The decision is a further setback for the European Commission, which considered it as illegal state aid and had already lost to Apple, Amazon, and Starbucks in other tax disputes in Ireland, Luxembourg, and the Netherlands.
“We will carefully examine the ruling and its implications,” said European Commissioner for Competition Margrethe Vestager.
She assured that the EU executive will “continue to use all tools at its disposal to ensure that the rules ensuring fair competition in the single market are not distorted by the granting of illegal tax breaks to multinationals.”
In October 2015, the Commission ordered Luxembourg to collect some €30 million from Fiat Chrysler Finance Europe, a Fiat group company that provided financing services, alleging that the company had received disproportionate tax breaks on its profits in the Grand Duchy.
Luxembourg is regularly denounced by NGOs for its aggressive tax practices aimed at attracting investment from multinationals.
In September 2019, the General Court rejected appeals by Fiat and Luxembourg to overturn the decision taken by Brussels.
But the EU Court of Justice, in a second instance, annulled the court’s ruling and the Commission’s decision on Tuesday, finding that the Commission had committed an “error of law” by failing to account for the specificities of Luxembourgish tax law in its analysis.
Taxation is a matter of national competence in the European Union. “Aside from the areas in which Union tax law is harmonised, it is the Member State concerned which determines, by exercising its own competences in the field of direct taxation (...) the constituent features of the tax,” the Court stressed.
This case is part of a vast campaign by the European Commission against tax evasion by multinationals within the EU. Investigations have been launched in recent years under pressure from the revelations of the LuxLeaks scandal in 2014 and the Panama Papers in 2016.
Brussels’ biggest setback came in July 2020, when European judges overturned an obligation imposed on Apple to repay €13 billion in tax breaks to Ireland that the Commission deemed excessive.
In May 2021, the European judges recognised €250 million in tax breaks collected by Amazon in Luxembourg
In 2019, the US coffee chain Starbucks also won a case against the Commission, which wanted the company to repay €30 million to the Netherlands.
However, Vestager believes that Brussels’ efforts are bearing fruit. “The Commission’s work (...) is producing results beyond individual state aid decisions,” she said on Tuesday, stressing that under pressure, many states have changed their practices to “ensure greater tax fairness.”
