Shafi U Khan Niazi, Faculty, Department of Business Law and Taxation, Monash Business School, Monash University

11 Aug 2021

Pricing-Based Profit Shifting in Europe: The Recent Judgment of the General Court of European Union

Brief context

In its crackdown on profit shifting by multinational companies (MNCs), the European Commission (EC), the executive organ and the competition watchdog of the European Union (EU), has been investigating a number of advance tax rulings (ATRs) and advance pricing agreements (APAs) issued by the tax authorities of member states to MNCs. According to EC, certain ATRs and APAs grant selective tax advantage to multinationals that distorts the free competition in the European single market and thus infringe the anti-subsidy rules (State aid in EU parlance) set out under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU).[1] In view of the EC, the concessional ATRs and APAs are therefore instrumental to profit shifting.

Accordingly, the EC has been scanning over 1,000 tax measures of member states issued to 700 MNCs[2] with a view to assess whether the tax measures grant selective economic advantage to MNCs and constitute prohibited State aid. The key tax measures questioned by the EC include APAs and ATRs issued to MNCs like Apple,[3] Starbucks,[4] Fiat,[5] Amazon,[6] Engie,[7] Nike,[8] Huhtamäki[9] and IKEA.[10]Along the same lines, the EC has also disputed certain tax policy measures adopted by the United Kingdom,[11] Gibraltar,[12] and Belgium[13] on the plea that they confer selective tax benefits to specified MNCs over other businesses and thus breach EU State aid rules. The Nike judgment of 14 July 2021 is the latest addition to the cases decided by the General Court of European Union (GCEU) on these issues.[14]

The previous judgments of the General Court on the issue of pricing-based tax rulings

Before the Nike judgment at hand, the General Court has handed down five decisions in the last couple of years, wherein the EC believed that the pricing-based advance tax instruments issued to MNCs were selective in nature. The cases include Apple,[15] Starbucks,[16] Fiat,[17] Amazon[18] and Engie[19] decisions. In Apple, Starbucks and Amazon cases, EC lost the court battle. While the EC did not challenge the Starbucks case at the next forum of appeal, the Court of Justice of the European Union (CJEU - the apex EU court), it has appealed the Apple judgment which is pending for decision.[20] Also, EC has announced to challenge the Amazon case before the CJEU.[21] In Fiat and Engie, EC successfully proved the existence of selective benefit in the advance tax measures issued by Luxembourg to Fiat and the Netherlands to Engie. Fiat has also contested the Fiat judgment before the apex EU court that awaits decision,[22] and it is still to be seen whether Engie follows the same path. The General Court’s ruling, the recent judgment of 14 July 2021 in the Nike case, is the latest addition to the episode.

The Nike case: What’s different about it?

The Nike case is different from the previous judgments of the General Court of EU on the issue of advance tax rulings. Therefore, the case is a significant development along the path of EC’s crackdown on the pricing-induced profit shifting in the European Union in a number of ways. The following analysis highlights the distinctive character of Nike and its potential implications.

First, unlike previous cases where the aggrieved parties challenged EC’s final decisions before the court, Nike Europe Operations Netherlands and Converse Netherlands BV (the appellants in Nike), challenged a provisional decision of the EC that aimed at the opening of formal investigations to assess the arm’s length prices of the APAs in question. The appellants did not wait for the formal proceedings and the final outcome of the EC’s investigations. Therefore, the grounds of appeal predominantly contest the procedural aspects and the violation of principles of good administration and equal treatment by the EC during its preliminary investigation. One of the arguments put forth by the appellants was, for example, that the EC’s action was premature in nature and the EC acted under the political pressure; the appellants contended that the EC initiated proceedings in 2013, and then kept silent between 2014 and 2017 until the International Consortium of Journalists, in November 2017, published a list of MNCs alleged to have benefitted from the favourable pricing agreements.[23] The appellants also pleaded that the EC should have extended its investigations to 98 similar APAs issued by the Dutch tax administration to other 700 MNCs.[24] The court dismissed these pleas holding that the aim of the EC's action was to launch a formal investigation to arrive at a definite decision; in doing so, the EC satisfied its obligations.[25] The court further ruled that the EC carried out the preliminary investigation diligently without violating the principle of good administration.[26] Likewise, on the plea taken by the appellants that the EC failed to state reasons to initiate a formal investigation of APAs, the court held that the EC has fulfilled its obligation; as for the assessment of arm’s length prices adopted in the APAs in question, the preliminary decision of the EC has not attained finality, and it may rather evolve and take the final shape in the formal proceedings based on the information that the aggrieved parties would provide.[27]

A second aspect, drawn from the preceding discussion, distinguishes Nike from the previous judgments on the pricing-based tax measures in that the EC now may continue with the formal proceedings to conduct further scrutiny of the APAs issues to Nike. It also implies that it is likely that the potential litigation on the substantive matter of assessment of APAs is not yet over. It may again come up before the court after the EC concludes its formal investigations to the dissatisfaction of Nike. The process, however, might get delayed if the appellants decide to contest the Nike judgment at hand before the apex EU court.

Third, and more curious aspect which distinguishes the recent decision from the previous cases, is that the Nike judgment is the first of its kind where a multinational headquartered in the United States has lost the court battle ever since the start of the EC’s crackdown on the so-called concessional tax rulings and APAs. In earlier cases involving MNCs headquartered in the US, like Apple, Starbucks and Amazon, the EC’s decisions failed to seek approval of the court on the existence of any selectivity in advance tax rulings. The cases in which the EC stood victorious in the courtroom in proving the selective character of the tax measures, as in Fiat and Engie, were related to the non-American MNCs.

It is worth noticing that when EC, a few years back, started scanning tax rulings and APAs issued to a number of American MNCs under the prism of EU State aid rules, both the US Treasury and the American business associations had raised their serious concern over the investigations.[28] In fact, the international and comparative tax analysts, in particular after the €13 billion tax bill to  Apple in August 2016, started labelling these developments as something akin to ‘brewing an EU–US tax war’.[29] The US Treasury claimed that these investigations were based on a ‘sweeping interpretation’ of EU State aid law and expressed serious concerns over the EC’s investigations, stating that the investigations seem ‘to be targeting US companies disproportionately’.[30] The heat from the political and legal spillover of these investigation however gradually subsided to an extent following the court decisions in favour of Apple, Starbucks and Amazon. Against that backdrop, the recent decision in Nike is a significant international tax development that, alongside legal implications, might also have its political consequences. Time will tell how, and to what degree, the Nike judgment and the other cases of US-based companies in litigation before European courts determine the EU-US tax relations in the long run.



[1] TFEU, art 107(1): ‘[A]ny aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between the Member States, be incompatible with the internal market.’  [2] J Derenne and D Vallindas, ‘Recent EU State Aid Judgments Offer Mixed Results’ (2019) 165 Tax Notes 89. [3] European Commission Decision (EU) 2017/1283 on State aid SA.38373 (2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple [2017] OJ L187/1.[4] European Commission Decision EU 2017/502 on State aid SA.38374 (2014/C ex 2014/NN) implemented by the Netherlands to Starbucks [2017] OJ L83/14.[5] European Commission Decision (EU) 2016/2326 on State aid SA.38375 (2014/C ex 2014/NN) which Luxembourg granted to Fiat [2017] OJ L351/1 1.[6] European Commission Decision (EU) 2018/859 on State aid SA.38944 (2014/C) (ex 2014/NN) implemented by Luxembourg to Amazon [2018] OJ L153/1.[7] European Commission Decision (EU) 2019/421 on State aid SA.44888 (2016/C) (ex 2016/NN) implemented by Luxembourg in favour of ENGIE [2019] OJ L178/1.[8] European Commission, State aid – Netherlands – State aid SA.51284 (2018/NN) – Possible State aid in favour of Nike Invitation to submit comments pursuant to Article 108(2) of the Treaty on the Functioning of the European Union [2019] OJ C226/31.[9] European Commission, State Aid – Luxembourg – State aid SA.50400 (2019/C) (ex 2019/NN-2) – Possible State aid in favour of Huhtamäki – Invitation to submit comments pursuant to Article 108(2) of the Treaty on the Functioning of the European Union [2019] OJ C161/3.[10] European Commission, State aid – Netherlands – State aid SA.46470 (2017/C) – Possible State aid in favour of Inter IKEA – Extension of the formal investigation — Invitation to submit comments pursuant to Article 108(2) of the Treaty on the Functioning of the European Union [2020] OJ C228/9.[11] European Commission Decision (EU) 2019/1352 on the State aid SA.44896 implemented by the United Kingdom concerning CFC Group Financing Exemption [2019] OJ L216/1.  [12] European Commission Decision (EU) 2019/700 on the State Aid SA.34914 (2013/C) implemented by the United Kingdom as regards the Gibraltar Corporate Income Tax Regime [2019] OJ L119/51.[13] European Commission, State aid – Belgium – State aid SA.53964 (2019/NN) to SA.54002 (2019/NN) – Excess profit exemption granted to 39 companies – Invitation to submit comments pursuant to Article 108(2) of the Treaty on the Functioning of the European Union [2020] OJ C288/1 (EC has initiated investigations against the Belgian ‘excess profit’ tax rulings advance tax ruling and the proceedings against 39 alleged beneficiary MNCs are ongoing).[14] Case T-648/19, Nike Europe Operations Netherlands and Converse Netherlands BV v European Commission [2021] ECR I-0000, not yet reported (‘Nike’). On EC provisional decision that was contested before the General Court of EU, see above n 8.  [15] Joined Cases T-778/16 & T-892/16 Ireland, and Apple Sales International and Apple Operations Europe v European Commission [2020] ECR 1-0000, not yet reported (‘Apple’).  [16] Joined Cases T-760/15 & T-636/16 Netherlands, and Starbucks Corp., and Starbucks Manufacturing Emea BMV v European Commission [2019] ECR I-0000, not yet reported (‘Starbucks’). [17] Joined Cases T-755/15 & T-759/15 Luxembourg and Fiat Chrysler Finance Europe v European Commission [2019] ECR I-000, not yet reported (‘Fiat’).  [18] Joined cases T-816/17 & T-318/18 Luxembourg, and Amazon EU Sàrl and Inc. v European Commission [2021] ECR I-0000, not yet reported (‘Amazon’).  [19] Joined cases T516/18 & T-525/18 Luxembourg, and Engie, Engie Global LNG Holding Sàrl and Engie Invest International SA v European Commission ECR I-0000, not yet reported (‘Engie’).  [20] C 485/20 P European Commission v Ireland and Others (appealed on 15 January 2021; not yet decided) <>. [21] Ryan Finley, ‘European Commission to Appeal Amazon State Aid Decision’ (23 July 2021) Tax Analysts.  [22] Case C-885/19 P Fiat Chrysler Finance Europe v Commission (appealed on 24 Jnauary2021; not yet decided) <>. [23] Nike above n 14, para 144.  [24] Nike above n 14, para 146. [25] Nike above n 14, paras 152, 164. [26] Nike above n 14, paras 169, 170. [27] Nike above n 14, para 72. [28] US Chamber of Commerce, U.S. Chamber Statement on EU State Aid Decisions (21 October 2015) <>. For an initial Treasury response to these investigations, see Stephanie Johnston, ‘Stack questions fairness of EU state aid investigations’ (2015) 149 Tax Notes 1481; Anja Taferner and Jurjan Wouda Kuipers, ‘Tax Rulings: In Line with OECD Transfer Pricing Guidelines, but Contrary to EU State Aid Rules?’ (2015) 56 European Taxation 134. Likewise, in its statement of 24 February 2016 recorded before the House Means and Ways Committee, the US National Association of Manufacturers also expressed deep concerns of American MNCs over EC’s State aid investigations against advance tax rulings (see <>). [29] The tax bloggers coined the term ‘tax war’ when the US Treasury issued a white paper on the EC’s State aid investigations against the American multinationals; see, eg, Tax Justice Network, The US Treasury just declared tax war on Europe (24 August 2016) <>. See also Frans Vanistendael, ‘Are the EU and U.S. Headed for a Tax War?’ (2016) 83 Tax Notes International 1057. [30] US Department of the Treasury, White Paper on the European Commission’s Recent State Aid Investigations of Transfer Pricing Rulings (24 August 2016) <>.

Cite this Article - Niazi Shafi U Khan, 'Pricing-Based Profit Shifting in Europe: The Recent Judgment of the General Court of European Union' (Tax Terminal Blog, 10 August 2021) <>

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