navigation.skipToContent

----------------------------------------------------------------------------------------------------------------------------------------------------

Book your seat for the Autumn Conference on European State Aid Law 2018 on 29-30 November in Brussels to discuss and exchange on the latest developments in EU State aid law. Expert panels and interactive dicussions with leading practitioners invite participants to get actively involved.

---------------------------------------------------------------------------------------------------------------------------------------

 

Sign up for our free News alert

Sign Up For Free

 

 

Introduction

On 18 June 2018, the European Commission published its Annual Report on Competition Policy for 2017.[1] As usually, the Annual Report is accompanied by a Staff Working Paper that has almost four times as many pages as the Annual Report and provides more details on developments in all areas of competition policy, including State aid.

The pre-eminent role of the GBER

The part of the Report that presents developments in the field of State aid (pp. 25-42) starts with an account of the “uptake on State aid modernisation”. More than 97% of all new aid measures are now implemented on the basis of the General Block Exemption Regulation (GBER). The GBER is used for about 80% of old and new measures for which expenditure is reported. What can also be seen in diagram 1 below is that GBER-based measures account for close to 50% of the State aid amount (excluding agriculture, rail and banks).

 

Diagram 1: Use of the GBER

Use of GBER

Source: European Commission

While GBER-based expenditure has increased for all policy objectives and sectors covered by the GBER in comparison to 2014, one important policy objective – regional development – shows continuous decline (see diagram 2 below). It is not obvious what may be the cause of that decline.

 

Diagram 2: Amounts of GBER-based State aid

Source: European Commission

 

Commission decisions

Probably the most interesting part of the Annual Report is the presentation of the statistics on the various Commission decisions. Diagram 3 below shows the various Commission decisions. A number of observations can be made.

 

Diagram 3: Commission decisions

Source: European Commission

First, the overall number of Commission decisions continues to decline and it is now at its lowest level of the past decade.

Second, the Commission is certainly using the new instruments it has at its disposal such as market information requests or evaluation plans. Since 2014 it has taken 194 market information decisions and has approved 37 ex post evaluation plans.

Third, the 37 ex post evaluation plans were submitted by about half of the Member States (Czech Republic, Germany, Spain, France, Hungary, Italy, Lithuania, Austria, Poland, Portugal, Finland, Sweden and UK) and collectively they reached a total of EUR 48 billion. Most plans concerned regional aid, R&D&I, energy and broadband networks.

Fourth, since 2014, the Commission has intensified its ex post monitoring of approved measures and has completed checks on 344 of such measures.

Fifth, the number of no objection decisions is the lowest of the past decade, most likely because Member States notify to the Commission fewer measures.

Sixth, in the 11-year period shown in diagram 3, the Commission raised no objections to 3467 measures or 315 on an annual average. In the same 11-year period, the Commission found 212 measure not to constitute State aid or 19 on average per annum. In 2017, only 10 measures were found not to constitute State aid. That appears to be very low. Yet, the rate of non-aid decision to no-objection decisions is remarkably stable. The average of no-aid to no-objection is 6% (= 19/315). The corresponding ratio for 2017 is 5.3% (10/189).

 

 

Ex post monitoring

Since 2006 the Commission has been carrying out ex post checks on authorised measures to ensure that Member States apply them according to the terms of their approval. In addition, since the adoption of the first GBER in 2008, ex post monitoring has covered also measures that are implemented on the basis of the GBER and which are not formally authorised by the Commission. In fact, the ex post monitoring is one of the main tools at the disposal of the Commission for ensuring compliance with the requirements of the GBER.

In 2017, the Commission checked more than 50 measures in 26 Member States. The Annual Report does not indicate whether any irregularities were found.

To get a feel of how more intensive the ex post monitoring has become you may compare the 344 cases of the last four years to the four-year period of 2007-2010 in which there were only 71 cases of completed ex post monitoring. That corresponds to almost a five-fold increase. In terms of the intensity of interaction between the Commission and Member States, in the period 2007-2010, the 71 cases of ex post monitoring corresponded to only 4.6% of approved cases (1536). For the period of 2014-2017, the 344 ex post monitoring cases corresponded to 37.7% of approved cases (913) – a significant change in the type of interaction between the Commission and Member States and the information requested by the Commission.

 

Incompatible aid

In 2017, the Commission instructed recovery of incompatible State aid in six cases. At the end of the year, 44 case were still pending.

 

Significant court judgments[2]

The Annual Report also provides summaries of the main judgments rendered by EU courts in 2017. Below is a precis of the summaries.

 

 

State resources

ENEA (C-329/15, ENEA v Prezes Urzędu Regulacji Energetyki): A public measure that obliges both private and public undertakings to purchase electricity produced by cogeneration does not lead to transfer of state resources when the extra costs resulting from that purchase obligation cannot be passed on entirely to end users and are not financed by a compulsory contribution imposed by the state or by a compensatory mechanism. In addition, the buyers were not appointed by the state to manage a state resource, but were funding a purchase obligation imposed on them by using their own financial resources. It was irrelevant that most of those undertakings were public because there was no evidence that the state tried to influence their decisions.

TV2/Danmark (C-656/15 P, Commission v TV2/Danmark):  The Court of Justice set aside a 2015 judgment of the General Court that had annulled a Commission decision that found that advertising revenues generated by TV2 by broadcasting commercials constituted state resources on the grounds that they were channelled through a government-controlled fund. The General Court ruled that the fact that the revenue was channelled through a public entity would not render the commercial nature of the income a state resource, even if the state had the possibility to fix the amounts to be channelled to TV2. The advertising revenue would keep its character as income generated by commercial activities of TV2.

The Court of Justice considered that the state effectively had control over these funds before they were paid to the beneficiary. It held that the General Court was wrong to rule that resources originating with third parties that are managed by public undertakings can constitute state resources only when they are voluntarily placed at the disposal of the state by their owners or abandoned by their owners and when the state has assumed the management of those resources.

The Court of Justice also differentiated this case from PreussenElektra by stating that the latter case related to private undertakings that had not been appointed by the state to administer state resources, but were bound by an obligation to purchase by means of their own financial resources. Further, in that case, the funds at issue were at no time under public control. By contrast, TV2 Reklame and the TV2 Fund were created, owned and appointed by the Danish state to administer the revenue produced by the sale of advertising space of another public undertaking, TV2/Danmark, and as a consequence that revenue was under the control and at the disposal of the Danish state.

 

Economic and non-economic activity

Congregación de Escuelas Pías (C-74/16, Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe): A Catholic school was exempted from a municipal real estate tax in Spain that was granted in respect of work to buildings intended to be used for educational activities which did not have a strictly religious purpose.

The Court of Justice noted that the school was engaged in three types of activities: (i) strictly religious activities, which are non-economic; (ii) educational activities subsidised by the state, which cannot be classified as economic; and (iii) non-compulsory educational activities receiving no financial support from the state, which can be regarded as economic. The Court of Justice held that the tax exemption may constitute State aid if and to the extent to which the activities carried out in church-owned premises are economic activities, a matter which is for the national court to determine. On this basis, the Court of Justice concluded that the prohibition in Article 107(1) can only apply to the tax exemption if (i) at least some of the activities carried out at the school can be classified as economic activities and (ii) the relevant premises are used, at least in part, for such economic activities.

The Court of Justice also held that the tax exemption, if classified as aid, should not be regarded as existing aid but as new aid. While the agreement between Spain and the Holy See (the basis for the tax exemption at issue) predated Spain’s accession to the EU, the tax exemption as such was introduced into Spanish legislation only after accession.

TenderNed (T-183/15, Aanbestedingskalender v Commission): This case concerned an electronic government platform for information on public tenders in the Netherlands. In 2014, upon complaint of several commercial operators, the Commission adopted a decision declaring that the financing of TenderNed by the Dutch authorities did not amount to State aid. In its judgment, the General Court comes to the conclusion that the activities of TenderNed (data collection and publication) provide the means to comply with statutory obligations and as such form part of the exercise of public powers and are non-economic.

All the functionalities of TenderNed must be understood as linked to each other, all being indispensable for e-procurement and forming different facets of the same activity, and therefore not independent of each other. Next, the General Court looked at whether the activities of TenderNed, taken as a whole, may be connected with the exercise of public powers. It came to the view that when contracting authorities initiate a procurement procedure and comply with procurement rules, they are acting as public authorities. The nature and purpose of TenderNed’s activities are closely linked to this activity and are therefore connected with the exercise of public powers. The fact that TenderNed provides its services free of charge is not sufficient in and by itself to determine whether an activity is economic or not although is nevertheless a relevant factor.

The General Court also noted that the question whether or not the creation of a centralised e-procurement system was provided for by the EU procurement directives, and whether provision is made for penalties in the event of breach of the obligations imposed by those directives, is not decisive for the purpose of determining the nature of TenderNed's activities. The General Court also stated that the coexistence of commercial platforms does not automatically make the activities of TenderNed economic.

 

 

Selectivity

Retegal (C-70/16 P, Comunidad Autónoma de Galicia and Retegal v Commission and SES Astra): Spain aimed to facilitate the transition from analogue to digital broadcasting for the entire territory of Spain. In particular, the Spanish authorities set up a system of public financing to facilitate the digitisation of the so-called Area II, i.e. semi-remote and less urbanized areas with only 2.5% of the Spanish population, where the broadcasters had no economic interest to invest in digitisation.

In May 2009, the Commission received a complaint from a satellite operator alleging that the various regional schemes to facilitate the digitisation of Area II constituted non-notified aid which distorted competition between terrestrial and satellite broadcasting platforms, since the parameters of the tenders made satellite operators ineligible. The Commission adopted a decision in 2013 finding that the support granted to terrestrial operators in Area II amounted to incompatible State aid as it distorted competition between satellite and terrestrial broadcasting platforms. In 2015, the General Court entirely dismissed the actions brought by Spain, certain Autonomous Communities and other interested parties seeking annulment of the decision.

On appeal, the Court of Justice rejected the arguments of the appellants with just one exception in Retegal. By that judgment, the Court of Justice set aside the judgment of the General Court and moreover annulled the Commission decision for failure to state reasons. According to the Court of Justice, the Commission had not sufficiently explained why the measure under assessment was selective and dismissed the Commission’s argument that no additional reasoning was necessary since the selectivity condition is automatically satisfied if a measure applies exclusively to a specific economic sector or to undertakings in a particular geographic area. Instead, the Court of Justice argued, by making reference to Lübeck Airport (C-524/14 P, Commission v Hansestadt Lübeck), that the decision contained no indication of the reasons why undertakings active in the broadcasting sector should be regarded as being in a factual and legal situation comparable to that of undertakings active in other sectors or why undertakings using digital terrestrial technology should be regarded as being in a factual and legal situation comparable to that of undertakings using other technologies.

However, other recent judgments did not require such a detailed reasoning on selectivity (e.g. C-323/16 P, Eurallumina SpA v Commission or T-314/15, Hellenic Republic v Commission).

 

Advantage

Frucona (C-300/16 P, Commission v Frucona Košice): In 2004, the beverage producer Frucona Košice became insolvent mainly due to accumulated tax debts (of about to EUR 17 million). The company asked its creditors for an arrangement under the applicable insolvency legislation and in July 2004, the tax office agreed to write off 65% of its debt. Following a complaint, the Commission took in 2006 a decision concluding that the debt write-off was not consistent with the market economy creditor principle (MECP) and constituted unlawful and incompatible State aid.

In 2010, the General Court fully confirmed the decision (T-11/07). However, the Court of Justice concluded in 2013 (C-73/11 P) that the Commission had committed a manifest error of assessment by not taking into account in its MECP assessment the likely duration of the bankruptcy procedure. As a result, the Court of Justice set aside the judgment of the General Court and referred back the case.

The Commission decided to replace its 2006 decision and to adopt a new negative decision with recovery in October 2013. Frucona Košice brought an action for annulment before the General Court who in 2016 annulled the 2013 decision (T-103/14), in particular because the Commission had not proven to the sufficient legal standard the existence of State aid, since the evidence on the file was, according to the General Court, not capable of substantiating that a private creditor would have preferred alternative scenarios to the proposed arrangement.

The Court of Justice fully confirmed the judgment of the General Court. It stressed that the MECP test is intended to determine whether the recipient undertaking would manifestly not have obtained comparable facilities from a private creditor in a situation as close as possible to the public creditor. As a result, the Court of Justice came to the view that the Commission’s assessment cannot be limited to just the options that the competent authority actually took into consideration but must cover all the options that a private creditor would reasonably have envisaged in such a situation. It is for the Commission to ask the Member State concerned to provide it with all the relevant information for such overall assessment. This must include all information liable to have a significant influence on the decision-making of a normally prudent and diligent creditor at the time the measure was granted.

However, the Annual Report also points out that in a series of recent judgements, which rely on C 124/10 P Commission v EDF, EU courts have emphasised that the Market Economy Operator Principle (MEOP) test is not applicable if the Member State did not base its investment decision on preliminary economic evaluations, as a private investor would have done (e.g. T-1/15, SNCM v Commission; C-472/15 P, Servizi assicurativi del commercio estero SpA (SACE) and Sace BT SpA v Commission; T-747/15, Électricité de France (EDF) v Commission; and T-423/14, Larko Geniki Metalleftiki kai Metallourgiki AE v Commission).

 

Existing aid and new aid

Dutch social housing (C-414/15 P, Stichting Woonlinie v Commission, and C-415/15 P, Stichting Woonpunt v Commission): The Court of Justice set aside two orders of the General Court of 12 May 2015 upholding a Commission decision of 15 December 2009. The Court of Justice concluded that when the Commission adopts a decision for appropriate measures and accepts the commitments of a Member State, it concludes the examination process provided for in Article 108(1) TFEU. Such decision necessarily presupposes that the Commission had first assessed whether the existing aid scheme was compatible with the internal market, and that it had concluded that the existing aid scheme was not compatible. Therefore, the conclusion that the Commission drew in its decision (i.e. that appropriate measures were needed) results from that first preliminary finding of incompatibility. According to the Court of Justice, such first assessment cannot be excluded from judicial review without undermining the right to effective judicial review. Therefore, in the original appeal, the General Court should have assessed the question of whether the existing aid scheme (before the commitments of the Member State) was compatible with the internal market. As a result, the cases were referred back to the General Court.

 

 

Services of General Economic Interest

Société nationale maritime Corse Méditerranée (SNCM) (T-366/13, France v Commission, and T-454/13, SNCM v Commission): The judgments confirm the necessary link between the demonstration of a market failure and the discretion left to a Member State to define a public service obligation (PSO) in a given market.

These two judgments relate to a 2013 Commission decision concerning the award of a public service contract to the French shipping company SNCM for the period 2007-2013. The Commission concluded that the aid granted to SNCM for the additional service to cover peak periods during the holiday seasons did not compensate a real public service need (since the market could provide such services) and that it was incompatible.

By its judgments, the General Court dismissed the actions of France and SNCM seeking the annulment of the decision. The General Court first clarified that the Commission, in its assessment of a possible manifest error in the definition of a PSO in the case of an SGEI may rely on non-State aid related EU legislation (such as the Maritime Cabotage Regulation), which may limit the discretionary power enjoyed by Member States. The General Court also confirmed that the definition of the PSO must meet a real need for public service and that its scope must be necessary and proportionate to that need. In particular, where a Member State has the choice between a PSO scheme open to all operators and a public service delegation entrusted to one or few operators, it must opt for the solution that will least distort the good functioning of the internal market.

Saremar (Sardegna Regionale Marittima) (T-220/14, Saremar v European Commission): In another case relating to SGEI/public service compensation, the General Court recalled that the Member States’ discretion on the definition of SGEIs cannot preclude the Commission from verifying that the SGEI derogation has been properly applied.

 

Autonomy of State aid rules

Eurallumina (C-323/16 P): The autonomous and separate nature of State aid rules as opposed to legislation relating to excise duties (and other tax rules) was confirmed definitively.

 

-------------------------------------------------------------------------------------------

[1] The Annual Report and the Staff Working Paper can be accessed at: http://ec.europa.eu/competition/publications/annual_report/index.html.

[2] The salient points are quoted almost verbatim.

--------------------------------------------------------------------------------------------

All cases can be found by specific case number at:

http://curia.europa.eu/juris/recherche.jsf?pro=&nat=or&oqp=&dates=&lg=&language=en&jur=C%2CT%2CF&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&td=%3BALL&pcs=Oor&avg=&mat=or&jge=&for=&cid=327810

 



Comments


Click here to comment upon this article

State Aid Uncovered
Opinions by Phedon Nicolaides

Share this now

Follow by Email

About

Phedon Nicolaides

Professor at the College of Europe, Bruges, and at the University of Maastricht, and Academic Director at lexxion training

Search this Blog

Upcoming lexxion trainings with Phedon Nicolaides:

Inhouse Training on State Aid
Choose date & town

Recent Comments