Compliance with State Aid Guidelines

Compliance with State Aid Guidelines - State Aid Uncovered SM posts 10

For aid to be declared compatible with the internal market, all of the formal and substantive provisions of the relevant guidelines must be satisfied.

State aid is granted the moment the right to a selective advantage is conferred, even if the actual benefit materialises at a future point in time.

Introduction

On 26 October 2022, the General Court reiterated, in case T-668/21, Siremar v European Commission, that, first, Member States must comply with all of the provisions of the relevant State aid guidelines in order for their aid to be compatible with the internal market. Second, tax exemptions involve State aid even if the benefit for the undertakings concerned materialises only when they make profits at a later point in time. And, third, aid affects trade even if the beneficiary does not itself participate in cross-border trade.

The case arose from an appeal lodged by Siremar against Commission decision 2022/448 on measures SA.32014, SA.32015, SA.32016 implemented by Italy in favour of Siremar and its purchaser, Società Navigazione Siciliana (SNS). [OJ L 97, 24 March 2022]

Siremar was one of the companies of the state-owned Tirrenia group that was eventually privatised. The group comprised six shipping companies: Tirrenia, Adriatica, Caremar, Saremar, Siremar and Toremar. Those companies provided maritime transport services on the basis of separate public service contracts.

In 2016, Siremar was sold via tender to SNS for EUR 55.1 million. SNA then signed a new agreement with the Italian authorities for passenger and freight services on 20 routes. The agreement entered into force on 12 April 2016 and will expire on 11 April 2028.

After receiving several complaints, the Commission initiated in October 2011 the formal investigation procedure. Subsequently, it adopted several decisions some of which found compatible aid, some found incompatible aid and some concluded that there was no aid on the grounds that the contracts satisfied the Altmark conditions [see, for example, Commission decision 2022/348 on aid implemented by Italy and the Region of Tuscany for Toremar and its acquirer Moby (published in OJ L 64, 2/3/2022)].

The decision that is subject of the present judgment was adopted in June 2020. Among other aid measures, the Commission assessed in that decision an unlawful extension of the rescue aid to Siremar [so-called measure 2] and several tax exemptions [so-called measure 6].

On measure 2, the Commission concluded that although the initially notified rescue aid granted to Siremar was compatible with the internal market, the extension of rescue aid was not and had to be recovered.

On measure 6, the Commission considered that the various tax exemptions constituted State aid. Because they were operating aid but were not linked to the provision of SGEI, they could not be assessed on the basis of Article 106(2) and therefore, they were incompatible with the internal market.

The other measures assessed by the Commission in decision 2022/448 were compensation for public service obligations that constituted compatible aid and a berthing priority that also constituted compatible aid. The sale of Siremar to SNS, bundled with a new public service contract, that did not constitute State aid [Altmark compliant].

The rescue aid

By its first plea, the applicant alleged infringement of Articles 107(1) and 108(2) TFEU and the 2004 rescue and restructuring guidelines [the R&R guidelines], in that the Commission wrongly concluded that the extension of the rescue aid granted to Siremar constituted unlawful and incompatible aid.

According to the R&R guidelines, rescue aid can be granted in the form of a loan but has to be repaid within six months.

The General Court, first, noted that none of the alternative conditions set out in point 25(c) of the guidelines had been complied with. [paragraph 31 of the judgment]

Six months after the disbursement of the first instalment of the rescue aid in the form of a guaranteed loan the aid had not been repaid. According to the applicant, that aid was repaid about a month and a half later.

The Court held that, even though the Commission was aware that the privatisation of Siremar was under way, that fact did not amount to formal submission of a restructuring or liquidation plan to the Commission, as required by the guidelines. Moreover, late repayment was contrary to the guidelines. The Commission and its assessment of State aid are bound by the guidelines it adopts. [paras 36-40]

Then the Court stressed that compliance with all of the requirements of Commission guidelines is far from constituting purely formal obligation of Member States. The Commission can declare aid compatible only when all of the provisions of the relevant guidelines are satisfied. [para 42]

Tax exemptions

The applicant claimed that the Commission incorrectly classified as State aid measure 6 and especially an exemption from corporate tax of the proceeds from the sale of Siremar. More specifically, the applicant claimed that there was no advantage on the grounds that the tax exemption was conditional on the finalisation of the sale and the realisation of profit and that it was not liable to affect trade between Member States.

The General Court, first, recalled that special tax treatment must be regarded as conferring an advantage on its beneficiaries where it may lead to lower taxation of those beneficiaries, even where the actual materialisation of that advantage depends on external circumstances, such as the making of a profit. [para 58]

The Court agreed with the Commission that the exemption from corporate tax relating to the transfer of Siremar to SNS conferred an economic advantage.

The Court held that the criterion for determining the time of granting of aid is that of the legally binding act by which a public authority commits to provide aid by means of an unconditional and legally binding decision. Moreover, from the moment the right to receive assistance through state resources is conferred on the beneficiary, the aid must be regarded as being granted, so that the actual transfer of the resources in question is not decisive. [para 60]

It was not disputed that the profit from the proceeds from the sale of Siremar to SNS was exempt from corporate income tax, which would normally have been payable for such a transaction.

It was not relevant that the aid would actually materialise only when future and uncertain events occurred, such as, in the present case, the existence of a positive difference between, on the one hand, the assets of Siremar at the beginning of the valuation procedure and, on the other, the residual assets at the end of that procedure. [para 61]

Then the General Court addressed the argument of Siremar that since no aid had to be recovered, the exemption did not constitute State aid. No aid had to be recovered because no profit was realised from the transfer of Siremar business to SNS. [paras 65-66]

However, the fact that there was no amount to recover did not mean that the exemption did not confer an advantage on Siremar. It was possible that the quantification of the amounts of aid to be repaid showed an amount equal to zero. But that did not call into question the validity of the Commission’s decision or the obligation of Siremar to repay aid declared unlawful and incompatible with the internal market. [paras 67-68]

Affectation of trade

Siremar argued that trade was not affected because it was no longer active on the market.

The General Court pointed out that the question whether a public measure constitutes State aid must be answered on the basis of objective factors which are examined on the date on which the Commission takes its decision. Furthermore, with respect to affectation of trade, it is not necessary to identify a real impact of the aid on trade between Member States and an actual distortion of competition, but only to examine whether the aid is liable to affect that trade and distort competition. Nor, is it necessary for the beneficiary undertakings themselves to participate in trade between Member States. Furthermore, the condition that the aid must be such as to affect trade between Member States 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 71-74]

Then the General Court held that the aid to Siremar was capable of affecting trade because the aid could deter undertakings established in other Member States from entering the Italian market. [para 75]

In addition, aid intended to relieve an undertaking of costs which it would normally have to bear in the course of its day-to-day normal activities distorts, in principle, the conditions of competition. Also, aid that strengthens the position of an undertaking in relation to other undertakings competing in intra-EU trade distorts competition. [paras 76-77]

Any exemption from the payment of certain taxes enabling an undertaking in serious financial difficulties to continue to be present on the market by participating in trade within the EU is necessarily liable to distort the conditions of competition on the market. [para 78]

In response to the argument that Siremar was not present on the market when the aid was granted to it, the General Court noted that, although Siremar was the subject of collective insolvency proceedings, which would probably lead to the cessation of its activities, those proceedings concerned undertakings which were subject to the rules on State aid. Moreover, if at the time of recovery of the aid, Siremar had ceased to exist as an undertaking, national authorities would have to register a claim against the undertaking so as to achieve the repayment of the incompatible aid. [para 80]

In the rest of the judgment, the General Court examined and rejected a plea put forth by Siremar that the long duration of the examination of the case by the Commission infringed the principles of legal certainty and legitimate expectations.

Since none of the pleas of Siremar was successful, the Court dismissed the appeal in its entirety.

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

https://curia.europa.eu/juris/fiche.jsf?id=T%3B668%3B21%3BRD%3B1%3BP%3B1%3BT2021%2F0668%2FJ&nat=or&mat=PEM%252CCONC.AIDE%252Cor&pcs=Oor&jur=C%2CT%2CF&for=&jge=&dates=%2524type%253Dpro%2524mode%253D8D%2524from%253D2022.10.23%2524to%253D2022.10.31&language=en&pro=&etat=clot&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&oqp=&td=%3BALL&avg=&lgrec=en&lg=&cid=1094060

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About

Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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