The General Court has handed down the first judgments in the rulings cases (see here for a note on the Belgian Excess Profits case, which concerns a scheme rather than the application of law). In Fiat, the Court found that State aid had been granted whereas in Starbucks, the Court found that it had not. Perhaps most immediately striking about these judgments is that the Court accepted that the arm’s length principle could be used by the Commission as part of the Article 107 analysis (see Starbucks for instance, in particular, at paragraph 151).

In neither judgment however is it questioned whether a misapplication of the domestic law, or the misapplication of the arm’s length principle to that end, alone can give rise to State aid concerns (though this is the Commission’s understanding – see para 174 of the Notice). However, whether this is in fact the direction of travel for State aid jurisprudence is of critical importance. My thoughts on this have remained the same since I first presented a working paper on the rulings cases at the Oxford Sydney Tax Research Conference in June 2018 (though in fact my views can also be traced through to earlier blogs (e.g. here), with some going back as far as 2014). The paper is currently out for review, but I am happy to send a Pdf of the most recent version to anybody who is interested – just send me an email (stephen.daly@kcl.ac.uk).

In this paper I argue that misapplications of the law alone should not give rise to State aid concerns. Tax authorities, within limits, have the power to “get it wrong” in terms of the application of the underlying tax rules and this is desirable. EU law should only intervene then where national tax authorities have breached these limits and used their discretion derived from the responsibility to manage compliance improperly, not simply where they have misapplied the law. But therein lies a role for the Commission in checking to ensure that the powers have been used lawfully. The Commission should still succeed in its cases if it can be demonstrated that the national tax authorities departed from standards governing the exercise of the power to grant rulings.