Opinion of the Advocate General — ECLI:EU:C:2008:262
Date: 2008-05-08
Language of the case: Spanish
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: State aids;Competition
Procedure: Reference for a preliminary ruling
Origin: Spain

summary, I consider that it is for the referring court to establish whether the Historical Territories have their own organisational discretion in adopting tax legislation in accordance with the provisions of the Constitution, the Statute of Autonomy and the Economic Agreement, which allows them to pursue their own finance policy aims. That would be the case if they could define relevant parameters such as the tax rate or the basis for assessment in marked derogation from the central tax legislation. 98. Certain parties argue that it is clear from the case-law of the Spanish higher courts that no such discretion exists. I am not able to give a definitive assessment of this, but would like briefly to examine the two judgments which are primarily cited in this connection. 99. In so far as reference is made in this connection to Judgment 96/2002 of the Tribunal Constitucional (Constitutional Court) of 25 April 2002, (41) it should be noted that that decision did not directly concern the legislative competences of the Historical Territories. Instead, it related to rules of the central State which introduced advantages similar to the provincial tax rules. Advantages were accorded to undertakings which, because of their domicile in another Member State, were subject to the fiscal sovereignty of the central State and could not therefore benefit from tax advantages under the Normas Forales for setting up a permanent establishment in the Historical Territories. Under the contested rules of the central State, they were reimbursed tax in so far as it exceeded the amount which would have been payable pursuant to provincial tax law. 100. The Constitutional Court held that this difference in treatment of two categories of undertaking – undertakings established in another Member State and undertakings established in Spain, but outside the Basque Country – which are in the same position as regards setting up a permanent establishment in the Basque Country, was incompatible with the Constitution. (42) However, this difference in treatment occurred within the same legal order. On the other hand, it clearly did not compare the situation of economic operators established in the Territories and subject to provincial tax law with the situation of undertakings established in the rest of the State, which are subject to general tax rules. 101. Nor does the judgment of the Tribunal Supremo of 9 December 2004 (43) give a final answer to the question whether the national provisions allow the Historical Territories sufficient substantive organisational autonomy. Apparently, the court considered the limit of their discretion to be where the provincial tax rules crossed the threshold into State aid. It was obviously unable to take into consideration the Court of Justice’s Azores judgment, which was delivered at a later date. 102. In the light of the principles developed in that judgment, there are two possible interpretations of the decision by the Tribunal Supremo. Either it assumed implicitly that in the absence of sufficient autonomy on the part of the Historical Territories the State tax system alone could be used as the reference framework for assessing the selectivity of the provincial tax rules or it wished to make the extent of the autonomy dependent on the Community law concept of aid. 103. Taking into account the Azores judgment, however, the latter approach would lead to a circular argument. The Court conversely links the existence of aid to the lack of autonomy on the part of the local tax legislator under national law. In order to avoid such a circular argument, ascertaining the powers of the local tax legislator is to be regarded as a precondition for the application of the concept of aid under Article 87(1) EC. The Court of Justice cannot take from the national courts the necessary task of interpreting national law. 104. Lastly, it is necessary to consider the argument that the Historical Territories lack sufficient autonomy because their rules are subject to judicial review, at last instance by a central State court. 105. If the national rules place limits on the discretion enjoyed by the local tax legislator, it is not unusual in a State based on the rule of law for the observance of those limits to be subject to judicial review. Provided the examination extends only to that and not to the expediency of the local tax laws, the judicial review does not constitute an additional restriction of the autonomy of the local or regional authority. This is not affected by the fact that at last instance a court at the level of the central State is competent. It is also irrelevant that legal recourse to ordinary courts is possible in order to challenge the local rules as secondary regulations, whilst regional and central laws can be challenged only before the Constitutional Court. e) Financial autonomy 106. A local authority possesses financial autonomy if it must itself bear the financial consequences of its tax rules and it does not receive any compensation from the central State for shortfalls in tax revenue stemming from derogations from the central rules by local rules. 107. The application of that criterion raises considerable practical difficulties if the reduction of the tax rate or the grant of other advantages does not – as in the case of the Azores – represent an element of a kind of indirect regional assistance by the central State. There is then no internal logic between the tax reduction and compensatory financial transfers between the central State and the local or regional authority. Rather, in cases like the main proceedings, there is a need for a comprehensive assessment of the financial relations between the central State and its subdivisions. 108. That examination is made even more difficult by the fact that in addition to the general budget of the State, the regions and other local or regional authorities overlapping special State funds exist, in particular social security schemes, where there may be further financial transfers between different geographical areas and State levels. 109. Financial autonomy on the part of the infra-State structure is not always to be rejected where following this general examination there is, on balance, a financial transfer from the central State to the local or regional authority. Such a financial transfer can take place for a variety of reasons which have no connection with the local or regional tax rules. 110. In order to establish a connection between such financial transfers and the local tax legislation, at least two requirements must therefore be satisfied. First of all, the level of the local tax revenue must be included as a parameter in determining any financial transfer. Secondly, a reduction in tax revenue must also lead to a corresponding compensatory adjustment in the transfer of funds between the State levels. 111. For the further examination, it must be assumed that the lower tax rate and the special deductions provided for by the provincial tax rules in derogation from the central State provisions result in shortfalls in tax revenue at least in a certain assessment period. The claim made by the Historical Territories that their tax policy actually increases tax revenue in the longer term because more undertakings become established there must be disregarded. If such a defence were accepted in examining aid, the prohibition on aid would be practically redundant. State aid is often granted with the aim of promoting positive economic development among the favoured undertakings, with the result that the ‘investment’ is ultimately profitable for the State by creating jobs, easing the burden on social security schemes and returning tax revenue. (44) 112. The main instrument in financial relations between the central State and the Autonomous Community of the Basque Country, and indirectly also the Historical Territories, to which the national court and the parties in the proceedings before the Court of Justice refer, is the quota (cupo). 113. The quota system has its basis in Article 42(2)(d) to (f) of the Statute of Autonomy, Article 48 et seq. of the Economic Agreement and the Law on the quota in the five-year period 2002 to 2006. Ultimately, the majority of the tax revenue is transferred by the Historical Territories to the Autonomous Community of the Basque Country and the central State. That transfer is necessary because a large part of the tax revenue goes to the Historical Territories, whilst the majority of the State contributions are made by the central State and the Autonomous Community. 114. In very simple terms, the level of the overall quota of the Basque Country, made up of the individual quotas of each of its Historical Territories and paid to the State budget, is determined in the following steps. The expenditure for the functions of the State which the regions do not themselves perform is calculated, it being assumed notionally that all Spanish regions perform functions to the same extent as the Basque Country. A coefficient is then applied, which is intended to correspond to the share of the revenue of the Historical Territories compared with the State as a whole. Since 1981 that coefficient has remained unchanged at 6.24%. Various adjustments and corrections not directly connected with the level of the tax revenue are then made. This produces a sum which the Basque Country must pay to the State. In the base year 2002, it amounted to around EUR 1 000 million and may be subject to further adjustments in subsequent years. 115. It is difficult to assess the extent to which the tax revenue of the Historical Territories and changes thereto on the basis of the contested rules influence the level of the financial transfer from them or from the Autonomous Community of the Basque Country to the State. On the whole, the explanations given by the parties in their written statements and in response to a question asked by the Court at the hearing give the impression that the definition of the quota represents something of a political compromise and is not a direct consequence of the change to certain economic parameters, including the level of the tax revenue. This is clearly shown by the fact that the attribution coefficient, which is actually intended to create a link to the proportionate amount of tax revenue of the Historical Territories, has not been changed for more than 25 years, even though tax revenue has certainly been subject to fluctuations. 116. In any case, the Spanish Government takes the view that changes to the tax revenue of the Historical Territories do not influence the amount of the quota. If the referring court were to come to the same conclusion and no other compensatory mechanisms were to intervene, there would be sufficient financial autonomy on the part of the Historical Territories. V – Conclusion 117. The question referred by the Tribunal Superior de Justicia del País Vasco must therefore be answered as follows: Article 87(1) EC must be construed as meaning that the tax rules adopted by a local authority in a Member State, which apply in the same way to all undertakings subject to its fiscal sovereignty and which are more favourable than the general tax rules of that Member State, do not constitute an advantage for certain undertakings and the production of certain goods where the local authority has sufficient autonomy in the exercise of its legislative powers in the field of tax law. Such autonomy requires that: – the local authority has institutional independence, – the central State cannot have decisive influence in the procedure leading to the adoption of the local tax rules (procedural organisational autonomy), – the local authority has sufficiently wide discretion in organising its tax rules, which allow it to pursue independent finance policy aims (substantive organisational autonomy) and – the local authority itself bears financial responsibility for shortfalls in tax revenue stemming from the rules which are more favourable than the general tax legislation (financial autonomy). 1 – Original language: German. 2 – Case C‑428/06 Unión General de Trabajadores de La Rioja (UGT-Rioja) v Juntas Generales del Territorio Histórico de Vizcaya. Case C–429/06 Comunidad Autónoma de La Rioja v Juntas Generales del Territorio Histórico de Vizcaya. Case C–430/06 Comunidad Autónoma de La Rioja v Diputación Foral de Álava. Case C–431/06 Comunidad Autónoma de Lla Rioja v Diputación Foral de Guipúzcoa. Case C–432/06 Comunidad Autónoma de Castilla y León v Juntas Generales de Guipúzcoa and Diputación Foral de Guipúzcoa. Case C–433/06 Comunidad Autónoma de Castilla y León v Juntas Generales del Territorio Histórico de Álava and Diputación Foral de Álava. Case C–434/06 Comunidad Autónoma de Castilla y León v Diputación Foral de Vizcaya and Juntas Generales del Territorio Histórico de Vizcaya. 3 – Case C‑88/03 [2006] ECR I-7115. 4 – At present Joined Cases T‑30/01 to T‑32/01 and T‑86/02 to T‑88/02 and Joined Cases T‑227/01 to T‑229/01, T‑265/01, T‑266/01 and T‑270/01 are still pending before the Court of First Instance. 5 – Joined Cases T‑127/99, T‑129/99 and T‑148/99 Diputación Foral de Álava and Others v Commission [2002] ECR II-1275, paragraph 146; Joined Cases T-92/00 and T-103/00 Diputación Foral de Álava and Others v Commission [2002] ECR II‑1385, paragraph 27; and Joined Cases T‑346/99 to T‑348/99 Diputación Foral de Álava and Others v Commission [2002] ECR II‑4259, paragraph 52. 6 – Adopted by Ley Orgánica de las Cortes Generales Españolas (Spanish Parliament) No 3/1979 of 18 December 1979. Available in an English translation at http://www.lehendakaritza.ejgv.euskadi.net/r48-2312/en/contenidos/informacion/estatuto_guernica/en_455/estatu_com_i.html. 7 – Adopted by Law No 12/2002 of 23 May 2002 (Ley por la que se aprueba el Concierto Económico con la Comunidad Autónoma del País Vasco, BOE No 124 of 24 May 2002). Available at www.ogasun.ejgv.euskadi.net/r51-341/es/contenidos/informacion/concierto_quinquenal/es_4177/adjuntos/CAST.pdf. 8 – Law No 13/2002 of 23 May 2002 (Ley por la que se aprueba la metodología de señalamiento del cupo del País Vasco para el quinquenio 2002-2006, BOE No 124 of 24 May 2002). Available at www.ogasun.ejgv.euskadi.net/r51-341/es/contenidos/informacion/concierto_quinquenal/es_4177/adjuntos/CAST.pdf. 9 – The applicants in the main proceedings in Cases C‑428/06 and C‑429/06 claimed that Article 2(4), (6) and (7) of the Norma Foral should be annulled, whilst only Article 2(4) and (6) is at issue in Case C‑434/06. 10 – See Article 28(1) of the Law on corporation tax revised by Real Decreto-Legislativo No 4/2004 of 5 March 2004. 11 – Annex 8 to the Commission’s written statement. 12 – Cited in footnote 3. 13 – Case C-415/93 Bosman [1995] ECR I-4921, paragraph 59; Case C-28/95 Leur‑Bloem [1997] ECR I-4161, paragraph 24; and Case C-275/06 Promusicae [2008] ECR I-0000, paragraph 36. 14 – Case C-275/06 Promusicae (cited in footnote 13), paragraph 37. 15 – See Joined Cases C-482/01 and C-493/01 Orfanopoulos and Oliveri [2004] ECR I‑5257, paragraph 42; Case C-28/04 Tod’s [2005] ECR I-5781, paragraph 14; and Case C-246/04 Turn- und Sportunion Waldburg [2006] ECR I-589, paragraph 21. 16 – Azores judgment (cited in footnote 3), paragraph 54, with reference to Case C‑143/99 Adria‑Wien Pipeline and Wietersdorfer & Peggauer Zementwerke [2001] ECR I-8365, paragraph 41; Case C-308/01 GIL Insurance and Others [2004] ECR I-4777, paragraph 68; and Case C-172/03 Heiser [2005] ECR I-1627, paragraph 40. 17 – Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961] ECR 1, 19; Case C-387/92 Banco Exterior de España [1994] ECR I-877, paragraph 13; and Case C-200/97 Ecotrade [1998] ECR I‑7907, paragraph 34. 18 – Azores judgment (cited in footnote 3), paragraph 56. 19 – Azores judgment (cited in footnote 3), paragraph 52, with reference to Case 173/73 Italy v Commission [1974] ECR 709, paragraph 33, and Case C-148/04 Unicredito Italiano [2005] ECR I-11137, paragraph 51. 20 – Azores judgment (cited in footnote 3), paragraph 58. 21 – Case 248/84 Germany v Commission [1987] ECR 4013, paragraph 17; see also the Opinion of Advocate General Saggio in Joined Cases C-400/97 to C‑402/97 Juntas Generales de Guipúzcoa and Others [2000] ECR I-1073, point 31. The Court of Justice also essentially adheres to this view in the Azores judgment (see paragraph 55 of that judgment, cited in footnote 3). 22 – See Commission Decision 2003/442/EC of 11 December 2002 on the part of the scheme adapting the national tax system to the specific characteristics of the Autonomous Region of the Azores which concerns reductions in the rates of income and corporation tax (OJ 2003 L 150, p. 52, paragraphs 26 to 32), which was contested in the Azores judgment, and Commission Decision 2005/261/EC of 30 March 2004 on the aid scheme which the United Kingdom is planning to implement as regards the Government of Gibraltar corporation tax reform (OJ 2005 L 85, p. 1, paragraphs 102 to 109), against which actions for annulment have been brought by Gibraltar and the United Kingdom before the Court of First Instance (Cases T-211/04 and T-215/04). 23 – Opinion in Case C-88/03 Portugal v Commission [2006] ECR I-7115, points 50 to 54. 24 – See the Opinion in the Azores case (cited in footnote 23), point 53. See also the notice of the Commission (1998 Commission notice on the application of the State aid rules to measures relating to direct business taxation (OJ 1998 C 384, p. 3), paragraph 16, and the report on the implementation of that notice of 9 February 2004, C[2004] 434, paragraph 33). In legal literature, the German system of trade tax, where the municipalities set the tax rate, is therefore regarded as selective (Stein, R.M., Bestimmtheit von Regionalbeihilfen, 2007, p. 167 et seq.). 25 – See, inter alia, Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 29; Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas [2006] ECR I‑7995, paragraph 40; and Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I‑11673, paragraph 36. 26 – The figures are taken from the Eurostat study, Taxation trends in the European Union, 2007, p. 32, Tables 1-6, available at www.ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/Structures2007.pdf. 27 – See the Opinion of Advocate General Saggio in Juntas Generales de Guipúzcoa and Others (cited in footnote 21), point 37. 28 – See the Opinion in the Azores case (cited in footnote 23), point 54. 29 – In addition to Biscay, Álava and Guipúzcoa, the Autonomous Community of Navarre also has similar fiscal sovereignty on the basis of historical special rights (fueros). 30 – The first sentence of Article 3a(2) EU (after renumbering Article 4 EU) as amended by the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon on 13 December 2007 (OJ 2007 C 306, p. 1), states: ‘The Union shall respect the equality of Member States before the Treaties as well as their national identities, inherent in their fundamental structures, political and constitutional, inclusive of regional and local self-government.’ 31 – See, in particular, Case C-212/06 Government of the French Community and Walloon Government [2008] ECR I-0000, paragraph 58, with further references. 32 – See also the case-law cited in footnote 13. 33 – The Commission also recognised this in principle and considered the tax reduction to be partially justified on the basis of Article 87(3)(a) EC. It merely objected that the reduced tax rate also applied to the financial sector, which is not affected by insularity in the same way (see the Azores judgment (cited in footnote 3), paragraph 27 et seq.). 34 – Azores judgment (cited in footnote 3), paragraph 71 et seq. 35 – Azores judgment (cited in footnote 3), paragraph 58. 36 – My emphasis. 37 – Azores judgment (cited in footnote 3), paragraph 58. 38 – My emphasis. 39 – Case C-387/01 Weigel [2004] ECR I-4981, paragraph 55. 40 – See point 45 above, situation 2. 41 – Annex 7 to the Commission’s written statement. 42 – Ultimately, it thus found discrimination against nationals to be unlawful. 43 – See point 25 above. 44 – In this connection, the Commission argues in particular that the relevant factor under the case-law is the effect of aid on an individual undertaking and not the aims pursued (see Case C-56/93 Belgium v Commission [1996] ECR I-723, paragraph 79; Case C-241/94 France v Commission [1996] ECR I-4551, paragraph 20; and Case C-75/97 Belgium v Commission [1999] ECR I‑3671, paragraph 25).