State measures which are linked and produce both positive and negative effects, must be considered together to determine whether they confer a net advantage to undertakings. Counter-guarantees must be taken into account to determine the existence of advantage even if they are provisional.



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Member States have in a number of cases tried to defend tax reductions or tax exemptions by arguing that the lower taxes were justified on the grounds that beneficiaries had to pay other taxes or other taxes at higher rates. This argument has never succeeded. The case law is clear on this point. Each tax has to be assessed on its own merits.

However, in a recent judgment, the General Court ruled that when different tax provisions are linked, then they must be assessed together in order to establish whether their overall effect is net positive or net negative. A net positive effect would result in an advantage in the meaning of Article 107(1) TFEU.

In another recent judgment, the General Court examined a different state instrument that can confer an advantage: a state guarantee. A state guarantee that is priced at a rate below the market level or covers 100% of the underlying loan normally contains State aid. Rather unusually in this case, the state guarantee was counter-guaranteed by a company with substantial assets. The General Court ruled that the effect of the counter-guarantee had to be taken into account in order to determine whether the state guarantee conferred an advantage.


Case I: Barcelona Football Club v Commission

On 26 February 2019, in case T-865/16, Fútbol Club Barcelona v European Commission, the General Court annulled Commission decision 2016/2391 which had ordered Spain to recover incompatible State aid from four football clubs including Barcelona.1

In 1990, all Spanish professional football clubs were converted into sports companies liable for corporate taxation. Previously they were classified as non-profit organisations. However, four clubs, including well-known teams such as Barcelona, Real Madrid and Atletico, retained their old status which entitled them to be taxed at a lower rate. The Commission considered the lower tax rate to confer to them an advantage in the meaning of Article 107(1) and to constitute incompatible State aid.

In its defence, Barcelona put forth basically two pleas: that the Commission should have applied a different provision of the Treaty and that it neglected to take into account less favourable provisions of the relevant Spanish law.


Infringement of Article 49 TFEU

Barcelona argued that the Commission should have found that the obligation of professional sports clubs to convert to companies was contrary to Article 49 TFEU insofar as it improperly imposed a specific legal form on professional sports clubs.

Article 49 protects the right of undertakings to establish commercial presence on a market in any form they choose.

The General Court noted in paragraph 28 that the Commission has discretionary power to decide whether to initiate proceedings against a Member State for infringement of internal market rules. EU courts cannot force the Commission to apply Article 49 instead of Articles 107 & 108.

On the other hand, when the Commission assesses the compatibility of State aid, it may not authorise aid that is contrary to internal market provisions. [paragraph 29 of the judgment] This obligation of the Commission is particularly necessary whenever other provisions of the Treaty also aim to prevent distortions of competition in the internal market, such as Article 49, which seeks to preserve the freedom of establishment and free competition between economic operators established in different Member States. [paragraph 30]

Although the Commission is obliged not to declare as compatible any State aid which infringes other provisions of the Treaty, it does not, have to examine whether such an infringement occurs when it qualifies a measure as unlawful and incompatible State aid. [paragraph 31]

Moreover, the Commission does not have jurisdiction, in the context of a State aid procedure, to conclude that there has been an independent infringement of Article 49, except when the incompatibility of the aid measure arises from the infringement of Article 49. [paragraph 35]

On the basis of the above reasoning, the General Court rejected the plea of Barcelona.


Existence of advantage

Then Barcelona alleged that the Commission made an error in finding that it had benefited from an advantage in the meaning of Article 107(1).

After recalling the relevant case law on the concept of advantage, the General Court noted that state interventions take various forms and must be analysed in terms of their effects. Where a state intervention causes distinct effects or results in distinct consequences for the beneficiaries, the Commission must take into account the cumulative impact of those consequences in order to examine the existence of a possible advantage. The Commission is obliged to examine complex measures comprehensively. That examination must consider all consequences for its beneficiaries, both favourable and unfavourable. [paragraphs 47-48]

For the purposes of assessing whether the Spanish measure in question was capable of conferring a net benefit, the various components of the taxation regime for non-profit organisations had to be assessed together, since they formed an inseparable whole. [paragraph 53]

The General Court went on to examine the features of the relevant Spanish law and found that although the tax rate for non-profit organisations was lower than for sports companies, non-profit organisations were eligible to deduct reinvested profits from their tax liability at a lower rate than that which applied to sports companies. [paragraphs 55-58]

The Commission had focused only on the difference in tax rates and had ignored the impact of the lower tax deductibility of reinvested profits. The General Court  concluded that the Commission could not have found that Barcelona and the other three football clubs had enjoyed a net advantage without taking into account the lower rate of deductibility of reinvested profits. [paragraphs 59-65]

The General Court also rejected the argument of the Commission that the treatment of the four football clubs amounted to a special regime that could be assessed on its own or separately. According to the General Court, all provisions that were linked and were applied concomitantly had to be assessed together.

On the basis of the above reasoning, it proceeded to annul the Commission decision. If the Commission decides not to appeal, it will have to open the formal investigation procedure and determine the cumulative advantage of the lower tax rate and the lower rate of deduction of reinvested profits.


Case II: Hercules Footbal Club v Commission

On 20 March 2019, the General Court ruled in case T-766/16, Hércules Club de Fútbol v European Commission.2

Hercules applied for annulment of Commission Decision 2017/365 which ordered Spain to recover incompatible State aid from Hercules Club.

In July 2010, the region of Valencia granted to Hercules Foundation a guarantee to cover a bank loan of EUR 18 million euros from Caja de Ahorros del Mediterráneo [CAM]. Hercules Foundation intended to use the loan to buy 82% of the shares in Hercules Club. The guarantee covered 100% of the principal amount of the loan plus interest and the costs associated with the share transaction. Hercules Foundation had to pay an annual premium of 1% to Valencia.

The time period of the underlying loan was five years. The interest rate was fixed at 4% for the first 36 months. For the following 24 months, the rate of interest was the 1-year Euribor rate increased by a margin of 2%. In addition, an opening fee of 0.5% was applied. The repayment of the secured loan [principal amount and interest] was to be made upon the sale of the shares acquired by the Hercules Foundation.

However, Hercules Foundation did not repay the loan and Valencia had to honour the guarantee and make a payment of EUR 18.4 million to CAM. Subsequently, the Valencian authorities launched legal action against the Hercules Foundation to recover that amount.

After the Commission was informed of this legal action, it initiated the formal investigation procedure. It found that Hercules Club was an undertaking in difficulty and that the aid it had received was not in conformity with the rescue & restructuring [R&R] guidelines. In the end, it adopted decision 2017/365 ordering Spain to recover the aid from Hercules Club.


Undertaking in difficulty

The first plea of Hercules Club was that the Commission was wrong to classify it as an undertaking in difficulty. It claimed that it was not in difficulty on the date of award of the guarantee.

The Commission had examined whether Hercules Club was in financial health because it considered that the premium for the guarantee had to reflect the financial situation of Hercules Club. According to the R&R guidelines a company is in difficulty when it is unable to stop its losses and, without external help, it will consequently be forced to exit the market.

Although Hercules Club had been in financial trouble, it argued that football clubs can more easily raise capital through sponsorships and that they are also subject to more income volatility because their revenue depends on their sporting results. The General Court rejected those arguments in paragraphs 46-50 of the judgment.

First, the risk emanating from fluctuations in income also affects undertakings in other markets. Second, the sporadic manifestation of non-market behaviour, like sponsorship, is not sufficient to call into question the economic nature of professional football. Third, the concept of a firm in difficulty is an objective concept which must be assessed solely in the light of the concrete indicators of the financial and economic situation of the company. The claims concerning the ability of football clubs to raise funds and to borrow money could not reverse the findings of the Commission.


Assessment of the counter-guarantees

Then Hercules Club claimed that the Commission disregarded the nature and scope of counter-guarantees that had been offered to Valencia. The counter-guarantees had been offered by Aligestión, which was at that time the main shareholder of Hercules Club. Aligestión was a solvent company with substantial property holdings.

The General Court noted, first, that the decision of the Commission did not contain any analysis of the counter-guarantees offered by Aligestión and that that omission could constitute grounds for annulment because of breach of the obligation to state reasons. [paragraphs 58-60]

The Commission in its defence argued that it had ignored the counter-guarantees because they were only temporary and conditional. However, the Court insisted that in its decision the Commission failed to explain why the counter-guarantees had been ignored. [paragraphs 63-66]

The General Court went on to observe that it was clear from points 3.2(d) and 4.2 of the Commission’s 2008 guarantee notice that counter-guarantees are a relevant factor in assessing the existence and level of state support to the beneficiary of the guarantees. The counter-guarantees offered by Aligestión were therefore, in principle, a relevant factor. Moreover, nothing in the Commission notice could lead it to dismiss as irrelevant a counter-guarantee on the grounds that it was merely of a provisional nature. [paragraph 70]

Because the Commission failed to explain in its decision how it took account the effects of the counter-guarantees, the General Court proceeded to annul the decision on the grounds of failure to state reasons.

The Commission lost the battle but it did not necessarily lose the war. It will have to reopen the formal investigation procedure and recalculate how the counter-guarantees affected the amount of advantage, if any, that was enjoyed by Hercules Club.




1 The full text of the judgment, in languages other than English, can be accessed at:

2 The full text of the judgment, in languages other than English, can be accessed at:





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Phedon Nicolaides

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

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