Judgment of the General Court in Case T-508/19 Mead Johnson Nutrition (Asia Pacific) and Others v Commission
6th April 2022
The General Court annuls Commission Decision (EU) 2019/700 of 19 December 2018 on the State Aid SA.34914 (2013/C) implemented by the United Kingdom as regards the Gibraltar Corporate Income Tax Regime so far as it states, in Article 2, that the individual aid granted by the Government of Gibraltar on the basis of the continuation, after 31 December 2013, of the advance tax ruling granted to MJN Holdings (Gibraltar) Ltd is unlawful and incompatible with the internal market and in so far as it orders, in Article 5(1) and (2), the recovery of that aid.
- Confirms that passive interest income tax exemption applicable in Gibraltar under the Income Tax Act 2010 constitutes State Aid;
- Individual aid granted by Government of Gibraltar to MJN Holdings (Gibraltar) is not unlawful and incompatible with the internal market;
- Consequently, there is no need to recover that aid.
Facts
On 1 June 2012, the Kingdom of Spain lodged a complaint with the European Commission concerning the State aid allegedly received by Gibraltar offshore companies under the tax system established by the Income Tax Act 2010 (‘ITA 2010’). On 16 October 2013, the Commission took a decision to initiate a formal investigation procedure to verify whether the non-taxation of passive interest and royalty income, provided for in ITA 2010, selectively favoured certain companies, in breach of EU State aid rules. On 1 October 2014, the Commission informed the United Kingdom of its decision to extend the procedure laid down in Article 108(2) TFEU to cover the tax ruling practice in Gibraltar and, more specifically, the adoption of 165 individual tax rulings.
On 19 December 2018, the Commission adopted the contested decision. In essence, the Commission found the following:
(1) that the ‘exemption’ of passive interest and royalty income applicable in Gibraltar under ITA 2010 between 2011 and 2013 constituted a State aid scheme which was implemented unlawfully and was incompatible with the internal market;
(2) that the tax treatment granted by the Government of Gibraltar on the basis of tax rulings granted to five Gibraltar companies with interests in Dutch limited partnerships (commanditaire vennootschap, ‘CV’) in receipt of passive interest and royalty income (‘the five tax rulings’) constituted individual State aids which were unlawful and incompatible with the internal market.
The challenge of the Commission decision by Mead Johnson Nutrition (MJN GibCo) is divided in in two separate parts seeking:
(1) annulment of Article 1(2) of the contested decision (classification of the non-taxation of royalty income as a State aid scheme) and the recovery order related to that measure and;
(2) annulment of Article 2 of the contested decision, in that the Commission classified the MJN 2012 tax ruling as an individual aid measure, and the recovery order related to that measure. A third part of the action seeks annulment of Article 5 of the contested decision in so far as the Commission ordered recovery of the aid from MJN GibCo and, failing that, from the applicants.
Findings
The General Court dismisses the action in so far as it seeks the annulment of Article 1(2) of the contested decision concerning the non-taxation of royalty income and the recovery order relating to that measure. Finding inter alia that the Commission correctly considered that the non-taxation of royalty income was introduced with the adoption of the ITA 2010. Consequently, the Commission did not err in classifying that non-taxation as a new and unlawful aid measure.
The Court then upholds the first plea in law, seeking annulment of Article 2 of the contested decision, in so far as it relates to the individual State aid granted to MJN GibCo, and to the applicants on the basis of the 2012 MJN GibCo ATR, and to annul that article as well as Article 5(1) and (2) of that decision, to the extent that they relate to that aid, without there being any need to examine the other pleas in law raised by the applicants.
Operative Part of the Contested Decision
Article 1
1. The State aid scheme in the form of the passive interest income tax exemption applicable in Gibraltar under the Income Tax Act 2010 between 1 January 2011 and 30 June 2013 and unlawfully put into effect by Gibraltar in contravention of Article 108(3) of the Treaty is incompatible with the internal market within the meaning of Article 107(1) of the Treaty.
2. The State aid scheme in the form of the royalty income tax exemption applicable in Gibraltar under the Income Tax Act 2010 between 1 January 2011 and 31 December 2013 and unlawfully put into effect by Gibraltar in contravention of Article 108(3) of the Treaty is incompatible with the internal market within the meaning of Article 107(1) of the Treaty.
Article 2
The individual State aids granted by the Government of Gibraltar, on the basis of the tax rulings (referred to in the Annex as rulings No 83, 84, 139, 140 and 144) to five Gibraltar companies with interests in Dutch limited partnerships (Commanditaire Vennootschappen) in receipt of royalty and passive interest income, which were unlawfully put into effect by the United Kingdom in contravention of Article 108(3) of the Treaty, are incompatible with the internal market within the meaning of Article 107(1) of the Treaty.
…
Article 5
1. The United Kingdom shall recover all incompatible aid granted on the basis of the aid schemes referred to in Article 1 or on the basis of the tax rulings referred to in Article 2, from the beneficiaries of that aid.
2. Any individual aid granted on the basis of the tax rulings referred to in Article 2 which cannot be recovered from the Gibraltar company in question shall be recovered from other entities forming a single economic unit with that Gibraltar company, i.e. the relevant Dutch BV, the Dutch CV or the parent company of the Gibraltar company.
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NOTE: An appeal, limited to points of law only, may be brought before the Court of Justice against the decision of the General Court within two months and ten days of notification of the decision.
Source – EU General Court (via e-mail)