by Dimitrios Kyriazis, Head of the Law Faculty at the New College of the Humanities, London, UK
When you are winning even when you lose, there is no point in trying too hard.
This is why, in a nutshell, the European Commission has decided not to appeal its General Court loss in the Starbucks State aid case, despite the fact that its decision was annulled.
A few more words are merited, however, to better explain the Commission’s thinking and to also address the implications of both the Commission’s decisions and the Court’s judgment for transfer pricing in Europe.
A Commission spokesperson confirmed to me via email on December 6 that no appeal would be sought in the Starbucks case; however, no reason for its decision was offered.
“After carefully assessing the General Court judgment of 24 September 2019 concerning the tax treatment of Starbucks in the Netherlands, the Commission has decided not to appeal the Court’s ruling to the European Court of Justice,” the spokesperson said.
So, why did their “careful assessment” of the judgment lead to such a decision? There are a few possible explanations.
In both cases, the General Court accepted, albeit in a nuanced manner, that the Commission was entitled to identify an arm’s length principle as a criterion for assessing the existence of State aid and that the Commission’s corresponding interpretation of the Forum 187 case was actually not far-fetched.
This was the most contentious and controversial part of its initial decisions, and the General Court upheld it, meaning that the Commission now has the power, unless the ECJ rules otherwise in the future, to scrutinise Member States’ tax rulings as regards their compliance with an EU law-derived arm’s length principle.
The key difference in the two cases, and the reason why their outcome was not the same, was that the Commission in the Starbucks case had not managed to show that the Netherlands deviated from the aforementioned arm’s length principle when issuing the Starbucks tax ruling; therefore, a State aid advantage was not found to exist.
Conversely, the Commission’s analysis in the Fiat case was more rigorous, meaning that it did manage to illustrate the conferral of an advantage to Fiat from Luxembourg via the Fiat tax ruling. The remaining State aid conditions were – in the Court’s view – also fulfilled, so Luxembourg lost the case.
In other words, in both the Starbucks and Fiat cases, the Commission won the important legal part, but in Starbucks it lost on the facts, i.e. it did not manage to show that the Starbucks tax ruling deviated from the arm’s length principle.
As readers will know, an appeal before the ECJ against a General Court judgment can only be lodged on points of law; it is, therefore, difficult to see what the Commission would stand to gain from such an appeal.
In any case, the amount involved in the Starbucks case was not an impressive one compared to the size of this international behemoth; approximately 30 million euros is pocket change for a company whose latest turnover was 5.7 billion euros.
The Commission’s resources, one could argue, would be better employed elsewhere.
Before concluding, it is important to clarify that Competition Commissioner Margrethe Vestager’s decision not to appeal the Starbucks ruling does not signify any sort of relaxation on behalf of the Commission or a shift of focus to other parts of State aid law.
In fact, as reported, the Commission “has requested an update on EU countries’ approach to issuing tax rulings” and is considering opening new fiscal State aid probes.
Moreover, three investigations are still ongoing, namely against Huhtamäki, Nike. and Ikea, and they could be concluded with consequential recovery orders.
Finally, anyone disputing the Commission’s tenacity (and pugnacity) in this area of law should be reminded that, when the Commission lost the Belgian Excess Profit rulings case before the General Court in February 2019, not only did it appeal the judgment before the ECJ, but also opened 39 individual state aid investigations as a kind of “insurance policy” in case the annulment of its first decision is upheld by the ECJ.
This shows that, when the Commission thinks it can win on a point of law, it will pursue the appeal path. For an analysis of the reasons behind the Commission’s defeat in the Belgian case, please see my summary here.
To conclude, the Commission’s decision not to appeal the Starbucks judgment of the General Court is explicable, reasonable, and was expected by State aid lawyers.