespective of whether the Commission’s reading of those provisions and the resulting principle is correct, if a derogation from that principle is established, the grant of an advantage is also established.

248 Next, the same finding must be made in the light not of the Luxembourg corporate income tax system, but of the Luxembourg provisions on the participation exemption and the taxation of profit distributions.

249 It follows, in particular, from recitals 208 and 209 of the contested decision that, in the absence of the tax rulings at issue, the holding companies concerned would not have been eligible for an exemption from tax on distributed income which had not been taxed at the level of their respective subsidiaries, resulting in the finding of both an advantage and a derogation from the provisions on the participation exemption and the taxation of profit distributions.

250 Lastly, the finding of a derogation from the provision on abuse of law simultaneously entails the grant of an advantage, as is apparent from recital 312 of the contested decision. In the absence of the tax rulings at issue and because of the application of the provision on abuse of law, the Commission claims, in essence, that the holding companies concerned would not have been eligible for an exemption from tax on the participation income in question.

251 Thus, in the present case, the Commission did not confuse the conditions for finding an advantage and those for demonstrating the selectivity of the tax rulings at issue, conditions which could, having regard to the fiscal nature of those tax rulings, be assessed simultaneously.

252 Therefore, the argument alleging such confusion must be rejected as unfounded.

253 Against that background, it is now necessary to determine whether the Commission was fully entitled to find that there was a selective advantage following its examination of the selectivity of the tax rulings at issue in the light of the narrow reference framework, namely a framework limited to the Luxembourg provisions on the participation exemption and the taxation of profit distributions.

(c) The alleged absence of a selective advantage at the level of the holding companies concerned in the light of the narrow reference framework

254 In recitals 200 to 235 of the contested decision, the Commission maintained that the selectivity of the tax rulings at issue could be established in the light of a narrow reference framework comprising Articles 164 and 166 of the LIR, namely provisions on the taxation of profit distributions and the participation exemption.

255 Article 164 of the LIR provides: ‘1. In determining the taxable income, it is irrelevant whether or not the income has been distributed to the parties entitled to that income. 2. Distributions of any kind, made to holders of shares, participation certificates, founders’ shares, “jouissance” shares or any other securities, including variable-yield bonds conferring entitlement to a participation in the annual profits or in the proceeds of liquidation, shall be regarded as distributions for the purposes of the preceding paragraph. 3. The taxable income shall include hidden profit distributions. A hidden profit distribution arises in particular where a shareholder, stockholder or interested party directly or indirectly receives benefits from a company or an association which he or she would not normally have received if he or she had not been a shareholder, stockholder or interested party.’

256 The first paragraph of Article 166 of the LIR provides: ‘Income from a participation held by: 1. a resident collective undertaking that its fully liable to tax and takes one of the forms listed in the Annex to paragraph 10; 2. a resident capital company that is fully liable to tax and is not listed in the Annex to paragraph 10; 3. a domestic permanent establishment of a collective undertaking referred to in Article 2 of Directive [2011/96]; 4. a domestic permanent establishment of a capital company residing in a State with which the Grand Duchy of Luxembourg has concluded a convention for the avoidance of double taxation; 5. a domestic permanent establishment of a capital company or cooperative society residing in a State party to the Agreement on the European Economic Area (EEA) other than a Member State of the European Union, shall be exempt where, on the date on which the income is made available, the recipient holds or undertakes to hold that participation for an uninterrupted period of at least 12 months and, throughout that period, the level of the participation does not fall below 10% or the acquisition price below EUR 1200000.’

257 It is apparent, in particular, from recitals 201 and 202 of the contested decision that a combined reading of the provisions of Article 164 and the first paragraph of Article 166 of the LIR would, under Luxembourg law, render a company receiving participation income ineligible for an exemption where that income has not previously been taxed at the level of the company which distributed it.

258 Article 164 of the LIR does not allow distributed profits to be deducted from a company’s taxable income. In other words, profits can be distributed only after tax, irrespective of the nature of the distribution. For its part, Article 166 of the LIR allows a company receiving distributed profits to be exempted from tax, provided that the income received derives from participations.

259 Thus, in recital 226 of the contested decision, the Commission concluded that, by allowing the holding companies concerned, through the tax rulings at issue, to be exempted from paying tax on participation income corresponding, from an economic perspective, to the ZORA accretions, which their respective subsidiaries had deducted as expenses, the Luxembourg tax authorities had granted a selective advantage to those holding companies.

260 Engie and the Grand Duchy of Luxembourg submit, in essence, that the Commission incorrectly defined the narrow reference framework and incorrectly identified a derogation from that framework and, in so doing, wrongly concluded that a selective advantage had been granted to the holding companies concerned.

261 Thus, it is necessary, as a first step, to examine the arguments alleging that the Commission incorrectly defined a reference framework limited to the provisions on the taxation of profit distributions and the participation exemption. The Court will then go on to consider, as a second step, the arguments challenging the section of the contested decision concerning the existence of a derogation from those provisions.

(1) The definition of the reference framework limited to the provisions on the taxation of profit distributions and the participation exemption

262 In the contested decision, the Commission assessed the selectivity of the tax rulings at issue at the level of the holding companies concerned in the light of a narrow reference framework comprising the provisions on the participation exemption and the taxation of profit distributions, namely Articles 164 and 166 of the LIR.

(i) The failure to extend the reference framework to include the parent-subsidiary directive

263 The Grand Duchy of Luxembourg and Engie submit that the Commission incorrectly restricted the reference framework to the provisions applicable to purely internal situations. Instead, it should also have referred to situations falling within the scope of the parent-subsidiary directive.

264 Engie observes that, under the parent-subsidiary directive, in force when the tax rulings at issue were adopted, the Grand Duchy of Luxembourg did not make the eligibility of parent companies resident in Luxembourg for the exemption provided for in the parent-subsidiary directive subject to the requirement that the profits of their subsidiaries established in other Member States must have been taxed beforehand in those subsidiaries’ State of residence.

265 Engie and the Grand Duchy of Luxembourg add that the Commission was not entitled, in the light of the Court’s case-law, to limit the exemption solely to cross-border situations without any condition linked to the prior taxation of profits at the level of the subsidiary.

266 Relying on the judgment of 13 November 1990, Marleasing (C‑106/89, EU:C:1990:395), Engie argues that Article 166 of the LIR must be interpreted in the light of EU law, in particular the parent-subsidiary directive in force when the tax rulings at issue were adopted.

267 Furthermore, a failure to align the tax treatment of cross-border profit distributions and purely internal distributions gives rise to reverse discrimination at the level of parent companies and subsidiaries resident in Luxembourg. Accordingly, the Commission cannot dispute the choice made by the Luxembourg legislature regarding the participation exemption scheme, irrespective of whether internal distributions or cross-border distributions are concerned.

268 Moreover, according to Engie and the Grand Duchy of Luxembourg, such a failure to align tax treatment infringes Article 107 TFEU, as is apparent from the judgments of 22 December 2008, Les Vergers du Vieux Tauves (C‑48/07, EU:C:2008:758), 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).

269 The Commission essentially justifies not extending the reference framework to include cross-border situations by stating that the sole objective of the parent-subsidiary directive is to prevent cross-border situations being penalised as compared with purely internal situations, and not to provide grounds for extending the preferential treatment of cross-border situations to include purely internal situations.

270 In that regard, it should be borne in mind that the examination of the selectivity condition implies, in principle, the determination, as a first step, of the reference framework within which the measure concerned falls, that determination being of greater importance in the case of tax measures, since the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgments of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, p