State aid is deemed to be granted even if the benefit cannot be quantified in advance and even if state resources are transferred at a future point in time.
Introduction
The precise date on which State aid is granted can be important such as, for example, when calculating the present value of aid granted in tranches at different points in time, when the three-year period for de minimis aid or the 10-year limitation period for recovery of incompatible aid is established, or when compound interest is levied on recovered amounts.
It is now well-established in the case law that State aid is deemed to be granted on the date the legal right to that aid is conferred to an undertaking. The date of application for the aid or the date of actual receipt of the money is irrelevant.
What happens, however, when a public measure grants a benefit whose amount is not specified in advance? This would be the case, for example, of a tax exemption on profit from a future event. Normally, the money-value of exemptions from income tax are never known in advance because the future profits of companies are unknown. Hence, tax exemptions are forms of State aid even though the amount of aid is not fixed at the time they are granted.
But should the same principle be applied to cases of liquidation of companies where the taxable event is not trading or operational profit but the subtraction of liabilities from assets? The General Court gave an affirmative answer in its ruling of 18 May 2022, in case T-593/20, Tirrenia di navigazione v European Commission.[1]
Tirrenia sought the annulment of Commission Decision 2020/1412 on State aid granted by Italy to Tirrenia di Navigazione and its purchaser Compagnia Italiana di Navigazione [CIN].
Tirrenia used to be owned by the Italian state and belonged to a group that comprised six companies: Tirrenia, Adriatica, Caremar, Saremar, Siremar, and Toremar. Those companies provided maritime transport services for passengers, cars, and lorries between mainland Italy and islands and between Italy and neighbouring countries. They operated on the basis of public service contracts.
By Decision 2005/163, the Commission declared that certain State aid measures in favour of companies of the Tirrenia group were incompatible with the internal market. In March 2009, the General Court, in case T-265/04, Tirrenia di Navigazione and others v European, Commission, annulled Decision 2005/163 on the grounds that the statement of reasons was inadequate.
In July 2011, Italy sold its stake in Tirrenia through a tender procedure. The new owner was Compagnia Italiana di Navigazione.
In October 201, following numerous complaints, the Commission opened the formal investigation procedure with respect to the compensation granted to Tirrenia for the operation of several shipping lines and the privatisation process which had led to the acquisition of Tirrenia by CIN.
In March 2020, the Commission adopted the decision that was contested in the present case. Again, the Commission found that certain public measures constituted State aid which was incompatible with the internal market. The measures in question were an exemption from indirect taxes [registration fees, land charges, mortgage fees], an exemption from corporation income tax relating to the proceeds from the sale of Tirrenia to CIN and the funding of the modernisation of ships of Tirrenia.
First plea: Alleged infringement of the Guidelines on rescue and restructuring aid
Tirrenia claimed that the Commission did not apply correctly the provisions of the Guidelines on State aid for corporate rescue and restructuring.
The General Court, first, noted that Italy failed to notify to the Commission a formal rescue, restructuring plan or liquidation plan. The Court observed that Commission was not necessarily aware of the existence of a restructuring or liquidation plan published on Tirrenia’s website. Even if the Commission had information on the privatisation process under way, that in itself did not amount to a formal submission of a restructuring or liquidation plan by Italy. [paragraphs 41-44 of the judgment]
Consequently, the first plea was rejected.
Second plea: Alleged infringement of Article 107(1) TFEU regarding the tax exemptions
At the outset, the General Court rejected the part of the plea concerning indirect taxes because Tirrenia had not put forth any reasons why Article 107(1) did not apply. It made the claim without any further explanation. Therefore, the Court examined only the part of the plea concerning exemption from income tax.
With respect to the income tax exemption, Tirrenia argued that its income, and therefore the payable tax, could be determined only at the end of the liquidation/privatisation process. Moreover, the measure in question was not capable of affecting intra-EU trade.
The General Court, first, pointed out that in fact Tirrenia made two arguments: that no state resources had been transferred and that trade was not affected.
With respect to the transfer of state resources, the General Court recalled that a tax measure must be regarded as conferring an advantage on its beneficiaries when it results in lower taxation of those beneficiaries, even where the actual benefit depends on the realisation of profit in the future. [para 68]
In other words, what matters is not that a benefit immediately materialises but that when profit is eventually realised, the undertakings in question pay less tax than otherwise.
From the moment when the right to receive aid is conferred on the beneficiary, the aid must be regarded as being granted in such a way that the actual transfer of the resources in question is not decisive. The fact that such aid actually materialises only when future and uncertain events occur [such as, in this case, valuation of assets and liabilities] is irrelevant. [para 70]
So, the actual timing of the transfer of state resources and the fact that the magnitude of the advantage depends on future valuations are both irrelevant as long as an undertaking acquires the legal right to such a transfer.
Moreover, the case law does not require the Commission to fix the precise amount of the aid that has to be recovered when it finds such aid to be incompatible with the internal market. [para 71]
Then, the General Court confirmed the conclusions of the Commission with respect to the amount of aid that had to be recovered. The amount of the aid in the tax exemption was the tax on the difference between the assets of Tirrenia at the beginning of the insolvency proceedings and the residual assets at the end of those proceedings. That is, where, at the end of the winding-up operations of a company, a profit emerges from that difference, the amount of the aid consists of the tax which should have been applied to that profit and which was not applied because of the tax exemption. [para 76]
Consequently, the General Court rejected this part of the second plea of Terrinia.
Affectation of trade
Tirrenia argued that intra-EU trade was not affected and competition was not distorted for the simple reason that it had withdrawn from the market.
The General Court responded by noting, first, that the question whether a public measure is State aid within the meaning of the Treaty must be resolved on the basis of objective factors. [para 81] This implies that the possible affectation of trade must also be established on the basis of objectives facts.
Next, the General Court confirmed that it is not necessary to establish that aid has a real impact on trade between Member States and that it effectively distortions competition, but only to examine whether the aid is liable to affect that trade and distort competition. Nor, is it necessary for the recipient undertakings themselves to participate in trade between Member States. Where a Member State grants aid to undertakings, domestic activity may be maintained or increased, with the consequence that it impedes market entry by undertakings established in other Member States. Finally, whether trade is affected does not depend on the local or regional nature of the transport services provided or on the importance of the field of activity concerned. [paras 82-84]
Then the General Court found that the aid granted to Tirrania could deter undertakings established in other Member States from entering the Italian market. [para 85]
With regard to potential distortion of competition, aid intended to relieve an undertaking of the costs which it would normally have to bear in its day-to-day management or normal activities distorts, in principle, the conditions of competition. [para 86] This is because the public service compensation received by Tirrenia covered its operating costs.
Moreover, the Court reiterated the well-established principle, that when aid strengthens the position of an undertaking in relation to other undertakings competing in trade within the EU, those competitors must be regarded as affected by the aid. [para 87]
The General Court rejected the second plea of Tirrenia and went on also to reject the third plea alleging breach of the principle of protection of legitimate expectations.
Consequently, it dismissed the appeal in its entirety.
[1] The full text of the judgment in languages other than English can be accessed at:
