Taxation of profits: Court of Justice reiterates the selectivity assessment in UK CFC judgment
Today, the Court of Justice delivered its judgment in joined Cases United Kingdom and Others v Commission (C-555/22 P), ITV v Commission and Others (C-556/22 P) and LSEGH (Luxembourg) and London Stock Exchange Group Holdings (Italy) v Commission and Others (C-564/22 P), annulling the Commission decision finding certain United Kingdom rules on the taxation of controlled foreign companies (CFCs) to be State aid incompatible with the internal market and setting aside the judgment of the General Court confirming that decision.
In 2019, the European Commission considered the ‘CFC Group Financing Exemption’ an illegal and incompatible State aid scheme. The United Kingdom and ITV challenged that Commission Decision before the General Court. In 2022, the General Court delivered a judgment (Joined Cases T‑363/19 and T‑456/19) rejecting their actions and upholding the Commission’s arguments.
On appeals by the United Kingdom, ITV and LSEGH, intervener on first instance, the Court of Justice sets aside the judgment of the General Court and gives final judgment in the matter, annulling the Commission’s decision.
In particular, the ECJ concluded that the Commission and the GC erred finding that the rules applicable to CFCs constituted the appropriate reference framework for examining whether a selected advantage had been conferred. According to the United Kingdom, the reference framework is the general corporation tax system, which is largely based on the principle of territoriality, of which the rules applicable to CFCs, in their entirety, form part. The Court recalls that the Commission, when determining the reference framework is in principle required to accept the Member State’s interpretation of the relevant provisions of its national law, unless it is able to establish that another interpretation prevails in the caselaw or the administrative practice of that Member State.
That error relating to the determination of the reference framework necessarily vitiated the whole of the analysis of the condition relating to selectivity thus it was sufficient for the ECJ to set aside the judgment of the GC in its entirety and annul the Commission’s decision.
For further information, see the Court of Justice’s judgment.