As expected, the EU Commission will need to defend in court its contention that advance pricing agreements (APAs) granted to a Starbucks subsidiary by the Netherlands and to a Fiat subsidiary by Luxembourg are illegal state aid because the APAs sanctioned the allocation of too little profit to activities in those countries.
The Netherlands, Luxembourg, and Fiat Chrysler Finance Europe (Fiat) have separately brought actions in the Court of Justice for the European Union seeking to annul Commission decisions reached October 21, 2015, finding that a 2012 APA granted to Fiat and a 2008 APA granted Starbucks were state aid and ordering recovery of taxes.
The three filings were made in late December 2015, but were only recently released publicly. To date, no record of any Starbucks filing has been released, though the company has said publicly that it also intends to appeal the Commission’s decision.
In their filings, all three applicants dispute the Commission’s contention that, through the APAs, an advantage was granted that was selective.
Fiat and Luxembourg both argue that Commission failed to show that their APA distorted competition. They both also claim that the Commission, in reaching its decisions, breached the principle of legal certainty.
According to Fiat, the Commission used a “novel formulation” of the arm’s length principle in its decision and thus “introduces complete uncertainty and confusion as to when an advance pricing agreement, and indeed any transfer pricing analysis, might breach EU state aid rules.”
The company also argues that the Commission’s “sudden departure” from the use of the arm’s length standard in its decision breaches the principle of legitimate expectations.
Fiat further argues that the Commission has breached its duty to state reasons because it fails to explain “how it derives the arm’s length principle from Union law, or even what the principle is.” This duty is also breached because of the Commission’s “superficial description of the APA’s effect on competition,” Fiat said.
The Netherlands argues that the Commission incorrectly used the general Netherlands corporate tax system as a reference to determine if an advantage was conferred by the Starbucks APA. Further, the Netherlands maintains that the Commission incorrectly assessed the existence of an advantage by reference to an EU law arm’s length principle.
The Netherlands also disputes the Commission’s contention that the transactional net margin method agreed to in the Starbucks APA was applied inappropriately.
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