Luxembourg: Advocate General urges the annulment of the judgment in the Fiat State aid ruling

In brief

On 16 December 2021, Advocate General Priit Pikamäe urged the European Court of Justice to annul the General Court's controversial judgment finding that Luxembourg granted Fiat Chrysler an unfair tax advantage. In particular, the Advocate General argued that:

  • Only the reference tax system (i.e. the rules and principles of the Luxembourg legal system) should be analysed in assessing the existence of an advantage under Article 107 of the Treaty on the Functioning of the EU (TFEU).
  • The arm's length principle was wrongly used as the benchmark for 'normal taxation' in assessing whether the Luxembourg tax ruling granted to Fiat Chrysler constituted a selective advantage.
  • The European Commission (EC) should not be permitted to replace rules and principles enshrined in the legal system of a Member State by rules that are extraneous to such system.
  • The Court's erroneous identification of the reference system vitiates the entire analysis relating to the existence of illegal State aid.



On 3 September 2012, the Luxembourg tax authorities issued a tax ruling in favor of Fiat Finance and Trade Ltd (FFT) endorsing the remuneration method for the treasury and financing intra-group services provided by FFT. The ruling enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in Luxembourg.

In 2015, the EC held that the Luxembourg tax ruling constituted illegal State aid under Article 107 TFEU. In this decision (as endorsed by the European General Court), the EC argued the following:

  • Under Luxembourg corporate income tax (the reference tax system) the arm's length principle strives to tax integrated companies in the same way as standalone companies.
  • The tax ruling granted to FFT did not comply with the arm's length principle in determining the taxable profit of FFT. This constituted a derogation from the reference tax system.
  • The derogation was not justifiable under the inherent logic and objectives of the reference system and thus constituted a selective advantage to FFT granted by Luxembourg.

In its judgment of 24 September 2019, the General Court dismissed the action brought by Luxembourg and FFT to annul the EC's decision and required Luxembourg to recover the unlawful and incompatible State aid. Following the dismissal, Ireland (C-898/19 P) and Fiat Chrysler Finance Europe (C-895/19 P), formerly FFT, separately appealed against the European General Court's judgment upholding the validity of the EC's decision.

In particular, the claimants challenged the General Court's (i) analysis of the existence of an economic advantage; (ii) choice of legal basis; and (iii) alleged breach of the principle of legal certainty.


In this context, the Advocate General Priit Pikamäe rendered its opinion, advising the European Court of Justice to annul the General Court's judgment and the EC's decision.

Apart from the above, the Advocate General suggested that all other pleas in law raised by both Ireland and FFT be dismissed, including those alleging that the EC failed to show that the tax ruling was not in line with the arm's length principle.

The Advocate General's opinion is not binding on the European Court of Justice and it remains to be seen if the European Court of Justice will follow the reasoning of the Advocate General.

For further information and to discuss what these developments might mean for you, please get in touch with your usual Baker McKenzie contact.


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Amar Hamouche
Principal, Tax
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Diogo Duarte De Oliveira
Principal, Tax
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Antonio Weffer
Principal, Tax
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Nina Niejahr
Senior Counsel, Tax
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