EN Official Journal of the European Union L 289/1

COMMISSION DECISION

of 25 January 2012

Measures C 36/07 (ex NN 25/07) implemented by Germany for Deutsche Post AG

(notified under document C(2012) 184)

(Only the German version is authentic)

(Text with EEA relevance)

(2012/636/EU)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) (1) thereof,

Having called on interested parties to submit their comments pursuant to the provision(s) cited above (2) and having regard to their comments,

Having regard to the Agreement on the European Economic Area and in particular Article 62(1)(a) thereof,

Whereas:

I. PROCEDURE

I.1. State aid Procedures

I.1.1. 1999 Opening Decision and 2002 Decision

(1) In 1994 United Parcel Service (hereafter UPS) filed a complaint concerning the granting of unlawful State aid to Deutsche Bundespost POSTDIENST (hereafter POSTDIENST).

(2) Following the opening of proceedings on 23 October 1999 (hereafter 1999 Opening Decision), Germany submitted comments on 16 September 1999. Following publication, the Commission received comments from 14 interested parties, which were duly transmitted to the German Government by letter dated 15 December 1999 providing it with an opportunity to make its own observations concerning these comments. The German authorities responded by letter dated 1 February 2000, which was registered as received on 2 February 2000.

(3) The Commission adopted a final negative decision on 19 June 2002 (3) (hereafter 2002 Decision) finding that POSTDIENST and its successor Deutsche Post AG (hereafter DPAG, while POSTDIENST and DPAG will be hereafter jointly referred to as Deutsche Post) priced door-to-door parcels below incremental costs and that its aggressive pricing policy did not to fall within Deutsche Post's universal service obligation. The resulting losses of EUR 572 million were ultimately financed, in contravention of Articles 106 and 107 TFEU, by the State resources which were granted to Deutsche Post in various forms (e.g. public transfers from sister company Deutsche Bundespost TELEKOM (hereafter TELEKOM), public guarantees for loans, and public subsidies to finance the civil servants' pensions).

(4) Following the Commission's order, Germany recovered the incompatible State aid of EUR 572 million from DPAG. Deutsche Post challenged the decision in the Union Courts.

(5) In its 2008 judgment (4), the General Court annulled the 2002 Commission Decision because the Commission failed to carry out a comprehensive analysis of all universal service revenues and costs to determine whether Deutsche Post had been under- or over-compensated.

(6) Germany subsequently paid back the recovered State aid of EUR 572 million plus accrued interest to Deutsche Post.

(7) On 2 September 2010, the Court of Justice dismissed the Commission's appeal against the General Court's judgment (5).

I.1.2. Further complaints after 2002 Decision

(8) On 13 May 2004, UPS lodged a further complaint concerning unlawful State aid granted to Deutsche Post following the 2002 Decision. UPS argued that the 2002 Decision failed to examine all measures listed in the original 1994 complaint, and that Deutsche Post enjoyed significantly higher financial benefits than the incompatible aid of EUR 572 million. In addition, UPS is of the opinion that Deutsche Post used State resources to expand its parcel operations (e.g. for the purchase of other companies) and to sell services at excessively low transfer prices to its subsidiaries Postbank AG and Deutsche Post euro Express GmbH & Co. OHG (hereafter DPEED), which have been active respectively in banking services and marketing of business parcels under the brand name DHL.

(9) The Commission services sent information requests to Germany on 9 November 2004 and 1 April 2005. Germany submitted its answers on 2 December 2004 and 3 June 2005 respectively.

(10) On 16 July 2004, TNT Post AG & Co KG (hereafter TNT) filed a complaint also alleging that Deutsche Post sold services at excessively low transfer prices to Postbank AG. It claimed that, whereas Postbank AG only paid variable costs for the provided services, Deutsche Post financed the common fixed costs of the distribution network entirely out of the revenues of its letter monopoly.

(11) The Commission services sent information requests to Germany on 11 November 2004 and 25 April 2005. Germany submitted its answers on 17 December 2004 and 23 June 2005 respectively.

I.1.3. 2007 Extension decision

(12) Following the further complaints, the Commission informed Germany by letter of 12 September 2007 (6) (hereafter 2007 Extension decision) of its decision to extend the proceedings that had originally been initiated in 1999. The objective of the 2007 Extension decision was to include the newly submitted information and to comprehensively address all potential distortions of competition which resulted from the public measures that were granted to Deutsche Post (see Section I.1.14 for more details on the public transfers, the public guarantees, the pension subsidies, and the exclusive right for the provision of letter services).

(13) The Commission considered it necessary to reconstruct in detail Deutsche Post's accounts for the period from 1990 to 2007 to gain clarity on the impact of the public measures on the revenues and costs of the different services provided by Deutsche Post.

I.1.4. Comments by Germany on 2007 Extension decision

(14) Germany submitted its comments on 14 December 2007 and Deutsche Post challenged the validity of the 2007 Extension decision (see also Section I.3.1).

I.1.5. Comments by third parties to the 2007 Extension decision and comments by Germany on third party comments

(15) On 16 November 2007 UPS and TNT submitted their comments.

(16) After an initial request for a delay extension on 20 December 2007, Germany eventually submitted on 12 March 2008 its comments on TNT's and UPS' observations.

I.1.6. Procurement of external expert

(17) On 23 January 2008, the Commission published an invitation to tender for an expert study to assist the Commission in determining whether Deutsche Post was overcompensated for its universal service obligations for the period 1990-2007 (7).

(18) On 18 June 2008, the Commission concluded a contract with WIK Consult GmbH, an accounting expert for the postal sector.

I.1.7. Comments by Germany on appropriate length of investigation period

(19) By letters of 10 June 2008 and 18 June 2008, Germany signalled its disagreement with the envisaged length of the investigation period (1990-2007) and maintained that it would be sufficient to limit the investigation to the period of 1990 until 1994 when the public transfers were granted because the losses in that period were higher than the public transfers so that Deutsche Post did not benefit from any overcompensation. Furthermore, the provision of accounting information for the period after 1994 would be disproportionate as the Community framework for State aid in the form of public service compensation (hereafter 2005 Framework) (8) would limit the period for the calculation of overcompensation to a maximum of four years.

(20) On 27 June 2008, Germany submitted an expert opinion on the obligation of the Commission to investigate separately the public transfers, the public guarantees, and the pension subsidy (9). Furthermore, it claimed that an investigation of accounting data would be unnecessary for the assessment of the public guarantee and of the pension subsidy.

(21) The German authorities affirmed the same position in the meeting with the Commission services on 29 May 2008 and 15 July 2008.

I.1.8. Information request of 17 July 2008

(22) The Commission sent an information request to Germany on 17 July 2008 on all public measures under investigation including a questionnaire on revenues and costs of Deutsche Post for the period 1990-2007. The information request was prepared in cooperation with WIK Consult. On 5 August 2008, Germany asked for an undefined deadline extension because the availability of certain data would have to be checked in advance.

I.1.9. Reminder for information of 12 August 2008 and 22 August 2008

(23) On 12 August 2008, the Commission explained why the investigation on the costs and revenues of Deutsche Post should be effected within the period 1990-2007 and insisted on the submission of the requested information.

(24) In its submission of 14 August 2008, Germany maintained that there was no reason for examining the revenues and losses of Deutsche Post for the period after 1994. On 22 August 2008, the Commission reserved the right to adopt an information injunction pursuant to Article 10(3) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (10) if Germany did not provide the requested information.

(25) With the submission of 29 September 2008, Germany presented the results of a further expert opinion — which was eventually submitted on 2 October 2008 — to support the position that an accounting analysis after 1994 was not necessary and therefore the appropriate investigation period should be 1990-1994 (11).

(26) On 28 October 2008, Germany submitted information on the public guarantee and the pension subsidy.

I.1.10. Information injunction of 30 October 2008

(27) The Commission did not accept Germany's arguments and insisted that an analysis until 2007 was necessary to fully appreciate the competitive effects of the granted public measures. Following the two reminders for information of 12 August 2008 and 22 August 2008, the Commission issued an information injunction on 30 October 2008 to enjoin Germany to deliver all necessary accounting information for the whole period 1990-2007.

(28) Germany and Deutsche Post challenged the validity of the information injunction (see Section I.3.2).

(29) On 27 November 2008, Germany submitted the requested accounting information for the period 1990-1994. On 5 and 16 December 2008, Germany updated the accounting information which had been submitted on 27 November 2008.

I.1.11. Submission of accounting information for the period 1990-2007

(30) After a meeting between Mr Pfaffenbach, German Secretary of State, Mr Appel, CEO of DPAG, and the Commissioner with responsibility for Competition Policy on 6 February 2009, Germany and Deutsche Post agreed to provide accounting information for the period after 1994.

(31) On 3 March 2009, Germany submitted a first set of accounting information for the whole investigation period 1990-2007.

(32) Meetings between Deutsche Post and the Commission services took place on 3 March 2009 in Brussels as well as on 12 March 2009, 2 April 2009, 28 May 2009, 23 June 2009, and 18 September 2009 in Bonn. Germany submitted the respective presentations by Deutsche Post on 26 March 2009, 7 May 2009, and 22 June 2009.

(33) Following those meetings and two lists of questions which the Commission services submitted to Deutsche Post on 4 June 2009 and 30 July 2009, Germany provided updated accounting information and further clarifications on 9 July 2009, 31 July 2009, 17 August 2009, 8 September 2009, 10 September 2009 and 15 October 2009.

(34) On 16 and 24 September 2009, the Commission services submitted further questions to which Germany provided the answers by 14 October 2009.

I.1.12. Submission of WIK Study

(35) Due to the delay in the provision of the accounting data, the contract with WIK Consult had to be prolonged several times. WIK Consult finally submitted the expert study (hereafter WIK study) on 9 November 2009.

(36) On 14 and 21 January 2010, Germany submitted comments on the WIK study. On 11 February 2010, Germany submitted an expert study by KPMG (hereafter KPMG study) on the legal nature of the Ablieferungen (hand-over payments) (12) that Deutsche Post had to pay to the public budget until 1995 and an expert study by Deloitte (13) (hereafter Deloitte-I study) on the profit benchmark used in the WIK study.

(37) On 23 April 2010, Germany submitted a further study by Deloitte (hereafter Deloitte-II study) that provided its views on the level of reasonable profit to be used for Deutsche Post's universal services.

(38) On 9 August 2010, Germany submitted further comments on the calculation of overcompensation and the application of the market investor principle to the assessment of the public transfers.

I.1.13. Comments following annulment of 2002 Decision

(39) On 5 November 2010, Germany submitted a further expert opinion that analysed the significance of the judgment in Case C-399/08 Commission v Deutsche Post (see Section I.3.5) for the current investigation (14).

I.1.14. 2011 Extension decision

(40) By letter dated 10 May 2011, the Commission notified Germany of its decision to extend the procedure laid down in Article 108(2) TFEU that had originally been initiated in 1999 and extended in 2007, in order to conduct an in-depth investigation with regard to the pension subsidies that Deutsche Post has received since 1995 (hereafter 2011 Extension decision).

(41) After an initial request for a deadline extension on 23 May 2011, Germany submitted its comments on 29 July 2011, together with further expert studies on the necessity of a calculation of overcompensation to prove the alleged cross-subsidisation (15), on the comparison between social costs paid by Deutsche Post and market-average social costs (16), as well as on the amount of excess social costs borne by Deutsche Post (17).

(42) On 4 October 2011, UPS submitted its comments. They were followed by comments submitted by Free and Fair Postal Postal Initiative (hereafter referred to as FFIP) on 5 October 2011 and comments submitted by Bundesverband Internationaler Express und Kurierdienste (hereafter referred to as BIEK) on 7 October 2011. On 13 October 2011, the Commission communicated the comments by interested parties to Germany.

(43) On 14 November 2011, Germany submitted its comments on the third parties' observations.

(44) On 18 November 2011, the Commission sent a further information request concerning details of the pension financing for the period after 2007. On 2 January 2012 and 19 January 2012, Germany submitted replies. On 16 December 2011, the Commission submitted to Germany an expert study by Charles River Associates concerning profit benchmarking (18) (hereinafter CRA study) for comments to which Germany replied on 16 January 2012.

I.2. Antitrust Procedures

(45) Based on UPS' 1994 complaint, the Commission found that Deutsche Post infringed Article 102 TFEU by predatory pricing for Business-to-Consumer parcels in the period 1990-1995. A fine of EUR 24 million was imposed on Deutsche Post (19).

(46) On 22 April 2004, UPS lodged a further complaint regarding Deutsche Post's abuse of dominant position under Article 102 TFEU. UPS claimed that Deutsche Post had charged excessive stamp prices for its regulated letter services.

(47) During its investigations, the Commission received on 5 November 2004 documents relating to the decision by the German postal regulatory agency (hereafter Postal regulator) on the price cap for Deutsche Post's regulated letter services for the period starting 1 January 2003 (hereafter 2002 Price cap decision). By letter of 13 June 2007, Germany agreed that those documents could also be used in the State aid procedure.

(48) On 25 March 2008, the Commission decided to close the antitrust investigation because of the limited likelihood of establishing such an infringement under Article 102 TFEU (20).

I.3. Court Procedures

I.3.1. Case T-421/07 Deutsche Post AG v Commission

(49) Deutsche Post challenged the validity of the 2007 Extension decision, claiming that the 2002 Decision created legitimate expectations that the Commission would not resume its investigations.

(50) On 8 December 2011, the General Court rejected that challenge as inadmissible (21).

I.3.2. Case T-570/08 Deutsche Post AG v Commission and Case T-571/08 Germany v Commission

(51) Germany as well as Deutsche Post challenged the validity of the Commission's information injunction of 30 October 2008 because they considered that the information injunction requested irrelevant information and put a disproportionate burden on Deutsche Post.

(52) On 16 July 2010, the General Court declared both actions as inadmissible because neither Deutsche Post's nor Germany's procedural rights could have been infringed by the issuance of the information injunction.

I.3.3. Case C-463/10 P Deutsche Post AG v Commission and Case C-475/10 P Germany v Commission

(53) On 27 September 2010, Deutsche Post and Germany appealed the GC's judgment and maintained that the information injunction infringed their rights. On 13 October 2011, the Court of Justice overruled the General Court's judgment of 16 July 2010 (22). Consequently, the case was sent back to the GC and is currently pending.

I.3.4. Case T-344/10 UPS v Commission

(54) On 20 August 2010, UPS lodged an application with the General Court claiming an unlawful failure to act by the Commission in respect of the 2007 State aid investigation. Given that a period of almost three years had lapsed since the 2007 Extension decision, UPS believed that the Commission had had ample opportunity to investigate the abovementioned measures and to assess the circumstances of facts and law in order to adopt a final decision and close the investigation procedure. That case is still pending.

I.3.5. Case T-388/11 Deutsche Post AG v Commission

(55) On 22 July 2011, Deutsche Post challenged the validity of the 2011 Extension decision because it considers that the Commission has manifestly erred in its preliminary assessment of the pension subsidy as aid within the meaning of Article 107(1) TFEU and as a new aid measure in the meaning of Article 108(1) TFEU. That case is still pending.

II. DETAILED DESCRIPTION OF PUBLIC MEASURES

(56) Deutsche Post has been granted public support in form of several different measures since 1989: — Pension subsidy based on: — Postpersonalrechtsgesetz 1994 (23) (hereafter PostPersRG 1994) — Public transfers and guarantees based on: — Postverfassungsgesetz 1989 (24) (hereafter PostVerfG 1989) — Postumwandlungsgesetz 1994 (25) (hereafter PostUmwG 1994) — Exclusive right and price regulation based on: — Gesetz über das Postwesen 1989 (26) (hereafter PostG 1989) — Postgesetz 1997 (hereafter PostG 1997)

II.1. Pension subsidy in the context of social benefits and contribution schemes for civil servants and private employees

(57) The pension subsidy has financed since 1995 a major share of the pensions for Deutsche Post's retired civil servants. To fully apprehend the effects of the pension subsidy in the later assessment, the following sections will describe in more detail the civil servants' social benefits and contributions in comparison to the compulsory social insurances for employees under private law contracts (hereafter: private employees).

II.1.1. Social benefits for civil servants

(58) Civil servants are entitled to old age pensions, health care and nursing care. The benefits for Deutsche Post's civil servants are equal to the benefits which are granted to all other civil servants: — The level of the pension is pre-defined, pursuant to Article 14 BeamtVG (27), at a certain percentage of the last salary that the civil servant earns. Thus, for example, a civil servant who retired in 2010 and had worked the required number of years will receive a pension that is equal to 71,75 % of his last salary. — Civil servants are entitled to reimbursement of 50 % to 70 % of health and nursing care expenses, while they have to assume the remaining expenses themselves. The exact breakdown of health care costs depends on several criteria such as the number of children. The civil servant can choose either to insure himself with a voluntary complementary insurance or to pay his share of the health care expenses out of his own pocket.

II.1.2. Financing of civil servants' social benefits in the period 1989-1994 at POSTDIENST

(59) After the first postal reform of 1989, pursuant to Article 54(2) PostVerfG 1989, POSTDIENST, TELEKOM and POSTBANK had to fully finance the pension payments and health expenses of the retired civil servants who were allocated to the respective sections on basis of their former activities. That provision lays down that whereas the claim of the civil servant continues to be directed against the State, the State has the right to claim the entire amount from POSTDIENST, TELEKOM and POSTBANK respectively.

II.1.3. Financing of social benefits for DPAG's civil servants since 1995

(60) With the second postal reform of 1994, civil servants who had worked for POSTDIENST were, pursuant to Article 2(1) PostPersRG 1994, transferred to DPAG. Thereby, the civil servants kept, pursuant to Article 2(3) PostPersRG 1994, their existing legal status. DPAG took over, pursuant to Article 1(1) PostPersRG 1994, all employer's rights and obligations from the federal State and assumed, pursuant to Article 2(3) PostPersRG 1994, all the civil servants' proprietary claims.

(61) Pursuant to Article 15 PostPersRG 1994, the payment of pension and health expenses to retired civil servants was taken over by a newly created pension fund for Deutsche Post's civil servants. On 1 July 2001, the pension funds for Deutsche Post, Deutsche Telekom AG, and Postbank AG were merged into the ‘Postbeamtenversorgungskasse’ (hereafter jointly referred to as Pension fund for the whole period since 1 January 1995).

(62) Pursuant to Article 16(1) PostPersRG 1994, Deutsche Post had to pay a yearly contribution of EUR 2 045 million to the Pension fund for the period 1995-1999 which totals EUR 10 225 million. From 2000 onwards and based on Article 16(2) PostPersRG 1994, Deutsche Post has had to pay a yearly contribution of 33 % of the sum of the incurred civil servant wages to the Pension fund (e.g. from EUR 735 million in 2000 to EUR 540 million in 2010).

(63) The pension subsidy has covered, pursuant to Article 16(2) PostPersRG 1994, the remaining deficit (e.g. the difference between the pensions for the retired civil servants' pensions and the contribution by Deutsche Post to the Pension fund). The pension subsidy increased from EUR 151 million in 1995 to EUR 3 203 million in 2010 and totalled EUR 37 121 million for the period 1995-2010. Figure 1 Financing of Pension fund (million EUR)

II.1.4. Statutory social insurances for private employees and supplementary pension insurance for Deutsche Post's private employees

(64) Private employees are compulsory members of four social insurances: pension, unemployment, health and nursing care insurance (28). Compared to the civil servant's regime, the statutory social insurance schemes offer a different coverage for the pension and health insurances: — The level of the pension is not defined in percentage of the last monthly salary but of an average life-time salary. — The expenses for health and nursing care are fully covered.

(65) There also exist important differences in the financing of the social benefits compared to those of civil servants: The statutory social insurances are financed by joint contributions from the employee and the employer during the employee's working life (hereafter referred to as compulsory social contributions). The total social contribution rate is formally divided into an employee's and employer's share which both covers about half of the total contribution rate. However, the employer has the formal obligation to pay the total contribution rate to the social insurances. Figure 2 Compulsory social contribution rates in percentage of private employee's gross wage (see also the Annex)

(66) Figure 2 shows that the compulsory social contribution rates have since 1995 ranged from 38 % to 42 % of the gross wage (= net wage + employee's share). The employer's and employee's shares of the social contribution rate have been in the range of 19 % to 21 % of the gross wage (see the Annex for a more detailed time series).

(67) Deutsche Post's private employees have not only benefited from the statutory social insurances but also from supplementary pension insurance. Private employees who started before 1997 were offered a supplementary pension insurance cover that would allow them to receive a similar level of pension as civil servants. Thus the supplementary pension insurance covered the difference between the private employees' statutory social insurance pension — which is equal to a certain percentage of the average life-time salary — and the civil servant's pension that equals to a certain percentage of the last salary. The detailed rules are laid down in the Charter of the Versorgungsanstalt der Deutschen Bundespost (hereinafter VAP) (29).

(68) Deutsche Post financed the supplementary pension benefits for the retired private employees up to 1997 by a contribution that amounted to approximately [5 to 10 %] (30) of the active private employees' gross wage. Since 1997, Deutsche Post has built up a provision for the outstanding obligations to the VAP (see also description of burden #4 in Section II.3.1.3).

(69) Since 1997, newly hired private employees were offered a significantly reduced supplementary pension insurance for which Deutsche Post, in the period 1997-2007, paid a contribution between [0 and 5 %] of the gross wage.

II.2. Public transfers and guarantee in the context of Deutsche Post's exclusive right and universal postal service obligations

II.2.1. Exclusive right until 2007

(70) Before 1998, Article 2 PostG 1989 granted Deutsche Post the exclusive right to establish and maintain facilities for the carriage of letter items. Other postal services — like parcels, newspapers or periodicals — were not reserved to Deutsche Post but open to competition. Pursuant to Article 37 PostVerfG 1989, the profits accruing from those reserved letter services were to be used to finance the losses of those universal services that were offered in markets open to competition. Pursuant to Article 4 PTRegG 1994 (31), the Minister for Post and Telecommunication was the competent authority to approve the prices for the reserved letter services.

(71) Beginning with the entry into force of the PostG 1997 in 1998, the scope of the reserved services started to be progressively reduced for Deutsche Post. Pursuant to Article 51 PostG 1997, the exclusive right extended to the transport of letters and addressed catalogues below 200 grams in 1997 but afterwards the limit was successively reduced, reaching 50 grams in 2006. The exclusive right finally expired on 31 December 2007.

II.2.2. Universal postal service obligation until 2007

(72) The universal service obligations for Deutsche Post were set out in two formal entrustment acts: — The 1994 Postdienst Mandatory Service Regulation (32) (hereafter 1994 Mandatory service regulation) appointed Deutsche Post as the universal postal service provider for letters and parcels not exceeding 20 kg, charging it with the provision of those services throughout Germany at uniform tariffs. — The 1997 PostG and the accompanying 1999 Implementing Regulation (33) (hereafter 1999 Universal service regulation) continued the entrustment for DPAG.

(73) Article 11 PostG 1997 defined the universal service as a basic set of postal services that are rendered nationwide at affordable tariffs. Those services include the transport of letters, addressed parcels weighing no more than 20 kg, or books, catalogues, newspapers and magazines (hereafter universal services).

(74) The 1999 Universal service regulation set out the minimum quality requirements of the universal service: — There must be at least 12 000 post offices located throughout Germany. — An annual average of 80 percent of letters and parcel must be delivered within certain time targets (one working day for letters and two working days for parcels) and deliveries must be made at least once daily on weekdays. — While the general requirement for prices of universal services is affordability, DPAG had to charge uniform prices in respect of letter services performed under the exclusive license that eventually expired in 2007. However, DPAG has some degree of pricing flexibility for the reserved services because it could conclude individual price agreements with customers mailing at least 50 items per transaction.

(75) Article 52 PostG 1997 maintained the entrustment of DPAG with the provision of universal services until 31 December 2007, which is the date of the abolishment of DPAG's exclusive right for the provision of letter services. Since the expiry of the exclusive right, no postal operator in Germany has been legally entrusted with the universal service obligation, which means that all postal service providers are assumed to ensure the provision of universal postal services (‘market forces’). Where a universal service is not being appropriately or adequately provided or where there is reason to believe that such will be the case, PostG 1997 provides for legislative instruments to safeguard the provision of those services.

(76) As shown by the WIK study (see Figure 3), the universal services accounted for about 88 % of total revenue over the period from 1990 to 2007: The majority of the universal letter services were subject to price regulation because of Deutsche Post's dominant position on those markets (see Section II.2.1). Apart from those price-regulated services that made up about 62 % of total revenue, Deutsche Post has provided in competition with other operators the universal parcel services (about 15 % of total revenue) and further non-price regulated universal letter services (about 11 % of total revenue).

(77) Moreover, Deutsche Post has also offered commercial services (e.g. retail banking services for Postbank, sales services for Telekom, delivery of unaddressed mail items, etc.). In total, the commercial services amounted to 12 % of Deutsche Post's revenue for the period 1990-2007.

II.2.3. Public transfers

(78) Since its creation in 1950, Deutsche Bundespost had been a Sondervermögen of the Federal Government. Under German administrative law, a Sondervermögen does not have a legal personality that is independent from the State, but does have its own budget and is not liable for the general debts of the State.

(79) The first postal reform in 1989 foresaw that the Sondervermögen would have three different sub-sections, — POSTDIENST, POSTBANK, and TELEKOM — which were qualified as ‘public undertakings’ but still did not enjoy independent legal personality from the State.

(80) Pursuant to Article 37(2)(3) PostVerfG 1989, although each service of the three entities should be able to finance its costs out of its own revenues, a cross-financing between the three entities was permissible to the extent that losses resulted from universal service obligations. On that basis, in the period 1990-1993 POSTDIENST received transfers of EUR 2 844 million from TELEKOM to cover its losses.

(81) In the course of the second postal reform, the three sub-sections of the Sondervermögen were transformed as of 1 January 1995 into public limited companies: POSTDIENST became DPAG, POSTBANK became Postbank AG, and TELEKOM became Telekom AG. Pursuant to Article 2(2) PostUmwG 1994, Telekom AG assumed all liabilities arising from loans which were attributable to the Sondervermögen as a whole but retained the right to reclaim funds from DPAG and Postbank AG to the extent that those loan commitments could be attributed to their legal predecessors.

(82) However, Article 7 PostUmwG 1994 waived the right of Telekom AG (arising from Paragraph 2(2) PostUmwG 1994) to bring claims against DPAG up to the amount of losses accrued by POSTDIENST until 31 December 1994. It resulted in a transfer of assets in the value of EUR 2 822 million from Telekom AG to DPAG. According to Germany, that transfer from Telekom AG was — as with the previous transfers based on Article 37(3) PostVerfG 1989 — indispensable for DPAG to discharge its universal service obligations.

(83) In total, POSTDIENST received EUR 5 666 million in the period 1990-1995 as compensation for its universal service obligation.

II.2.4. Public guarantee for debt obligations issued before 1995

(84) Since 1953, § 22 (4) PostVwG 1953 (34) provided that debt obligations issued by Deutsche Bundespost had the same legal value as debt obligations issued by the Federal Republic of Germany. When the PostVwG 1953 was repealed by the PostVerfG 1989, the same provision was taken over in § 40 PostVerfG 1989.

(85) After the creation of the three sub-sections in 1989, POSTDIENST itself did not issue the debt obligations autonomously but POSTBANK administered those transactions for all entities of Deutsche Bundespost. The debt obligations were then allocated to POSTDIENST, TELEKOM and POSTBANK according to their financial requirements.

(86) After 1995, pursuant to Article 2(4) PostUmwG 1994, Germany remained liable for all debt obligations entered into prior to 1995 by Deutsche Bundespost and subsequently allocated to POSTDIENST, TELEKOM and POSTBANK. However, Germany did not bear any liability for debt obligations issued by DPAG thereafter.

II.3. Revenues from regulated prices as additional compensation for pension costs and universal services' net costs

(87) The PostG 1997 also established the Bundesnetzagentur (hereafter referred to as Postal regulator) for the supervision of the reserved and liberalised letter markets. Pursuant to Article 19 PostG 1997, the Postal regulator is competent to regulate Deutsche Post's pricing in the letter markets in which Deutsche Post enjoys a dominant position. Deutsche Post has had a dominant position not only with the reserved services — pursuant to Article 51 PostG 1997 — but also with almost all other letter services which have had been opened up to competition. Price regulation can take the form either of an ex ante price cap or of an ex post price control.

(88) According to the market studies by the Postal regulator, Deutsche Post has held average market share of 90 % to 97 % on the price-regulated letter markets. In his latest report, the Postal regulator deplores that the gradual market opening since 1997 has not achieved a functioning competition on the German letter market (35).

(89) The price-regulated letter services account for the majority of Deutsche Post's total revenues (e.g. about 62 % of Deutsche Post's total revenue for the period 1990-2007 (see Figure 3); in the period 2008-2010, the price-regulated services accounted for about 56 % of Deutsche Post's total revenue).

(90) All other universal and commercial services, which do not fall under price regulation pursuant to Articles 19 to 27 PostG 1997 (36) will be hereafter termed as non-price regulated services.

(91) For the price regulated letter services, Article 20(1) and (2) PostG 1997 provide that the prices shall reflect the costs of the efficient service provision. However, if factually justified, the Postal regulator should, inter alia, appropriately account for: — Costs arising from the universal provision of postal services, and — Costs arising from the financing of pension and health care benefits for employees who were taken over from POSTDIENST.

(92) Article 57 PostG 1997 and a ministerial decree of 27 March 2000 maintained the regulated prices at the level of 1997 until 31 December 2002.

II.3.1. 2002 Price cap decision

(93) It was only in 2002 that the Postal regulator took its first decision concerning the price cap for the period starting on 1 January 2003 until 31 December 2007 (hereafter 2002 price cap decision). Price cap regulation means a system of regulating the prices of a bundle of services under which the individual price for each service is not controlled but there is a ceiling on the weighted average of all the prices in the bundle. Pursuant to Article 19 PostG 1997 ex ante price cap regulation covered all postal services for which Deutsche Post held a dominant position.

(94) For the 2002 price cap decision, Deutsche Post submitted accounts to the Postal regulator (hereafter 2002 regulatory accounts) for the first time that covered the period 1998-2006. The regulatory accounts were based on realised results up to 2001 and on projections for the later years.

(95) Deutsche Post claimed in 2002 so-called ‘burdens’ for the provision of universal service as well as for the employment of civil servants and private employees who had been taken over from POSTDIENST. Those burdens show the alleged costs that Deutsche Post would not have assumed without the universal service obligation and without the take-over of the POSTDIENST personnel and infrastructure (see Table 1 for a detailed list). Table 1 Burdens as approved by 2002 Price cap decision (million EUR, nominal values) # Burdens from 2002 Price cap decision Average burden (1998-2006) million EUR % 1 Excess wage costs […] […] 2 Excess social costs […] […] 3 Infrastructural burden post shops […] […] 4 Supplementary pension insurance for employees (VAP) […] […] 5 Infrastructural burden freight […] […] 6 Social and health cost (BAnstPT) […] […] 7 Personnel restructuring […] […] 8 Deficit coverage for civil servants' health insurance […] […] Total average burden […] 100 %

(96) The Postal regulator eventually accepted Deutsche Post's reasoning that it would not have incurred those burdens, had it not been subject to the universal service obligation (for burdens #3 and 5 on universal service costs) respectively to the obligation to take over the civil servants and private employees from POSTDIENST (burdens #1, 2, 4, 6, 7, and 8). The Postal regulator approved increased regulated letter prices to finance the claimed average annual burdens of EUR […] million for the period 2002-2006 out of the revenues of the regulated letter services. Under the 2002 price cap decision, 100 % of the burdens are imputed to the prices which are subject to the ex ante price cap.

II.3.1.1. Excess wages (burden #1)

(97) Burden #1 shows the claimed excess of the wage costs for postal workers over the industry average. Deutsche Post used as a ‘competitive’ wage benchmark the wages that had been stipulated in a collective labour agreement (‘Entgelttarifvertrag’) with the trade unions for newly hired personnel after 2002 (hereafter ETV wages). For the calculation of burden #1, that benchmark is, however, applied for all personnel. It is also retroactively applied in the submitted accounts back to 1998.

II.3.1.2. Excess social contributions (burden #2)

(98) The Postal regulator also approved Deutsche Post's claim that it had to bear higher social contributions for its private employees and civil servants than private competitors would normally have to assume for their private employees.

(99) Deutsche Post starts its calculations from a social contribution rate that it deems as ‘competitive’ (hereafter ‘regulatory contribution rate’) for both civil servants and private employees. That regulatory rate is defined as the sum of — Employer’s share of social contributions for a private employee (about 19 % to 21 % which equals roughly half of the total social contribution rate as shown in Figure 2), — Contribution to the accident insurance (in the range of [0 to 5 %]; Deutsche Post has added that contribution to the regulatory contribution rate since 2001), — Contribution to supplementary pension (in the range of [0 to 5 %]; Deutsche Post has added that contribution to the regulatory contribution rate since 1997 because a contribution to the supplementary pension insurance of that magnitude is considered as ‘competitive’. The rate is based on the supplementary pension insurance that Deutsche Post has offered since 1997 to newly hired private employees).

(100) The regulated revenues finance all social contributions that are in excess of the regulatory contribution rate (hereafter ‘excess social contributions’). Taking e.g. the calculations of the excess social contributions in 2001 for civil servants, Table 2 shows that the incurred social contributions for civil servants are almost double those of the allegedly ‘competitive’ social contributions based on the regulatory contribution rate. Table 2 Calculation of excess social costs for civil servants in 2001 according to 2002 regulatory accounts (million EUR) % of incurred wages (1) Contribution rate for pension fund 33 % (2) Civil servants' wage sum […] (3) =(1)*(2) Contribution to pension fund […] (4) Health care expenses […] (5) =(3)+(4) Incurred social contributions […] [40 to 45 %] (6) Employer's share of social contributions 20,43 % (7) Accident insurance […] (8) Supplementary pension insurance […] (9) =(6)+(7)+(8) Regulatory contribution rate […] (10) =(2)*(9) Regulatory benchmark social cost […] [20 to 25 %] (11) =(5)–(10) Excess social contributions […] [15 to 20 %]

(101) The incurred social contributions include Deutsche Post's payment of 33 % of the incurred civil servant wages to the pension fund (respectively an annual lump-sum payment of EUR 2 045 million in the period 1995-1999) as well as the contributions to the civil servants' health care expenses. In total, the incurred social contributions amount to [40 to 45 %] of the incurred civil servants' wages in 2001.

(102) Although the social contribution rate is defined in percentage of the private employee's gross wage (net wage + employee's share of social contribution), Deutsche Post multiplies the regulatory contribution rate of [20 to 25 %] by the incurred civil servant wage to calculate the regulatory benchmark.

II.3.1.3. Supplementary pension insurance for private employees (burden #4)

(103) Burden #4 is to compensate for the build-up of the provision for the pre-1997 liabilities from the supplementary pension insurance scheme VAP for Deutsche Post's private employee.

(104) As explained in Section II.1.4, Deutsche Post's private employees — who had been hired before 1997 — were offered supplementary pension insurance to guarantee them a pension similar to civil servants. However, POSTDIENST did not build up a corresponding provision for the future pension payments. It was only after the incorporation of DPAG that provisions of EUR 8 153 million were made in the balance sheet.

II.3.1.4. Miscellaneous excess social costs (burdens #6, 7, 8)

(105) Burden #6 contains the contribution of Deutsche Post to the Bundesanstalt für Post und Telekommunikation (BAnstPT) that provides certain social benefits (e.g. social housing) to civil servants and private employees who were taken over from POSTDIENST. Burden #7 includes the contributions by Deutsche Post to the deficit of the civil servant's health insurance. Burden #8 on personnel restructuring concerns both civil servants and private employees.

II.3.1.5. Universal service burdens (#3 and 5)

(106) Those burdens shall show the cost savings that Deutsche Post could have achieved if it had been able to design its shop and parcel network only based on commercial considerations. The cost savings are calculated based on e.g. the counterfactual number of post shops that Deutsche Post would run without the universal service obligation.

II.3.2. 2007 and 2011 Price cap decisions

(107) On 7 November 2007, the Postal regulator approved the price cap for the period from 1 January 2008 until 31 December 2011 (hereinafter referred to as 2007 Price cap decision). On 14 November 2011, the Postal regulator approved the price cap for the period from 1 January 2012 until 31 December 2013 (hereinafter referred to as 2011 Price cap decision).

(108) Since the 2007 Price cap decision, the prices for the posting of more than 50 letters are no longer controlled ex ante but are subject to an ex post price control pursuant to Article 25 PostG 1997 (37). The prices for all other postal services for which Deutsche Post holds a dominant position continue to be approved ex ante in line with Article 19 PostG 1997.

(109) The Commission will refer throughout this Decision to ‘price-regulated services’ when dealing with those services for which Deutsche Post holds a dominant position and which are subject to either ex-ante price control pursuant to Article 19 PostG 1997 or ex-post price control pursuant to Article 25 PostG 1997. All other services for which Deutsche Post does not hold a dominant position and which are not subject to price control will be referred to as ‘non-price regulated services’.

(110) Deutsche Post continued to claim the burdens for excess wages and social costs from the takeover of personnel from POSTDIENST (e.g. average burden #2 on excess social costs of EUR […] million from 2008 onwards) as well burdens from the universal service obligation. As with the 2002 Price cap decision, the Postal regulator approved the financing of those burdens out of the price-regulated revenues and set the price cap at an accordingly higher level. The Postal regulator's recognition of those burdens in the 2002, 2007, and 2009 Price cap decisions has therefore remained unchanged with regard to the non-price regulated services.

II.4. Financial results of DPAG

(111) The financial results of DPAG for the years 1995 to 2006 are shown in Figure 2 of the 2007 Extension Decision. Whereas they were mixed, some years with losses and some with profits, in the years 1995 to 1999, DPAG constantly made profits of between EUR 1 and 2 billion before taxes for the years 2000 until 2006.

(112) For the years 2007 until 2010, DPAG has realised the following net profits: EUR 1,8 billion (2007); – EUR 2,0 billion (2008); EUR 0,7 billion (2009); EUR 2,6 billion (2010).

(113) The published accounts of DPAG do not allow for an allocation of the profits to the different services. Therefore, it is not possible on the basis of the published accounts to see whether the price-regulated universal services were loss- or profit-making overall.

III. GROUNDS FOR INITIATION OF PROCEDURE

(114) As the General Court confirmed in its ruling in Case T-421/07 (38), all measures under investigation have been part of the proceedings since the 1999 Opening decision, which has been continued by the 2007 Extension decision.

III.1. Pension subsidy

(115) The 2011 Extension decision considered that the pension subsidy constituted a new aid measure because Deutsche Post had, before the 1995 pension reform, been fully liable to finance the pensions costs out of own resources. Furthermore, the 2011 Extension decision rejected Germany's claim based on the Combus judgment (39) that the pension subsidy did not constitute aid.

(116) For the compatibility assessment of the pension subsidy as compensation for ‘legacy’ pension costs (e.g. following the Commission decision on French La Poste (hereafter La Poste decision) (40), the 2011 Extension decision took into account that the claimed excess social costs have not only been compensated by the pension subsidy but also from the price-regulated revenues (e.g. burden #2 on excess social contributions).

(117) When taking into account both sources of compensation, the 2011 Extension decision's calculations showed that Deutsche Post has effectively benefited from social contribution rates that have been 10 to 14 percentage points below the total compulsory social contribution rates (including employer's and employee's share) that private competitors have had to carry.

(118) The 2011 Extension decision therefore expressed doubts about the compatibility of the pension subsidy as compensation for ‘legacy’ pension costs pursuant to Article 107(3)(c) TFEU.

III.2. Universal service compensation

(119) Germany has evoked Article 106(2) TFEU as a justification for the compatibility of the public transfers and the public guarantee as compensation for the universal service obligation.

(120) Based on the Altmark judgment (41), the Commission considered in the 2007 Extension decision that the public transfers and guarantee constitute aid within the meaning of Article 107(1) TFEU.

(121) The Commission expressed doubts in the 2007 Extension decision whether the public transfers and guarantee were necessary for the fulfilment of the universal service obligations, and proportional to that end. In particular, the Commission considered it necessary to review, in line with the principles codified in the 2005 Framework, the cost allocation between the universal and commercial services. It also raised doubts with regards to the determination of a reasonable profit, taking into account the average profitability of the sector and Deutsche Post's risk position.

IV. WIK STUDY

(122) The WIK study was commissioned to assist the Commission in the review of Deutsche Post's accounts for the period 1990-2007 with a view to establish whether Deutsche Post had been overcompensated for its universal service obligations. More specifically, WIK was assigned the following tasks: — Benchmarking of reasonable profit; — Review of internal cost allocation and transfer pricing arrangements; and — Calculation of overcompensation for the net costs of the universal service obligation.

IV.1. Description of the 2009 regulatory accounts

(123) As sought by the Commission in the information injunction of 30 October 2008, Germany eventually submitted in 2009 a complete set of regulatory accounts for the period 1990-2007 (hereafter 2009 regulatory accounts).

IV.1.1. The revenues

(124) Deutsche Post's revenues can be classified in three broad categories: — Price-regulated universal letter services (62 % of total revenue in the period 1990-2007) The price-regulated letter services include all universal services that are provided on markets on which Deutsche Post has enjoyed a dominant market position, including those services that benefited from the grant of the exclusive right. Those services earned 62 % of Deutsche Post's total revenues in the period 1990-2007 (42). — Non-price regulated universal services (26 % of total revenue in the period 1990-2007) The universal parcel services have always been provided on markets open to competition, in which Deutsche Post has only held an average market share of 30 %. In the period 1990-2007, the universal parcel services raised 15 % of Deutsche Post's total revenue. The non-price regulated universal letter services (e.g. catalogues, cross-border mail) achieved about 11 % of Deutsche Post's total revenue. — Non-price regulated commercial services (12 % of total revenue in the period 1990-2007) Deutsche Post has used its post shop network not only for the distribution of postal services but also to sell products and services for Postbank AG and — to a lesser degree — for Deutsche Telekom. Those commercial sales services achieved about 6 % of Deutsche Post's total revenues. The commercial parcel and letter services (e.g. addressed publications) account for about 4 % of Deutsche Post's total revenues. Finally, Deutsche Post provided a number of miscellaneous services, e.g. in its function as holding for international subsidiaries active in other businesses (e.g. DANZAS, DHL). Those other commercial services achieved about 2 % of Deutsche Post's total revenues. Figure 3 Average revenue shares in the period 1990-2007 (based on nominal values)

(125) The WIK study only covers commercial services that were provided together with universal services by the legal entity DPAG and its predecessor POSTDIENST. Commercial services (e.g. the worldwide express operations of DHL) — which were provided by different legal entities within Deutsche Post World Net (hereafter referred to as DPWN) — were not investigated.

IV.1.2. The calculation of burdens in the 2009 regulatory accounts

(126) Unlike the regulatory accounts that Deutsche Post submitted to the regulator for the 2002, 2007 and 2011 Price cap decisions, the 2009 regulatory accounts — which have never been submitted to the Postal regulator — contain a significantly higher amount of burdens that Deutsche Post allocates to the price-regulated services.

(127) Deutsche Post claims, based on the 2009 regulatory accounts, an average burden of EUR […] million for the period 1990-2006 compared to EUR […] million based on the 2002 regulatory accounts. Figure 4 Claimed universal service burdens with 2009 regulatory accounts compared to approved burdens with 2002 Price cap decision (annual average, million EUR nominal value) […]

(128) While burden #2 on excess social costs and burden #4 on supplementary pension insurance do not differ significantly between the 2002 and 2009 regulatory accounts, burden #1 on excess wages has almost […]. Unlike the 2002 regulatory accounts, Deutsche Post no longer uses the ETV wages as ‘competitive’ wage benchmark. Instead it used the minimum wage for the postal sector based on a regulation issued by the Federal Ministry for Labour in 2007 (hereafter referred to as 2007 minimum wage). However, it has to be noted that that regulation was finally declared illegal by the Federal Administrative Court and never became legally effective.

(129) Furthermore, Deutsche Post claims with the 2009 regulatory accounts a new ‘infrastructure mail’ burden that shows the incremental costs of the sixth delivery day (e.g. on average EUR […] million per year). The calculation is based on the counterfactual scenario that, without the universal service obligation, Deutsche Post would since 1990 have delivered mail on only five instead of six days.

(130) The infrastructure burden #3 on the post shop network is calculated differently compared with the calculation in the 2002 regulatory accounts. The burden now shows the alleged cost savings that could have been achieved if all post offices had been run as agencies since 1990. It is calculated based on the remuneration that Deutsche Post paid to third-party agents for sales services in 2007.

IV.1.3. The profit margins in the 2009 regulatory accounts

(131) The allocation of the burdens to the price-regulated universal letter services provides a significant relief for the non-price regulated services from costs that were incurred for them (e.g. wage and social costs). That reallocation leads to significantly positive profit margins of [15 to 25 %] on sales for the commercial services and losses of almost [0 to 10 %] on sales for the price-regulated letter services.

(132) While Deutsche Post shows in its annual accounts very high profits for its letter division (see also Section V.3), those profits are more than eaten up by the burdens that have been shifted from the non-price regulated to the price regulated services. Figure 5 Average returns on sales based on 2009 regulatory accounts […]

IV.2. Profit benchmarking

IV.2.1. Deutsche Post's value chain: low-tech operations and low level of business risk

(133) An analysis of the value chain and the assumed business risks is indispensable to prepare the profit benchmarking and the evaluation of the cost allocation. Only if the function and risk characteristics are known is it possible to search for a set of ‘comparable’ companies and to calculate a benchmark for the reasonable profit which Deutsche Post shall earn.

IV.2.1.1. The value chain of a low-tech business

(134) Deutsche Post's value chain can be divided into two main functions: — Nationwide delivery network for the distribution of letters and parcels, — Nationwide network of post shops.

(135) The logistics of a parcel and letter network is a low-tech business that does not involve large research or development efforts. Thus all other operators in the industry work in a similar and standardised way. Such activities are therefore often labelled as ‘routine’ functions. The high degree of outsourcing that Deutsche Post undertakes to third parties also proves their routine nature. The same goes for the sales services that are performed through the nationwide shop network and have also increasingly been outsourced.

(136) Apart from those routine functions, the main intangibles of Deutsche Post are the customer base, the brand name and the strong market position, especially in the letter markets. However, the WIK study considers that those intangibles are essentially not due to own efforts or investments by Deutsche Post but much more due to the historic exclusive rights. Deutsche Post did not have to invest heavily into marketing functions. Instead, it could rely on its legally guaranteed market position until 2007. Therefore, Deutsche Post should not be allowed any remuneration for those intangibles.

IV.2.1.2. Low risk due to public measures

(137) Deutsche Post was exposed to fewer risks both for regulated as well as non-regulated services than competitors for several reasons.

(138) Firstly, Deutsche Post was protected by a legal monopoly until 2007 for its letter services. Furthermore, within the scope of regulated letter services, Deutsche Post benefited from a market share of 90 % and a non-existing or low level of competition. The regulated services accounted for almost two-thirds of Deutsche Post's revenues.

(139) Secondly, the Postal regulator approved a price cap for regulated letter services. That cap was set above the cost of an efficient undertaking, to allow, inter alia, for the compensation of allegedly excessive costs linked of non-price regulated services. None of the competitors of DPAG enjoyed an exclusive right or a dominant position, which would have allowed him to cross-finance social costs. Therefore, the exclusive right respectively the dominant position not only led to a significant reduction of the business risks for the regulated services, but also for the non-price regulated universal and commercial services.

(140) Thirdly, other public measures also significantly reduced the risk for both universal and commercial services: e.g. the public transfers hedged the losses of the early 1990s and the public guarantee allowed Deutsche Post to borrow at the rate of the Sovereign until 1995 despite its difficult financial situation in the early 1990s.

(141) Taken together, Deutsche Post faced significantly lower market and cost risks than competitors because it did not have to build up its own customer base and could pass on cost increases through higher regulated prices. Based on that reasoning, the WIK study concludes that the preferred comparable competitors would be postal companies who only exercise routine functions (e.g. do not invest heavily in marketing and brand name) and are not exposed to a high degree of risk (e.g. can rely on long-term contracts).

IV.2.2. Quantification of profit benchmarks

(142) Based on the results of the function and risk analysis, the WIK study performs a financial-database analysis (e.g. using ORBIS database covering about 10 million companies worldwide) to search for comparable postal companies. A mixture of controlled quantitative and qualitative selection steps identifies the set of comparable companies that provide postal services on competitive markets.

(143) The WIK study chooses a comparator group of 26 postal companies that mainly provide parcel services and perform the typical routine activities of postal operators. All comparable competitors come from the industry sector of ‘Post and courier activities’ based on the NACE (43) code 641.

(144) It is important to note that the number of comparable competitors is limited because private companies have rarely provided letter services in larger scale due to the postal incumbents' exclusive right that covered a significant share of the letter services. Furthermore, the WIK study excludes postal incumbents from other countries as comparators because they have — as Deutsche Post — been protected by exclusive rights and are not primarily active on competitive markets.

(145) To measure the reasonable profit, the WIK study uses the return-on-sales margin (ROS) that is the accounting profit (e.g. Earnings before interest and tax (EBIT)) divided by revenues. Furthermore, the WIK study calculates the return-on-asset margin (ROA), e.g. EBIT as percentage of assets, as a capital-based profit benchmark. Table 3 Benchmark ROS and ROA from WIK study Return on Sales (ROS) Return on Assets (ROA) Median 3,48 % 7,33 % Upper bound (75th percentile) 6,77 % 13,41 %

(146) From the chosen sample, it results that the median ROS in the competitive part of the postal sector amounts to 3,48 % for the period 1998-2007. However, the WIK study not only presents the median return but also an upper bound for the reasonable profit, e.g. the third quartile of the comparable competitors' profit which amounts to a ROS of 6,77 %. Put another way, 75 % of the comparable competitors show a profit that is lower than a ROS of 6,77 % (44).

(147) Concerning the return on assets, the WIK study shows a median ROA of 7,33 % and an upper bound of 13,41 %.

(148) As Deutsche Post is exposed to considerably less risk than the comparables who operate on highly competitive markets (e.g. express parcels), the WIK study considers that the median ROS of 3,48 % is a prudent and conservative profit benchmark for Deutsche Post. It does not recommend using a higher rate in the range up to the third-quartile ROS of 6,77 %. On the contrary, a lower benchmark could be also defendable because the median ROS of 3,48 % translates into a ROA of 7,33 % that would still be significantly above the risk-free interest rate.

IV.3. Review of cost allocation

(149) The WIK study rejects the allocation of burdens in the 2009 regulatory accounts because the commercial services' ROS margins between [15 to 25 %] are significantly above the industry average (45). As private competitors are viable despite significantly lower profit margins, the WIK study concludes that a higher share of costs should be allocated to Deutsche Post's commercial services and accordingly reduces the burdens for the price-regulated services.

(150) As final outcome of the WIK study, all commercial services carry costs to such an extent they still show a profit in line with the median ROS of 3,48 % of competitors. The price-regulated services' average annual burden is accordingly reduced by EUR […] million for the period 1990-2007.

(151) As a large share of the commercial sales services has been provided to the related parties Postbank and Telekom, the WIK study also investigates whether the final prices charged to them can be considered as at arm's length and therefore as appropriate benchmark for the costs that the commercial sales services should carry. Based on the available evidence, the WIK study considers that the contracts between Deutsche Post and those related parties reflect the conditions that independent third parties would also have agreed on. As neither POSTBANK nor TELEKOM had in the years immediately after 1990 real outside-options to use other distribution networks, they accepted to share the incurred costs. However, subsequently, as Postbank and Telekom could more easily find other distribution networks and the costs of the universal service network went down, the contract was changed to a revenue-based commission fee that was more in line with a typical sales-service contract (46).

IV.4. Adjustment of 2009 regulatory accounts

(152) The WIK study undertakes several adjustments to the 2009 regulatory accounts based on the following scheme: Table 4 Calculation scheme for annual excess result with 2009 regulatory accounts and WIK study Revenues of universal services – Costs of universal services – Reasonable profit + Public transfer Excess result

IV.4.1. Adjustment of universal service revenues

(153) Deutsche Post sold a considerable amount of real estate (e.g. real estate which has become redundant during the restructuring of the postal operations). Those revenues should be shown with the universal services that were the primary user of those assets and have rented them to the commercial services.

(154) The corresponding adjustment results in an average annual increase of EUR […] million of the universal service revenues over the whole period 1990-2007.

IV.4.2. Adjustment of universal service costs

IV.4.2.1. Dissolution of accounts

(155) The 2009 regulatory accounts do not correctly dissolve the internal transactions: The universal services do not show the total profit which they earn because profits which originate from certain functions (e.g. post shops) are not divided between universal and commercial services (e.g. according to costs incurred for each services) but lumped together and reported as commercial profits. Deutsche Post has therefore not been able to provide correctly separated accounts in line with the requirements of Commission Directive 2006/111/EC of 16 November 2006 on transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (47).

(156) While Deutsche Post provided an approximate dissolution of internal accounting for the years up to 1997, the WIK study has to adjust the accounts for the years after 1997 and shift wrongly ‘parked’ costs from the universal to the commercial service accounts.

(157) The corresponding adjustment results in a decrease of the universal service costs by EUR […] million over the period 1998-2007.

IV.4.2.2. Adjustment of burdens between price-regulated and non-price regulated services

(158) As previously explained, the WIK study does not adjust separately each burden. Instead, it bases its recalculation on the commercial services' final prices that were judged as robust benchmarks for the industry average costs. Consequently, all excess profits from the commercial services (48) are used to finance the initially claimed burdens. The average annual decrease in the burdens amounts to EUR […] million over the whole period 1990-2007.

IV.4.2.3. Off-balance costs with supplementary pension insurance (burden #4)

(159) With burden #4 on supplementary pension insurance, Deutsche Post added costs that are not shown in its annual accounts. As the ROS-benchmark is calculated on the basis of the comparable competitors' statutory accounts, only costs that are also admitted according to national accounting standards or the international accounting standard (IAS) can be included. Therefore, any additional costs — which are normally not included in IAS accounts — cannot be accepted as cost items but must be financed out of the benchmarked profit margin.

(160) The corresponding adjustment results in an average annual reduction by EUR […] million for burden #4 on supplementary pension insurance over the whole period 1990-2007.

IV.4.3. Adjustment of capital costs to reasonable profit

(161) Deutsche Post imputed capital costs to the 2009 regulatory accounts that had not initially been included in the statutory accounts: e.g. […] costs and […] costs. The WIK study eliminates both the […] costs as well as the […], and substitutes them with the benchmark for the reasonable profit.

IV.4.3.1. Period 1996 to 2007

(162) The reasonable profit is calculated on the basis of the adjusted revenues of the universal services and the ROS benchmark of 3,48 % that result in annual average reasonable profit of EUR […] million. The average annual capital costs of EUR […] million (interest costs of EUR […] million and increased regulatory depreciation of EUR […] million) are eliminated from the 2009 regulatory accounts.

(163) It is important to note that, compared to the 2009 regulatory accounts, the benchmark ROS of 3,48 % yields in absolute terms a reasonable profit that is higher than Deutsche Post's claimed capital costs (e.g. interest costs based on an internal rate-of-return of about […] on capital employed and increased depreciation on market value).

IV.4.3.2. Period 1990 to 1995

(164) Pursuant to Article 63(1) PostVerfG, Deutsche Post had until 1995 to pay the so-called Ablieferungen (49) of EUR 5 838 million to the federal government that amounted to about 8 % of sales. As counterpart to that obligation, Article 63(4) PostVerfG relieved Deutsche Post, however, from the obligation to pay any further dividends beyond the Ablieferungen.

(165) The WIK study refuses therefore to add a ‘reasonable profit’ for the period up to 1995 because the Ablieferungen has already fully covered Deutsche Post's equity costs. Consequently, the Deutsche Post's average annual capital costs of EUR […] million (interest costs of EUR […] million and increased regulatory depreciation of EUR […] million) are eliminated from the 2009 regulatory accounts and the universal service costs are decreased in consequence.

IV.4.4. Conclusions

(166) The 2009 regulatory accounts as well as the WIK study agree that the revenues universal services were insufficient to cover their costs up to 1996. However, while Deutsche Post is left with a cumulated deficit for the whole period to 2007, even after taking account of the public transfers in the 2009 regulatory accounts, the WIK study comes to the conclusion that the public transfers were sufficient to allow Deutsche Post break even in 1997.

(167) The 2009 regulatory accounts show hardly an improvement in the profitability of the universal services up to 1999. It has only been since 2000 that universal service revenues on average cover the costs. On the contrary, the WIK study shows since 2000 significant excess profits for the universal services above the median ROS of 3,48 % despite the fact that the universal parcel services have only shown a below-average return of […] on sales (see Figure 6) Figure 6 Comparison of annual excess results of universal services for the period 1990-2007 (million EUR, nominal annual values)

V. COMMENTS BY INTERESTED PARTIES

(168) Interested parties submitted comments on the 1999 Opening Decision, the 2007 Extension Decision and the 2011 Extension Decision. The most important comments on all three decisions are summarised in this section.

V.1. Right to use official German stamps

(169) TNT questions whether Deutsche Post paid a fee for the exclusive right to use official German stamps. According to § 43 PostG 1997, the authorisation to distribute stamps with the inscription ‘Germany’ has been reserved to the Federal Ministry of Finance. A postal operator who files an application to use those stamps is required to pay a fee and to cover incidental costs. Pursuant to § 54 PostG, Deutsche Post had the exclusive right to use German stamps until 31 December 2007.

(170) TNT considers that, if Deutsche Post effectively used the stamps issued by the Federal Ministry of Finance free of charge, the non-payment of the application fee would constitute illegal State aid.

(171) The Commission observes that this measure has not been addressed in the 1999 Opening Decision, the 2007 Extension Decision or the 2011 Extension Decision. It falls therefore outside the scope of the present Decision.

V.2. Pension subsidy

(172) According to UPS, Deutsche Post has benefited from an advantage as it has been partially released from the payment obligation it had to bear before 1995. Since normal operators have to bear their own pension costs, Deutsche Post was put into an advantageous position compared to its competitors. Furthermore, UPS agrees with the Commission's reasoning that the aid cannot be regarded as existing aid given the fundamental changes in the position of Deutsche Post and the introduction of new legislation to remove part of Deutsche Post's obligations to incur the costs of the civil servants pensions. According to UPS, those major amendments of the system do not qualify as simple modifications of a purely formal or administrative nature.

(173) UPS supports the Commission's preliminary conclusion that the pension subsidy cannot be considered compatible aid under Article 107(3)(c) TFEU. Given the level of sustained profitability as well as Deutsche Post's exclusive rights, the necessity of any relief for alleged legacy costs can surely be doubted. Furthermore, the subsidy granted is not proportional to the objective of common interest as brought forward by Germany, especially as the legacy costs are compensated by both increased letter prices and the pension subsidy. UPS points out that the burden of proof of the proportionality of the measure lies with Germany. However, Germany has not given precise indications of the proportionality of the benefits derived by Deutsche Post from the measure.

(174) According to UPS, the aid received by Deutsche Post has enabled it to acquire an advantageous position not only in Germany but also in other European markets in which it competes with other postal industry players such as UPS. As the pension subsidies have allowed Deutsche Post to strengthen its position in the commercial sector at the disadvantage of other players, competitors of Deutsche Post have suffered from a distortion of competition.

(175) UPS requests the Commission to additionally apply the assessment of the necessity and proportionality of any pension subsidies as set out in the 2011 Extension decision for the period 2007-11 and to scrutinise whether Deutsche Post still benefits from unlawful State aid within the meaning of Article 107(1) TFEU.

(176) Finally, UPS requests the Commission to provide more information as to how it has come to the conclusion that Deutsche Post benefited from an incompatible aid. In particular, UPS requests a copy of the WIK study to receive clarification as to the extent to which the results of the WIK study have been used for the assessment of the pension subsidy with the 2011 Extension Decision.

V.3. Universal service compensation

(177) UPS fully supports the Commission's investigation and fully subscribes to the contents of the 2007 Extension decision concerning the assessment of the universal service compensation. Additionally, UPS provided an update (50) of the NERA study of October 2006 (51) that the Commission referred to at recital 58 of the 2007 Extension decision.

(178) While the 2006 NERA study estimated an average return on capital employed above 20 % for the letter division of DPWN for the period after 1999 (52), the updated study emphasises that the return on capital employed would have remained even above 50 % in the period 2000-2005. Over the period from 2003 to 2005 the return on capital employed would have even been estimated at more than 100 %. UPS concludes that the profits of the extremely profitable regulated letter services would have been more than sufficient to cover the losses of the universal services.

(179) Furthermore, UPS considers that Deutsche Post's own cost accounting data would not provide a good basis for an analysis and understanding of the profitability and burdens in the reserved sector. Therefore, a thorough analysis of the cost allocation between regulated, universal and commercial services should be undertaken. All benefits that Deutsche Post received to cover its burdens of the past, such as capital endowments granted to Deutsche Post by Germany in 1995 as well as assets in the form of real estate and infrastructure, should be included in the determination of the aid amount and the amount of overcompensation.

(180) Regarding the internal transfer pricing arrangements with related parties, UPS claimed that the arm's length principle should be maintained in line with the Chronopost judgment (53). Therefore, the Commission should review the terms of the contract governing the relationship between Deutsche Post and DPEED, in particular the pricing arrangements agreed between the parties.

V.4. Excessive letter prices

(181) FFPI fully supports the 2011 Extension decision: FFPI states that legislative and administrative changes resulting in higher pension costs constitute normal business risk that may impact the business' profitability. As undertakings operating under normal market conditions have to bear such additional costs out of their own resources, Deutsche Post should also not receive pension subsidies granted by Germany.

(182) Furthermore, FFPI points out that Deutsche Post stressed the importance of the pension reform in its 2000 Annual Report, thereby claiming that lower contributions to the Pension fund for civil servants constitute the main reason for an increase in EBITA by 98,6 % in the mail corporate division. Consequently, the pension reform should not be considered to be of minor importance or primarily administrative in nature.

(183) According to a study conducted by FFPI from 2001 to 2008, stamp prices applied in Germany in 2009 for 20g standard letters, sent via first class stamped mail, were among the highest. With reference to 500g parcel sent first class, the prices in Germany were instead in the cheap area, indicating the existence of cross-subsidisation.

(184) FFPI is convinced that the aid to Deutsche Post was not aimed at stimulating growth of the German postal market or of certain postal services. During the years under investigation, Deutsche Post was a profitable company. It managed to strengthen its leadership in the German market, increased its performance and expanded its business. Therefore, the pension subsidies should not be considered compatible with the internal market under Article 107(3)(c) TFEU.

V.5. Profit margins

(185) BIEK is of the opinion that other postal operators have suffered from Deutsche Post's practice of using its dominant position on certain letter markets to cross-finance costs of letter and parcel services that have been offered on more competitive markets. In particular, as Deutsche Post can increase its prices on the markets where it used to have an exclusive license and still holds a market share of more than 90 %, Deutsche Post is able to cross-finance the cost of services in more competitive markets.

(186) Furthermore, BIEK claims that, despite the alleged legacy costs, Deutsche Post is significantly more profitable than its peers in other European countries, as shown by a ROS margin of 10 % to 20 % for its domestic mail division. That profit margin may even be distorted downwards because it must be taken into account that the domestic mail division also includes domestic parcel services that earn on average lower margins than letter services.

(187) Concerning Deutsche Post's claimed burden from increased wage costs, BIEK points out that Deutsche Post uses average wages in the transport sector as a benchmark to calculate the differences in wage costs borne by Deutsche Post as compared to its competitors. While the Commission seems to adopt those numbers in the 2011 Extension decision as benchmarks for its calculations, BIEK claims that wages paid by the competitors of Deutsche Post are at least 15 % above those average wages. Consequently, the allegedly excessive wages borne by Deutsche Post are significantly smaller than claimed by Deutsche Post. BIEK argues that the remaining difference in wage costs does not result from legacy costs but is caused by Deutsche Post's size and dominant position in the market.

(188) Finally, BIEK considers that Deutsche Post's legacy costs, including pension costs, have been more than compensated by the increased regulated letter prices. The aid measures, which the Commission is assessing, have led to the situation that competition has effectively not emerged for letter services and has been severely distorted for parcel services.

VI. COMMENTS BY GERMANY

VI.1. Comments on pension subsidy

VI.1.1. No financial advantage from compensation of excess social costs

(189) Based on the Combus judgment (54), Germany is of the opinion that, in the course of the privatisation of formerly State-owned universal service providers, the public compensation of pension costs — which goes beyond the level normally assumed by private competitors — does not constitute aid.

(190) Germany agrees therefore with the Commission that a comparison should be undertaken between the social costs paid by Deutsche Post and competitors' social costs. However, that comparison should already be made under Article 107(1) TFEU and not subsequently at the stage of the compatibility assessment under Article 107(3)(c) TFEU.

VI.1.2. No financial advantage compared to pre-1995 situation

(191) Germany is of the opinion that the pension subsidy has not relieved Deutsche Post from a cost that it would normally have had to bear out of its own resources. Thus, Deutsche Post has not benefited from an advantage within the meaning of Article 107(1) TFEU. According to Germany, Deutsche Post was not legally liable or economically capable to pay the pensions to the civil servants before and after 1995.

(192) First of all, Germany claims that, pursuant to Article 46 PostVerfG 1989, the civil servants, who were taken over by Deutsche Post in 1989, remained in the service of the federal government. Also after the second postal reform in 1995, pursuant to Article 2(3) PostPersRG 1994 and the newly inserted Article 143b of the Constitution, Deutsche Post's civil servants continued to stay in the federal government's service.

(193) Therefore, as the federal government has always remained the sole debtor for the civil servants' pension liabilities, Deutsche Post has never been under a legal obligation to use its own resources.

(194) Even though Deutsche Post was obliged pursuant to Article 54(2) PostVerfG 1989 to finance civil servants' pension costs, Germany maintains that the provision was only an internal arrangement to raise funds for the public budget (e.g. as the obligation to pay Ablieferungen pursuant to Article 63 PostVerfG 1989). It did not establish any liability by Deutsche Post towards the civil servants.

(195) After the second postal reform in 1995, pursuant to Article 2(3) PostPersRG 1994 and Articles 14 to 16 PostPersRG 1994, the federal government further remained the sole debtor towards the civil servants. The obligations, which Articles 16(1) PostPersRG imposed on Deutsche Post to contribute to the Pension fund, constitute therefore, as with the obligations under Article 54(2) PostVerfG 1989, only a relief for the public budget. They do not change the federal government's sole liability with respect to the civil servants' pensions.

(196) Furthermore, under private law, it would also not have been possible for the federal government to discharge its liability for the civil servants' pension rights to the newly set-up DPAG in 1995. According to general principles of private law, if existing liabilities were transferred to a legally independent subsidiary the parent company would nevertheless remain liable for those liabilities towards third parties.

(197) Secondly, Germany claims that Deutsche Post has never had enough own resources to effectively finance the pension costs. On the one hand, before 1995, POSTDIENST had incurred only losses that in turn had to be financed from the public transfers of EUR 5,6 billion. On the other hand, when POSTDIENST was transformed into DPAG in 1995, the accrued civil servants' pension liabilities amounted to approximately EUR […] billion. It would not have been possible to set up DPAG as a private-law company with those liabilities on its balance sheet because the federal government had not provided sufficient assets to make DPAG viable.

VI.1.3. Pension subsidy as existing aid pursuant to Article 108(1)

(198) Germany is of the opinion that if the pension subsidy were to be considered as State aid it would have to be qualified as existing aid pursuant to Article 1(b)(i) of Regulation (EC) No 659/1999 because the State has been the sole debtor and the party liable to finance the civil servants' pensions since the entry into force of the relevant provision in the German Basic Law in 1953. Germany maintains that neither the first postal reform in 1989 nor the second postal reform in 1995 has changed the State's liability towards the civil servants. According to Germany, Deutsche Post has neither before nor after 1995 been legally liable or economic capable to pay the civil servants' pensions.

(199) Furthermore, Germany refers to a statement by the Commission before the General Court in Case T-266/02. According to Germany, it becomes clear from paragraph 54 of the judgment that the Commission ‘had taken the view, for the purpose of the contested decision, that only the transfer payments made by DB-Telekom had conferred an advantage on it.’ (55)

(200) Germany concludes from that statement that the Commission had already declared the pension subsidy as not providing any financial advantage to Deutsche Post. It therefore had effectively taken a ‘decision not to raise objections’ within the meaning of Article 4 of Regulation (EC) No 659/1999. Furthermore, pursuant to Article 1(b)(ii) Regulation (EC) No 659/1999, such a positive decision would mean that the pension subsidy must subsequently be qualified as existing aid.

VI.1.4. Pension subsidy as compatible compensation for legacy costs pursuant to Article 107(3) TFEU

(201) In light of the Commission's reasoning in the La-Poste decision, Germany is of the opinion that the pension subsidy is compatible aid under Article 107(3)(c) TFEU: — Germany points out that Deutsche Post has consistently paid a higher level of social costs than the employer's contribution to pension, health and nursing care. — Germany objects to the Commission's calculations of the comparative advantage insofar as it is considered that the price-regulated services cover the claimed burden #2 on excess social contributions. Germany points out that La Poste — as any other postal incumbent — has also refinanced social costs through increased regulated letter prices but that the Commission did not take that fact into account in its La Poste decision. — Although Germany agrees in principle that the price-regulated revenues should cover the claimed burdens, the Commission has neither proven that the regulator effectively approved Deutsche Post's claim to finance the excess social costs out of the regulated revenues nor that the regulated revenues were effectively sufficiently high to finance those excess social costs.

(202) Furthermore, Germany points out that the Commission in its 2007 Opening decision on Royal Mail (56) emphasised the need to assess pension costs of former public undertakings according to consistent criteria, which should lead to consistent decisions. Consequently, the Commission should take into account its La Poste decision and its preliminary assessment in Royal Mail. In the latter, the Commission did not object to the compensation of pension deficits even though the Hopper-Report 2008 shows that Royal Mail's pension costs had partly been covered by increased regulated letter prices.

VI.1.4.1. Benchmark to be based on ‘competitive’ social costs

(203) Germany argues, based on the expert study by Professor Ehlermann of 19 July 2011 (57), that the Commission made two mistakes in the calculation of the benchmark for Deutsche Post's social costs.

(204) The employee's share should not be included in the benchmark because a private employer would not be legally liable for the payment of the employee's share. It would only be for administrative reasons that the employer executes the payment of the total social contribution but it does not make him legally liable to carry the total burden of the social contributions. Furthermore, the inclusion of the employee's share in the benchmark would also contradict previous decisional practice, as in the La Poste decision.

(205) The calculation of the benchmark social costs should be based on the ‘competitive’ wage benchmark (58) because the civil servants' wages have significantly been higher than the market average.

VI.1.4.2. Insufficient level of price-regulated revenues to cover excess social costs

(206) First of all, Germany emphasises that the consideration of a full coverage of burden #2 by the price regulated revenues would only be hypothetical because it would not be possible to establish whether the regulated prices were effectively increased to compensate the excess social costs. On the one hand, it is not retrievable from the 2002 Price cap decision whether and to which extent the Postal regulator had taken the claimed burdens for excess social costs into account. On the other hand, until 2002, the prices were kept at the approved 1997 level and it is not possible to establish whether those prices included a compensation for the non-regulated services' excess social costs.

(207) According to Germany, it would not be sufficient to show that the non-price regulated services have benefited from lower social contributions than competitors. It must also be established whether the price-regulated services have effectively been able to finance the claimed burdens of excess social costs out of their revenues.

(208) A financial advantage for Deutsche Post from the compensation of its excess social costs would only exist if the granted compensation was higher than the total excess social costs that Deutsche Post has had incurred for the civil servants.

(209) Consequently, Germany deplores the lack of a comprehensive calculation to establish whether Deutsche Post was in total over- or under-compensated for the civil servants' excess social costs. It emphasises the necessity of such a calculation in order to establish a financial advantage with the meaning of Article 107(1) TFEU.

(a) Under-compensation of excess social costs based on expert study

(210) To remove that defect, Germany submitted the expert study by Professor Weber (59) to establish Deutsche Post's financial advantage in social cost from the employment of civil servants. First, the expert study establishes by how much Deutsche Post's incurred social costs for civil servants exceed those that a private competitor has to carry for a private employee (hereinafter referred to as excess social costs). Second, the expert study compares those excess social costs to the compensation under burden #2.

(211) As shown in Table 5, the expert study includes in the incurred social costs due to the employment of civil servants: Deutsche Post's contribution to the Pension fund and other social costs as Deutsche Post's contribution to the health expenses, accident insurance, further miscellaneous insurance payments.

(212) The expert study defines as social costs from the employment of a private employee: the employer's share of the contribution rate for the statutory pension, unemployment, health and nursing insurance multiplied by allegedly ‘competitive’ wages (e.g. the 2007 minimum for the majority of the civil servants).the

(213) The excess social costs are the result of the excess of Deutsche Post's incurred social costs for civil servants over the defined benchmark of social costs based on the employer's share of social contributions for a private employee. Table 5 Calculation of net result following Germany's expert study – Contribution to Pension fund – other social costs + ‘Competitive’ social cost benchmark (based on employer's share of social contribution rate and ‘competitive’ wage (e.g. 2007 minimum wage)) Excess social costs + Compensation from regulated revenues (burden #2 on excess social contributions) Net result (under- or over-compensation)

(214) For the period 1995-2007, the calculations arrive at the conclusion that burden #2 was insufficient to cover the excess social costs. In fact, the expert claims that Deutsche Post has been under-compensated by EUR […] million. The expert concludes that, even if it was considered that the price-regulated revenues include burden #2, Deutsche Post would remain under-compensated for its excess social costs.

(b) 2009 regulatory accounts confirm insufficiency of price-regulated revenues to cover excess social costs

(215) Germany argues that in any case, as long as the price-regulated services incur losses that are higher than the excess social costs, it cannot be established that the regulated revenues effectively compensated the excess social costs. In that context, Germany submitted an expert study by CTcon based on the 2009 regulatory accounts (60) to show that the losses of the price-regulated services have consistently been higher than the excess social costs.

(216) The calculations are based on the 2009 regulatory accounts and assume that the price-regulated services should earn a reasonable profit of ROS of 7 % (based on the Deloitte-II study that is discussed in more detail in Section VI.3.2). After deduction of the reasonable profit, the price-regulated services show a loss of EUR […] million that is higher than the claimed excess social cost for the period 1995-2007. The price-regulated revenues have therefore been insufficient to cover the claimed excess social costs.

VI.2. Comments on universal service compensation

VI.2.1. Public transfers

(217) Germany argues that the public transfers have not provided any economic advantage to Deutsche Post because the public transfers of EUR 5 666 million only compensated for the Ablieferungen of EUR 5 838 million that Deutsche Post had to pay until 1995.

(218) As explained in the 2007 Extension decision, the Ablieferungen had their origins with the former postal administration that was obliged to transfer about 10 % of the annual operating revenue to the public budget. In the period 1989-1995, the Ablieferungen were phased out pursuant to Article 63(1) PostVerfG 1989. Up to 1993, Deutsche Post had to pay 10 % of its operational revenue. As of 1993, the Ablieferungen were successively reduced to 10 % of the operational revenue minus EUR 153 million in 1993. For 1994, the Ablieferungen amounted to 70 % of the 1993 Ablieferungen. In 1995, Deutsche Post paid 50 % of the 1993 amount. In total, Deutsche Post paid EUR 5 838 million from 1990 to 1995.

(219) Article 63(4) PostVerfG 1989 provided that any dividends paid were to be subtracted from the Ablieferungen. Based on that provision and the exemption from any direct or indirect taxes, the Commission contended in the 2007 Extension decision that the Ablieferungen were to be considered as a substitute for indirect and direct taxes as well as to provide a remuneration to the State as shareholder for the provided capital.

(220) In response to that contention, Germany submitted the KPMG study that comes to the conclusion that the Ablieferungen could neither be considered as a substitute for taxes nor for dividends for a number of reasons.

(221) First, the Ablieferungen would not qualify as a corporate tax because the Ablieferungen had been calculated as a percentage of the realised revenues since 1931. As a result, they had to be paid even in years where Deutsche Post incurred a loss. In contrast, corporate tax is based on the realised annual profit. A qualification of the Ablieferungen as a corporate tax would also contradict the legal practice of the Bundesverfassungsgericht, according to which a corporate tax must be based on the economic performance (‘Leistungsfähigkeit’) of a company.

(222) Furthermore, the Ablieferungen would also not qualify as a value-added tax. Since there was no possibility to deduct the value-added tax paid on the inputs from the Ablieferungen, the calculation of the Ablieferungen differed substantially from the usual calculation of the value-added tax liabilities.

(223) Second, Germany argues that the Ablieferungen could not be qualified as a dividend. The distribution of dividends usually requires that profits were earned in the corresponding financial year or the years before. However, Deutsche Post did not earn any profits between 1990 and 1995 but nevertheless paid the Ablieferungen. As a result, the Ablieferungen could not be qualified as dividends.

(224) The KPMG study concludes that the Ablieferungen could not be qualified as tax or dividend payment but should be viewed as a levy sui generis that only Deutsche Bundespost and its successors was liable to pay.

(225) Based on the KPMG study, Germany rejects the Commission's contention that the Ablieferungen should be considered as a substitute for tax and dividend payments. It maintains that the Ablieferungen constituted a burden for Deutsche Post that could not be justified on factual or economic terms. As the public transfers only relieved Deutsche Post of the Ablieferungen, they did not provide any economic advantage and therefore did not constitute aid.

(226) In the alternative, Germany puts forward two further justifications why the public transfers would not constitute aid. First, the public transfers would fulfil the market-economy-investor principle in light of the substantial return on investment in later years and the high proceeds realised in the stock-market flotation of Deutsche Post. Second, the public transfers would also not constitute aid because both the 2009 regulatory accounts as well as the WIK study show that the cumulated universal service losses from 1990 to 1994 were higher than the public transfers. Deutsche Post was therefore under-compensated for its universal service obligation.

VI.2.2. Public guarantee

(227) Germany argues that the continued public guarantee pursuant to Article 2(4) PostUmwG 1994 for debt obligations that were issued prior to 1995 did not provide any selective advantage to Deutsche Post after 1995 because of several reasons.

(228) Firstly, any private company, hiving off a subsidiary, would continue to be liable for debt obligations entered into by that subsidiary. A private company would remain liable for its outstanding debts even after selling those debts to a third party. Furthermore, it must be noted that the initial public guarantee for the debt obligations was only a consequence of the non-existence of a separate legal personality of POSTDIENST. Article 40 PostVerfG 1989, which provided that debt obligations issued by Deutsche Bundespost had the same legal value as debt obligations issued by Germany, had therefore only declaratory character.

(229) Secondly, DPAG would not have benefited from the take-over of the POSTDIENST debt obligations because DPAG could have refinanced itself in 1995 at lower interest rates. The stock of POSTDIENST debt obligations as of 1 January 1995 amounted to EUR 931 million at an average interest rate of 7,17 % with a remaining duration of 8,8 years. As the short-term interest rate amounted to about 5 % to 5,5 % at 1 January 1995, DPAG suffered a cost disadvantage of 1,7 % which amounted to higher annual interest costs of about EUR 15,3 million.

(230) Thirdly, by comparing the average market interest rates for debt obligations issued by private companies and the interest rates for POSTDIENST debt obligations with reference to date when the obligations were initially issued, Germany estimates that POSTDIENST borrowed on average at interest rates above the market average. Germany did not carry out a comprehensive investigation but only compared the interest rates of certain POSTDIENST debt obligation with an aggregated market average.

(231) Alternatively, Germany argues that the public guarantees constitute existing aid according to Article 1(b)(i) of Regulation (EC) No 659/1999. As Deutsche Bundespost was part of the public administration until the end of 1994, the debt obligations were equal to debts of the State since its creation in 1950. If the public guarantee had provided any advantages to Deutsche Post regarding interest rates they would have to be considered as existing aid. Germany also refers to the Commission decision on EDF (61) where a similar guarantee was considered as existing aid.

VI.2.3. Exclusive right

(232) Germany argues that the regulated letter revenues are not State resources in light of the Preussen-Elektra judgment (62).

(233) Consequently, as the regulated