State aid and the notion of Selectivity

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1 State aid and the notion of Selectivity An analysis of the two (grand chamber) judgments of the Court of Justice of 21 December 2016 in Case C- 524/14 P Commission/Hansestadt Lübeck and Joined Cases C-20/15 P and C-21/15 P Commission/World Duty Free Group e.a. by Sébastien Thomas, référendaire, CJEU

2 I. The Spanish Goodwill case (World Duty free group e.a.) - Measure at issue : in case of acquisition of at least 5% of the shares of a foreign company by an undertaking taxable in Spain, the goodwill could be deducted from the tax base for the corporation tax - No possibility under Spanish tax law to deduct the goodwill if the company acquired is also established in Spain (except in special circumstances) - the Commission considered that the contested measure is selective in that it only favours certain groups of undertakings carrying out certain investments abroad and that this specific character of the scheme is not justified by the nature of the system (para. 102 of the contested Decision) - According to the Commission, the contested measure should be assessed in the light of the general provisions of the corporate tax system, and more precisely the rules on the tax treatment of the financial goodwill

3 The General Court s judgments (cases T-219/10 Autogrill/Commission and T-399/11, Banco Santander and Santusa/Commission) - 3 step approach (para. 37 in T-399/11) - But: need to identify a category of undertakings favoured by the measure at issue (para ) - Para. 48 : «where the measure at issue, even though it constitutes a derogation from the common or normal tax regime, is potentially available to all undertakings, it is not possible to compare, in the light of the objective pursued by the common or normal regime, the legal and factual situation of undertakings which are able to benefit from the measure with that of undertakings which cannot benefit from it»

4 Step 1: definition Measure under review a priori applicable to all undertakings? Step 2: discrimination No particular group of undertakings favoured by the measure? Step 3: no need for justification

5 The Court s judgment (1) Reminder of the selectivity test applicable to (fiscal) aid schemes (para. 54 to be compared with para. 33 in T-399/11) 3 step approach (paras // para. 37 in T-399/11): 1) Identifying the normal tax system or framework of reference 2) Finding whether the measure at issue, as a derogation to the normal tax system, differentiates between undertakings which are, in the light of the objective of the measure at issue, in a comparable factual and legal situation 3) Justification by the nature or general structure of the system of which the measure forms part

6 Nature and logic of the tax system (general principles) Step 1: definition Reference framework/normal regime relevant objectives Step 2: discrimination? Step 3: justification Measure under review

7 The Court s judgment (2) Para 59: «the fact that only taxpayers satisfying the conditions for the application of a measure can benefit from a measure does not suffice, in itself, to make it a selective measure» AG Kokott in Case C-66/14, Finanzamt Linz: «Case-law repeatedly takes as its starting point the premiss that a tax regime is not selective if it applies to all economic operators without distinction. According to case-law, however, the mere fact that a tax regime grants an advantage only to those undertakings which satisfy its conditions is not in itself capable of establishing its selectivity. On the other hand, a tax regime also cannot always be said not to be selective on the ground that all economic operators are able without distinction to avail themselves of the tax advantage which it makes available, provided that they satisfy its conditions. For, in that event, a tax regime would always have to be deemed not to be selective. (para. 81) According to that case-law, the ultimately decisive factor is whether, in accordance with the criteria laid down by the national tax system, the conditions governing the tax advantage are selected in a non-discriminatory manner.» (para. 82)

8 The Court s judgment (3) AG Wathelet in the present case: «Neither do I believe that the fact that the text of Article 107 TFEU speaks only of measures favouring certain undertakings or the production of certain goods excludes from the scope of that article economic transactions that are favoured by such measures. Since the transactions are performed by undertakings, the act of favouring certain economic transactions also serves to favour certain undertakings.» (para. 9) «To my mind, where a tax measure constitutes a derogation from the normal or reference tax regime and benefits certain undertakings or the production of certain goods to the detriment of others which are in a comparable situation, that measure is by definition discriminatory or selective, unless the differentiation is justified by the nature or general scheme of the system of which it is a part.» (para. 80) On Gibraltar (Joined cases C-106/09 P and 107/09P): paras.72-79: the measure was not a derogation to the tax system but was a genuine measure of general application (normal regime), whose criteria were nevertheless deemed to favor, de facto, some undertakings with specific features (privileged category), namely, in that case, off-shore companies

9 Nature and logic of the tax system (general principles) Step 1: definition Reference framework/normal regime relevant objectives Gibraltar test: reference system as such de facto discriminatory Step 2: discrimination? Step 3: justification Measure under review

10 The Court s judgment (4) Second part of the single ground of appeal : analysis of the case-law relating to export aid GC judgment: «the category of recipient undertakings allowing a finding that the measure at issue was selective was made of exporting undertakings» Commission: export of capital similar to export of goods Measure favouring certain undertakings or certain sectors (export sector)? Discrimination if similar transactions carried out within the national territory are put to a disadvantage (para. 119)

11 The Court s judgment (5) Judgment annuled and sent back to the General Court Among the questions still to be examined: whether the undertakings doing operations abroad are in a comparable factual and legal situation to those doing the same kind of operations within the Spanish territory (GC judgment based on the assumption that there was no need to compare those undertakings if the derogation is potentially applicable to all undertakings)

12 II. The Hansestadt Lübeck case Measure at stake : schedule of charges of Lübeck airport adopted in 2006, applicable to all airlines using the airport Commission s Decision (public version still not published) found the measure to be selective because the advantages (lower airport charges) were conferred only to the airlines using the airport of Lübeck (only 1 para. in the Decision) General Court judgment (T-461/12 paras, 54-55): the mere fact that the 2006 schedule applied only to airlines using Lübeck airport was not relevant for the purpose of finding that that schedule was selective, since it was not disputed that all the airlines could benefit from the pricing provisions of that schedule

13 The Lübeck case (2) The Court s judgment: - Selectivity test notion of discrimination (paras ) 1) determination of the reference framework (para. 54) 2006 schedule and not the law on Air Traffic Rules (para. 62) 2) discrimination? («Advantage for certain undertakings over others which are, in the light of the objective pursued by that regime, in a comparable factual and legal situation») (para.55) airlines serving other airports not comparable (para. 63) 3) No justification needed as the measure is prima facie non selective

14 Conclusion what consequences to draw from these 2 judgments? Back to the classical 3-step approach for (tax) measures of (apparently) general application (Gibraltar = exceptional situation) First: importance of the determination of the normal regime or framework of reference (decisive in Lübeck) Second: selectivity as discrimination (in the light of the objectives of the normal regime) No need to identify a category of undertakings with common characteristics favoured by the measure at issue (WDFG) Importance of the comparability of situations Third: still room for justification on the basis of the guiding principles of the tax system?

Exceptions with General Application? The Spanish Goodwill and Tax Lease Cases

Exceptions with General Application? The Spanish Goodwill and Tax Lease Cases Alfonso Lamadrid de Pablo State Aid for Tax Measures Seminar (Lexxion) Brussels 7 November 2016 Introduction Taxation (or relief