The Santander Autogrill Case: The End Of Round 1

What do a bank and a duty free shopping group have in common? Answer: they both invested abroad.

In itself, hardly noteworthy, but in this case, these 2 Spanish companies benefitted from a specific Spanish tax provision allowing the tax write off of goodwill on acquisitions of foreign subsidiaries. The EU Commission challenged this on the basis that it constituted illegal State Aid and litigation ensued. The procedure started in October 2007 and has been running ever since. A General Court ("GC", the lower European court) decision in November 2014 that was taxpayer and Member State-friendly was overturned today by the European Court of Justice (ECJ, the supreme European court).

On the technical aspects of the case, at first glance:

The ECJ's decision is quite narrow in that it reverses the GC's decision on one specific ground, returning the case to the GC for consideration of the other 3 grounds that were argued by the taxpayer and Spain in the GC case but not decided by the GC. It will be interesting to see how the GC addresses the selectivity point in particular. The ECJ may have missed an opportunity to define the concept of selectivity in a meaningful manner. The GC's decision on the need to identify a specific category of taxpayers seemed like a promising way to bring some clarity and avoid the chronic uncertainty being created by the combination of legal uncertainty and the EU commission's practice (see below). Symbolically, the case may be seen as a victory for the Commission and a defeat for taxpayers and Member States; however it is better to see it as a step in the process.

While as lawyers and tax advisers, we can delight in the intellectual intricacies of selectivity, comparability etc, there is an underlying unease around the impact on businesses.

The continuing environment of great legal uncertainty

Simply put, at present we have an EU legal framework that identifies any distinction in a tax system as being potentially illegal state aid. This distinction can be either a legal provision (such is the case for Santander/ Autogrill) or an application of a legal provision (Apple, Starbucks, etc). If the legal definition is this wide, then potentially there are an almost infinite number of State Aid cases outstanding. The financial consequences only become relevant when the Commission chooses to pursue a case, however. So far, the choices seem to have been at least partly politically motivated. To illustrate this, one only has to...