Antitrust

S H E A R M A N & S T E R L I N G L L P | 1 2 9 Following referral back from the CJEU, the General Court applied the three- step test and confirmed the EC's original assessment that the measure should be considered in light of the general provisions of the corporate tax system, specifically the rules on the tax treatment of the financial goodwill. Against this reference system, the General Court concluded that the measure could be selective even if it was available to all companies resident in Spain for tax purposes; the basis for the selectivity is the difference in treatment depending on the company's commercial decision- making (i.e., acquiring a foreign company vs. acquiring a domestic company). This is a significant development in the application of the three-step test because it confirms that selectivity can be established on the basis of the commercial behavior of undertakings. This approach will give the EC more flexibility in establishing selectivity in future cases — and increases the encroachment of State aid rules into Member States fiscal power. CONCLUSION State aid enforcement does — and will continue — to have a role to play in achieving reform of tax planning by multinational companies. The EC has concluded seven high profile investigations in this area and has found unlawful State aid in six of them, resulting in recovery orders totaling over €14 billion (plus interest) in respect of 40 companies — the most high-profile being the €13 billion (plus interest) recovery order in the Ireland/Apple case. Companies cannot negotiate tax rulings with EU Member State tax authorities as they do with sovereign states elsewhere in the world. They must take into account that the EC has the power and desire to use State aid rules for ex post supervision. The boundaries of this supervision are slowly becoming clear. The Luxembourg/McDonald's decision is interesting as for the first time it illustrates a limit of State aid enforcement in this area. It is encouraging that the EC chose not to stretch these rules forever to advance policy objectives that may be better achieved through alternative mechanisms, such as legislative change or international cooperation, such as through the work of the OECD. The EC still has two ongoing investigations in this field. One in respect of possible State aid resulting from tax rulings issued by the Netherlands in favor of Inter IKEA and another concerning a U.K. tax scheme for multinationals. The judgment of the General Court in the Spanish tax scheme case will strengthen the EC's hand in these cases. In particular, it makes it easier for the EC to define the 'reference' system — the starting point for selectivity assessments — in a way that shows the beneficiaries' position as differentiated. T H E A P P R O A C H W I L L G I V E T H E E C M O R E F L E X I B I L I T Y I N E S T A B L I S H I N G S E L E C T I V I T Y I N F U T U R E C A S E S — A N D I N C R E A S E S T H E E N C R O A C H M E N T O F S T A T E A I D R U L E S I N T O M E M B E R S T A T E S F I S C A L P O W E R

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