Banco Santander SA (SAN)’s court victory in a case over Spanish tax breaks may hamper the European Union’s probes into unfair fiscal deals for multinational firms, lawyers said.
Today’s ruling at the EU General Court, on special treatment for companies that take a stake in overseas firms, follows the revelation of hundreds of fiscal deals with companies in Luxembourg, which sparked calls for tougher EU action to combat corporate tax dodging.
It “takes some wind out of the European Commission’s sails” Javier Ruiz Calzado, a lawyer at Latham & Watkins LLP in Brussels, said. The ruling “doesn’t mean the commission is going to surrender because the political pressure, particularly these days, is huge. But it’s going to be more difficult to navigate for them.”
The Spanish case is part of an EU campaign across the 28-nation bloc targeting tax breaks that may have given companies unfair advantages. Tax avoidance leaped to the top of the EU’s agenda yesterday after a group of investigative journalists published almost 28,000 documents cataloging how companies such as PepsiCo Inc., Ikea Group and FedEx Corp. lowered their tax bill via deals with Luxembourg.
Before the Luxembourg leaks, the EU was already reviewing agreements between Luxembourg and Amazon.com Inc. (AMZN), Ireland and Apple Inc. (AAPL), and Starbucks Corp. (SBUX) in the Netherlands.
In today’s ruling, the EU court in Luxembourg said the bloc’s competition regulators “failed to establish that the Spanish regime was selective.” The Spanish system “does not exclude, a priori, any category of undertaking from taking advantage of it.”
The judges gave “a reminder that there are limits” in assessing whether a tax measure is selective and thus potentially illegal under EU state subsidy rules, said Jose Luis Buendia, a lawyer at Garrigues, who represented Santander.
The commission will need to do “a lot more work” and prove that companies in comparable situations were disadvantaged to make their case against Apple, Starbucks and Amazon, Ruiz Calzado said.