Non-economic activities have to be accounted separately from economic activities. The exercise of public tasks assigned by the state cannot protect an undertaking from State aid rules. State aid distorts competition even when it aims to remedy distortions.
Introduction
Ports, like other transport infrastructures, may operate under public obligations some of which may be of economic and some of non-economic nature. It is always necessary to account for them separately, as the General Court confirmed in its judgment in case T-747/17, Union des Ports de France [UPF] v European Commission.[1]
UPF applied for annulment of Commission decision 2017/2116 concerning an exemption from corporate taxation of ports in France. In the context of a broader inquiry into tax treatment of ports by Member States, the Commission found out that ports in France had a special legal status which entitled them to exemption from corporate taxation. After initiating the formal investigation procedure, the Commission adopted decision 2017/2116 which found the tax exemption to be incompatible State aid. Because the exemption was granted in 1942, the aid was existing and the Commission did not order any recovery.
[The arguments on the admissibility of the appeal and the legal standing of UPF and its members are not analysed in this article.]Non-economic tasks
The first substantive plea of UPF was that the Article 107(1) TFEU did not apply to certain public interest tasks assigned to ports by the French state and therefore the Commission committed an error.
The General Court referred to the Commission decision which had explicitly distinguished between the economic and the non-economic activities of ports. The Commission had acknowledged that ports carried out certain public tasks such as the control and safety of maritime traffic or monitoring of pollution. It had concluded that the tax exemption constituted State aid only when it related to income generated by economic activities. But the Commission had also pointed out that the non-economic activities of ports were not sufficient to remove, in general, their qualification as undertakings. [Paragraph 52]
The Court went on to dismiss the plea of UPF for having misread the Commission decision.
Economic activities linked to non-economic activities
The second plea of UPF was that the Commission committed an error of law by not identifying in detail the economic activities of ports in order to separate them from the non-economic ones.
The General Court, first, recalled that in the case of a decision relating to an aid scheme the Commission may confine itself to examining, in a general and abstract manner, the characteristics of that scheme. The Commission is not required to carry out an analysis of the aid granted in each individual case on the basis of such a scheme. [Paragraph 60]
Then the Court reiterated the definition of the concept of undertaking. Accordingly, an undertaking is any entity carrying out an economic activity, irrespective of the legal status of that entity and its method of financing. Any activity consisting of offering goods or services on a given market constitutes an economic activity.
The Commission had acknowledged that ports could carry out both economic and non-economic activities. It had established that French ports did carry out several types of economic activities, which it listed in recital 45 of the contested decision. [Ports provide access to port infrastructure. They provide services, such as piloting, lifting, handling, or mooring. They also make certain infrastructure or certain land available to undertakings for warehousing, storage, etc.]
The Court repeated that the fact that an entity carries out non-economic activities assigned to it by the state is not sufficient to remove, in general, its qualification of undertaking. The commercial exploitation and construction of airport or port infrastructures for commercial exploitation constitute economic activities. [Paragraph 65]
UPF argued that the Commission wrongly relied on a distinction between maritime infrastructures according to their location inside or outside the ports. In its view, the decisive criterion would not be that of the geographical location of the infrastructures, but whether they benefitted the entire maritime community or only the economic exploitation of the port.
The General Court disagreed with that argument and found that the Commission did not depart from its traditional approach according to which the construction, maintenance, or upgrading of infrastructures for access to ports are normally considered as non-economic, when they are made available to all users in a non-discriminatory way and free of charge. By contrast, access to internal infrastructure was made possible only on payment. [Paragraph 70]
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The Court also pointed out that the Commission had indeed considered that certain activities of the ports [such as investment in public roads, breakwaters, locks, navigable channels, dredging and in other maritime infrastructures benefiting the maritime community as a whole] were not economic in nature. [Here the Court cited case N 520/2003 concerning infrastructure works in Flemish ports and, a couple of paragraphs later, case SA.39608 concerning the port of Wismar]. [Paragraph 73]
The Court reiterated that the fact that an entity exercising prerogatives of a public authority does not, on its own, prevent it from being classified as an undertaking with respect to the rest of its economic activities. Moreover, when a public entity carries out an economic activity which can be dissociated from the exercise of its state prerogatives, that entity acts as an undertaking in connection to that activity. However, if that economic activity is inseparable from the exercise of its state prerogatives, all of the activities carried out by that entity remain activities related to the exercise of those prerogatives. [Here the Court cited cases Compass-Datenbank, C-138/11; Germany v Commission, T-347/09; SELEX Sistemi Integrati v Commission, C-113/07 P]. [Paragraphs 81-82]
Then the Court dropped a bombshell. It underlined that there is no threshold below which all the activities of an entity can be considered to be non-economic on the grounds that economic activities are in the minority. According to the case-law, if the economic activity of the entity is separable from the exercise of its state prerogatives, that entity must be qualified as an undertaking for that part of its activities. [Paragraph 83]
The Court then applied the above principles to the case at hand and concluded that UPF adduced no evidence to show that the economic activities carried out by ports were inseparable from the state prerogatives of the ports, such as the control and the safety of maritime traffic or the control of pollution. More importantly, the Court stressed that the mere fact that there were financial links between those activities, in the sense that the economic activities of the ports made it possible to fund their non-economic activities, was not sufficient to demonstrate the inseparability of those activities. [Paragraph 84]
In paragraph 83 of its judgment, the General Court referred to entities both exercising prerogatives of the state and carrying out economic activities. It did not mention research organisations or research infrastructures. Nonetheless, it appears to cast doubt on the compatibility with EU law of the Commission’s invention of the 20% threshold for ancillary economic activities. This quantitative threshold has offered assurances to countless universities and research institutes and it would be a disingenuous expansion of State aid reach if the threshold were to be declared incompatible with EU law.
Not surprisingly, UPF did bring up the existence of the 20% threshold in the RDI Framework. The Court dismissed the argument on the grounds that the RDI Framework was inapplicable in this case without considering the issue in more abstract and general terms. [Paragraphs 84-85]
Accordingly, the second plea of UPF was rejected.
Distortion of competition and affectation of trade between Member States
The General Court recalled that when aid strengthens the position of certain undertakings in relation to that of competing undertakings in trade between Member States, the latter must be considered to be influenced by the aid. It is not necessary that the recipient undertakings themselves participate in trade between Member States. Furthermore, there is no threshold or percentage below which trade between Member States is not affected. The relatively small size of the aid or the relatively small size of the recipient undertaking does not in principle preclude the possibility that trade between the Member States can be affected. [Paragraphs 92-94]
As regards the distortion of competition, aid intended to release an undertaking from the costs which it would normally incur in the course of its day-to-day operations or normal activities in principle distorts the conditions of competition. [Paragraph 96]
UPF complained that the decision of the Commission contained no concrete evidence of the effects of the tax exemption on trade between Member States and competition.
The Court replied that in the case of an aid scheme, which applies to very different ports in terms of size, geographical location and type, it is not necessary to demonstrate individually that the tax exemption results in distortion of competition and affectation of trade for each port. Thus, in a decision relating to a scheme, the Commission is not required to carry out an analysis of the effects of the aid in each individual case. [Paragraph 102]
The Court added that UPF was wrong to argue that the Commission was required to prove that the tax measure in question also provided an economic advantage to the operators and users of ports. [Paragraph 104]
UPF also claimed that even assuming that the tax measure in question had influenced the level of prices charged by French ports, it was not such as to affect trade between the Member States and to distort competition, since price was not a decisive factor in the attractiveness of ports, which is determined by other factors such their geographic location.
The Court did not agree. The fact that factors other than prices might have had a greater or lesser influence on the attractiveness of a port was not relevant. [Paragraph 107]
The Court also rejected UPF’s argument that inland and overseas ports did not compete with other EU ports on the grounds that when the Commission examines a scheme it does not have to analyse the particular situation of each individual beneficiary. [Paragraphs 110-112]
Infringement of Article 93 TFEU
UPF argued that the aid was compliant with Article 93 TFEU which declares aid for coordination of transport and public service obligations to be compatible with the internal market.
The General Court recalled the reasons for which the Commission considered that the aid did not comply with Article 93. First, while inland ports played an important role in the development of multimodal transport, not all port investment fell within the scope of Article 93. Second, the exemption from the tax did not constitute investment aid but operating aid. Third, the measure was not targeted at the reimbursement of costs inherent in the notion of public service. Fourth, the advantage derived from the tax exemption was not limited to the amount necessary to ensure the coordination of transport or the reimbursement of the extra costs of public service obligations, contrary to the principle of proportionality. Fifth, it did not have a clearly identified incentive effect, particularly because the exemption benefitted the more profitable ports with the most means and with the lowest need for incentives. [Paragraph 131]
The Court went on to recall that, according to established the case-law, the Commission can declare compatible aid only if it contributes to the achievement of one of the objectives of the Treaty and the recipient company is not able to reach that objective with its own means under normal market conditions. In other words, in order for aid to benefit from one of the derogations in the Treaty, the aid must not only be in conformity with one of the objectives of the Treaty, but it must also be necessary to achieve those objectives. [Paragraph 133]
Moreover, although it is true that neither Article 93 TFEU nor Article 107(3)(c) TFEU distinguishes operating aid from investment aid, operating aid, which is intended to maintain the status quo or to release an undertaking from the costs which it would have normally incurred in the course of its day-to-day management or normal activities, cannot, in principle, be considered compatible with the internal market. In fact, operating aid cannot be regarded as pursuing an objective of public interest within the meaning of Article 93 TFEU and Article 107(3)(c) TFEU. Since such aid would favour these undertakings over their competitors, without being justified by the achievement of a public policy objective, it cannot be declared compatible with the internal market. [Paragraphs 134-135]
Outermost regions
Then UPF argued that the aid could be compatible with Article 349 TFEU which acknowledges the disadvantages of outermost regions.
The General Court observed, first, that the aid in question did not only target overseas ports, but all ports. Second, Article 349 TFEU provides that the EU may adopt specific measures for those regions, taking into account their structural handicaps. However, the EU has not adopted any tax measures for the benefit of outermost regions. [Paragraph 139]
The policies of other Member States
Lastly, UPF complained that the Commission did not take into account measures in other Member States that favoured competing ports and did not treat it fairly by not opening investigations on similar measures in other Member States.
First, the General Court reiterated that the Commission cannot be required, when examining existing aid schemes in several Member States, to conduct such investigations simultaneously or to adopt binding decisions at the same time for all Member States. Then, the General Court pointed out that similar arguments were examined and rejected in its judgment of 31 May 2018, in case T-160/16, Groningen Seaports v Commission. [Paragraphs 162-163]
The mere fact that Groningen Seaports raised precisely the same argument a year earlier shows that if it were accepted, the Commission would not be in a position to adopt decisions sequentially. It could only adopt a single decision covering all possible competitors at the same time. That would make state aid proceedings exceedingly lengthy, would create extensive periods of legal uncertainty and would deprive the Commission from the ability to intervene effectively to control state aid.
As the General Court stressed, the possible breach by a Member State of an obligation incumbent on it under the Treaty, in particular the prohibition of Article 107(1) TFEU, cannot be justified by the fact that other Member States also fail to do so. Moreover, the effect of several distortions of competition on trade between Member States is not to neutralise each other, but is, on the contrary, of a cumulative nature, which increases the harmful consequences for the internal market. [Paragraph 164]
The General Court also noted that respect for the principle of equal treatment had to be reconciled with the principle of legality, which implied that no one could plead for himself an illegality committed in favour of another. [Paragraph 166]
Since the General Court rejected all the pleas of UPF, it dismissed the appeal in its entirety.
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[1] The full text of the judgment in languages other than English can be accessed at:
