On December 5, 2023, the CJEU overturned the judgment of the General Court,[1] which upheld the Commission decision of June 20, 2018 finding that Luxembourg had granted unlawful State aid of €120 million to Engie.[2] 

Article 107 TFEU prohibits State aid, which concerns aid measures that grant a “selective advantage” to certain undertakings over others, and thus distort competition.  A selective advantage requires three determinations: (i) the relevant benchmark within the investigated Member State’s national law (the “reference framework”); (ii) a derogation from that benchmark (the “advantage”); and, (iii) a lack of justification for that derogation.  In essence, the broader the reference framework, the easier it is for the Commission to find that a given Member State has granted a selective advantage.  The judgment clarifies that in determining the reference framework, the Commission must follow the interpretation of the national law provided by the investigated Member State unless that interpretation is clearly incoherent with the prevailing interpretation under the national legal system based on the relevant legal provisions, case law, and decisional practice.


In 2018, the Commission found that Luxembourg had granted unlawful State aid to Engie through two individual tax decisions (“tax rulings”[3]), which enabled Engie to avoid taxation on almost all the profits of its Luxembourgish subsidiaries since 2008.[4]

The Commission found that the tax rulings granted a selective advantage within the meaning of Article 107(1) TFEU because they afforded a favorable tax treatment to Engie compared to the normal tax regime applied by Luxembourg, without justification.[5]  To support its finding, the Commission defined a broad reference framework as tax on “the profit of all companies […] in Luxembourg,”[6] and concluded that the reference framework could not be defined more narrowly as“the specific provisions of that system applicable only to certain taxpayers or to certain transactions.”[7]  The Commission also found that Luxembourg should have applied its tax avoidance rules to reject Engie’s tax ruling requests, thereby preventing the selective advantage.[8]  On this basis, the Commission ordered the recovery of €120 million in unlawful aid.[9] 

The parties challenged the Commission decision before the General Court, which upheld the Commission decision on May 12, 2021.  The General Court essentially confirmed the Commission’s findings that the two tax rulings granted a selective advantage to Engie, insofar as they afforded Engie a tax treatment that departed from the reference framework as broadly defined by the Commission,[10] and that the Luxembourg tax authority should have applied its tax avoidance rules.[11]  The parties appealed to the ECJ.

The CJEU Overturned The General Court’s Ruling

The CJEU emphasized the need to correctly identify the reference framework as the basis for the selectivity assessment.[12]  The CJEU held that it is not up to the Commission to pick the reference framework by trying to define the objective of the national tax system;[13] instead, the Commission should accept the Member State’s interpretation of its own national law,[14] unless is not aligned with the prevailing interpretation under the national legal system based on the relevant legal provisions, case law, and decisional practice.[15]  In doing so, the CJEU essentially followed the proposal of Advocate General Kokott to limit the Commission’s standard of review of national law to a “plausibility check” i.e., the Commission can only find a selective advantage where the tax treatment applied by the investigated Member State manifestly deviates from national law.[16]

On this basis, the General Court and the Commission made an error in law in defining the reference framework, which vitiated the selectivity analysis altogether and consequently required the setting aside of the General Court’s judgment and annulment of the Commission decision.[17]

Engie Opens A “Period Of Reflection”

The Engie judgment is one of several recent Commission losses in State aid cases concerning tax rulings, which prompted a remark by a Commission official that the Commission is entering a “period of reflection” in EU State aid.[18]  On July 15, 2020, the General Court annulled the Commission’s landmark decision against Apple.[19]  On November 8, 2022, the CJEU set aside the General Court’s judgment and annulled the Commission’s decision concerning Fiat.[20]  Most recently, on December 14, 2023, the ECJ upheld the General Court’s judgment that annulled the Commission’s decision concluding that Luxembourg granted unlawful State aid to Amazon.[21]

[1]             Grand Duchy of Luxembourg and Others v. European Commission (Cases T-516 and T-525/18) EU:T:2021:251 (“GC Engie”).

[2]             Commission Decision (EU) 2019/421 of 20 June 2018 on State aid SA.44888 (2016/C) (ex 2016/NN) implemented by Luxembourg in favor of Engie (the “Decision”).

[3]             “The function of a tax ruling is to establish in advance the application of the ordinary tax system to a particular case in view of its specific facts and circumstances”, Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ 2016 C 262/1 para. 169.

[4]             The complex financial arrangements are described in detail at paras. 23–27 of the Decision.

[5]             Articles 18, 23, 40, 159 and 163 of the Luxembourg Income Tax Law, as cited in the Decision, para. 162.

[6]             The Decision, para. 176.

[7]             The Decision, para. 178.

[8]             The Decision, paras. 289–312.

[9]             The Decision, para. 369.

[10]            “[C]omprising Articles 164 and 166 of the LIR, namely provisions on the taxation of profit distributions and the participation exemption”.  GC Engie, paras. 254–383.

[11]            GC Engie, paras. 464–478.

[12]            ECJ Engie, para. 110.

[13]            ECJ Engie, para. 138.

[14]            ECJ Engie, para. 120.

[15]            The ECJ also found that the Commission failed to prove that the Luxembourgish tax authorities misapplied the tax avoidance rules regarding Engie’s tax rulings (ECJ Engie, para. 155).

[16]            Ibid., para. 101.

[17]            ECJ Engie, para. 186.

[18]            GCR, “EU needs ‘period of reflection’ over state aid tax cases, commission lawyer says,” December 8, 2023, available here.

[19]          Ireland and Others v. European Commission (Cases T-778/16 and T-892/16) EU:T:2020:338.

[20]            Fiat Chrysler Finance Europe v. Commission (Joined Cases C‑885/19 P and C‑898/19 P), EU:C:2022:859. See our Blog post, “State Aid: Court of Justice Clarifies Limits for Multinational Tax Deals in Fiat Chrysler,” November 8, 2022.

[21]            Commission v. Amazon.com and Others (Case C-457/21 P) EU:C:2023:985.  Similarly, the ECJ found that the Commission had wrongly identified the reference framework, which invalidated its assessment of the existence of a selective advantage.  Along the line of Engie, the ECJ emphasized that the Commission could not rely on the arm’s length principle as defined by the OECD Guidelines, unless there were to be an express reference to them in the national law.