Opinion of Mr Advocate General Mischo delivered on 4 November 1986. - Commission of the European Communities v Italian Republic. - Transparency of financial relations between Member States and public undertakings. - Case 118/85.



European Court reports 1987 Page 02599



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

This Opinion concerns an application for a declaration that by refusing to supply information concerning the manufactured tobacco sector, the Italian Republic has failed to fulfil its obligations under Article 5 ( 2 ) of Commission Directive 80/723/EEC of 25 June 1980 on the transparency of financial relations between Member States and public undertakings ( Official Journal, L 195, p . 35 ).

That provision requires the Member States to supply to the Commission, at its request, information concerning the financial relations between "public authorities" and "public undertakings ".

The Italian Government refused to supply such information on the ground that the Amministrazione Autonoma dei Monopoli di Stato ( AAMS ), which operates in the sector in question, cannot be regarded as a "public undertaking" within the meaning of Article 2 of the said directive but is a "public authority" within the meaning of the same article .

In reality, the dispute thus concerns the interpretation of those two expressions .

According to Article 2 of Directive 80/723/EEC, "public authorities" means "the State and regional or local authorities" and "public undertaking" means "any undertaking over which the public authorities may exercise directly or indirectly a dominant influence by virtue of their ownership of it, their financial participation therein, or the rules which govern it ."

In concrete terms, the question is whether the AAMS, as a State body without a legal personality separate from that of the State, something which the Commission does not contest, is for that reason one of the "public authorities" or, on the contrary, whether the fact that in the manufactured tobacco sector it offers goods and services on the market and participates in economic activity, something which the Italian Government admits, is sufficient to place it in the category of "public undertakings ".

Since, at the time it was adopted, Directive 80/723 was the subject of an application for annulment brought by France, Italy and the United Kingdom ( Joined Cases 188 to 190/80 ), let me refer, for details of the directive and comments upon it, to the judgment of the Court of 6 July 1982 ( (( 1982 )) ECR 2545 ).

1 . Can a State body constitute a "public undertaking"?

The Italian Government states that "in the Italian legal order, the production and marketing of manufactured tobacco is one of the public and institutional responsibilities of the State" and that "if the monopoly administration, being a State body, is a 'public authority' , it cannot at the same time be a 'public undertaking' within the meaning of the directive ".

The Italian State obviously cannot be denied the right to consider that it is in the public interest that it should itself assume the activities in question and that it therefore also assumes a "public service" duty in that regard .

However, I am of opinion that "public service" and "public undertaking" are not mutually exclusive concepts so that a public authority, including the State itself, may in certain cases also be regarded as a "public undertaking ".

In my opinion, the criteria for distinguishing between "public authorities" and "public undertakings" are not to be sought in the concept of public service but in the industrial and commercial nature of the activity of public bodies .

Italian legal writers have in fact coined a term for this type of activity - "imprese-organo", meaning an unincorporated State enterprise . ( 1 )

In Case 78/82, ( 2 ) the Italian Government itself relied on Article 90 ( 2 ) of the EEC Treaty in favour of the AAMS in order to justify a measure contested by the Commission . However, that provision presupposes the existence of an undertaking and I find it difficult to accept that a body which constitutes an undertaking within the meaning of Article 90 ( 2 ) may no longer be regarded as such for the purposes of Directive 80/723, which is based on the third paragraph of the same article and whose purpose is to facilitate its implementation .

Furthermore, the fact that it is possible to draw a distinction, among the activities of the State, between its activities as an authority and its activities as an undertaking is confirmed by the case-law of the Court .

For example, in its judgment of 11 July 1985 in Case 107/84, ( 3 ) the Court held that only a part of the postal activities carried on by a body governed by public law may be regarded as the activities of a public authority in the strict sense of the term .

It has also been established in a line of decisions ( 4 ) that only "posts which involve direct or indirect participation in the exercise of powers conferred by public law and duties designed to safeguard the general interests of the State or of other public authorities" come within the scope of the exception provided for in Article 48 ( 4 ) of the Treaty concerning freedom of movement for workers .

The Court expressly wished to exclude posts which, whilst coming under the State or other bodies governed by public law, involve responsibilities of an economic and social character which the public authorities assume in the various Member States or other activities which cannot be assimilated to the functions which are typical of the public administration ( see, in particular, paragraphs 10 and 11 of the judgment of 17 December 1980, (( 1980 )) ECR 3900 ).

The applicability of one or other of those provisions is thus not established by the mere existence of a public administration or a public body . The decisive factor is the activities carried on .

In the few rare cases in which the Court has been called upon to assess whether or not a body governed by public law is an "undertaking", it has also been led to draw a distinction according to the nature of those activities .

In its judgment of 30 April 1974 in Case 155/73 ( Sacchi, (( 1974 )) ECR 409 ), it expressly rejected the argument put forward by the Italian and German Governments to the effect that television undertakings are not "undertakings" within the meaning of the provisions of the Treaty and decided that, even if a Member State, for considerations of public interest, of a non-economic nature, has conferred an exclusive right to conduct radio and television transmissions on one or more establishments, for the performance of their tasks, these establishments "to the extent that this performance comprises activities of an economic nature, fall under the provisions referred to in Article 90 relating to public undertakings and undertakings to which Member States grant special or exclusive rights" ( paragraph 14 ).

Similarly, in its judgment of 18 June 1975 in Case 94/74 IGAV v ENCC (( 1975 )) ECR 699, the Court stated that "the activities of an institution of a public nature, even if autonomous, fall under the provisions referred to (( concerning interference by the Member States with the normal functioning of competition )) and not under Articles 85 and 86, even if its interventions take place in the public interest and are devoid of a commercial character" ( paragraph 35 ). It may legitimately be concluded that the commercial activities of a public body, whether autonomous or not, fall under Articles 85 and 86, specifically referred to in Article 90 .

Finally, in its judgment of 20 March 1985 in Case 41/83 Italy v Commission (( 1985 )) ECR 873, the Court expressly rejected the Italian Government' s argument to the effect that "the rule-making activities of a body governed by public law may not be regarded as the activities of an undertaking for the purposes of Article 86" ( paragraph 13 ) on the ground that "the schemes (( adopted by British Telecom under rule-making powers conferred on it by law )) ... must be regarded as an integral part of BT' s business activity" ( paragraph 20 ). It thus confirmed that the activities of a statutory corporation, ( which the Court described as a "nationalized undertaking", see paragraph 2 ) are subject to the Community competition rules once it engages in industrial or commercial activities .

Returning to Directive 80/723, I would point out that in the abovementioned judgment in Joined Cases 188 to 190/80, the Court decided that the directive was valid .

The purpose of that directive, according to the sixth recital in the preamble thereto, is to "enable a clear distinction to be made between the role of the State as public authority and its role as proprietor ".

I do not therefore see on the basis of what line of reasoning it is possible to arrive at the conclusion that "the directive does not make it possible to distinguish, in regard to public authorities, between public authority activities and entrepreneurial activities" ( defence, first paragraph on page 8 ).

On the contrary, it seems to me that the directive is based precisely on the acknowledged fact that States frequently have such a "split personality ".

The reasons which led the Commission to regard it as necessary to make a distinction between the rôle of the State as public authority and the role of the State as proprietor are, in my view, a fortiori relevant when the State is not only proprietor but also directly manages the activity in question .

Furthermore, Article 2 of the directive states that "public undertakings" means "any undertaking over which the public authorities may exercise directly or indirectly a dominant influence by virtue of ... the rules which govern it ". However, in this case, the rules governing the AAMS, namely the fact that it is integrated into the administration of the State, make possible the exercise of influence which is not merely dominant but also direct and exclusive .

It does not therefore seem excessive to conclude that, having regard to the criteria laid down in the second paragraph of that article, the "imprese-organo directly managed by the State" ( reply to the letter requesting observations, page 4 ) constitute the highest form of public undertakings referred to by the directive in question .

2 . Must a public undertaking necessarily have legal personality distinct from that of the State?

According to the Italian Government, "in order for the public authorities to be able to exercise their influence over a public undertaking, the two entities should be legally separate ".

However, it seems to me that that influence may be exercised even more effectively when the State as a public authority and the State as an undertaking are one and the same legal person . ( It could in fact be asked whether it is not precisely for that reason that certain public bodies are not granted a separate legal personality .)

In such situations, the establishment of transparency is even more necessary .

In fact, the whole purpose of the directive is to ensure "a fair and effective application of the aid rules in the Treaty to both public and private undertakings" ( fifth recital ).

Moreover, it can be seen from the Court' s case-law that, in the context of the competition rules laid down in the EEC Treaty, an economic or functional approach, rather than a merely legal one, must prevail in defining the term "undertaking ".

It is certainly true that in the context of the ECSC Treaty the Court began by defining the term "undertaking" in relation to the concept of legal personality ( 5 ) and it is that definition which is traditionally cited by legal writers . ( 6 ) However, the Court has increasingly qualified that position . ( 7 )

In the context of the EEC Treaty, the Court has only recently deemed it necessary to define the term "undertaking", namely in its judgment of 12 July 1984 in Case 170/83 Hydrotherm v Compact (( 1984 )) ECR 2999, in which it decided that "in competition law, the term 'undertaking' must be understood as designating an economic unit for the purpose of the subject-matter of the agreement in question even if in law that economic unit consists of several persons, natural or legal" ( paragraph 11 ).

I note that the Court has thus merely drawn the logical conclusions, in regard to the definition of the term "undertaking", from its previous case-law regarding competition . Thus, in particular ( 8 ) in its judgment of 25 November 1971 in Case 22/71 Béguelin Import v G.L . Import and Export (( 1971 )) ECR 949, it held that "an exclusive dealing agreement does not fall under the prohibition imposed by Article 85 ( 1 ) of the Treaty merely because the concession granted under that agreement has been transferred from a parent company to its subsidiary, which, although having a separate legal personality, enjoys no economic independence" ( summary, paragraph 1 ).

Similarly, in its judgment of 14 July 1972 in Case 48/69 ICI v Commission (( 1972 )) ECR 619, it rejected the applicants' argument to the effect that possible infringements of Article 85 ( 1 ) could only be imputed to their subsidiaries on the ground that "the fact that a subsidiary has separate legal personality is not sufficient to exclude the possibility of imputing its conduct to theparent company", which is the case "where a subsidiary does not enjoy real autonomy in determining its course of action in the market" ( paragraphs 132 and 134 ).

Although it is true that those judgments were based essentially on the consideration that competition between companies economically dependent on each other is impossible and, rather than providing a definition of the term "undertaking", accept the principle that the acts of subsidiaries may be imputed to the parent company, it is clear from them that in competition law legal personality is not the decisive factor for the purposes of the application of Articles 85 to 90 of the Treaty to undertakings . The judgment in Case 170/83 confirms this by identifying an undertaking as an economic unit, even if it is composed of several legal persons .

Since, like Articles 85 and 86, Article 90 is contained in Part 3, Title I, Chapter 1, Section 1 of the Treaty, entitled "Rules applying to undertakings", and since, subject to paragraph 2 thereof, it makes public undertakings subject to all the rules laid down in the Treaty which apply also to private undertakings ( judgment of 6 July 1982 in Joined Cases 188 to 190/80, cited above, paragraph 12 ), it may logically be concluded that the term "undertaking" has the same meaning, independently of whether the undertaking concerned is private or public . ( 9 )

I have stated that in the judgments concerning Article 90, cited in Section 1 above, the Court in fact adopted the same economic and functional approach, even if the question of legal personality was not directly at issue in those cases .

3 . Are financial relations possible only between separate legal persons?

The Italian Government states that "it can be seen from the very nature of the financial relations whose transparency must be ensured ( Article 3 of the directive ) that such relations exist and must exist between separate legal persons" or that "financial relations cannot exist within the same legal person ". In that regard, I would like to make the following observations .

It cannot be denied that it is not possible to speak of "financial relations" unless a sufficiently clear distinction can be drawn between the source of the finance and the recipient .

In this instance, that seems to me to be the case . Although the existence of a separate budget must not necessarily be regarded as an essential condition for the existence of "financial relations", it is certain that in the instant case, an "autonomous administration" with a separate and distinct budget does exist .

As was stated in the defence and as can be seen from Article 9 of Decree-Law No 2258 of 8 December 1927 later converted into Law No*3474 of 6 December 1928, which set up the AAMS, the draft budget of the income and expenditure of the AAMS must be submitted to parliament for approval as an annex to the estimate of expenditure of the Ministry of Finance and the balance sheet is annexed to the general accounts of the State .

Joined to it is a separate balance sheet (" conto consuntivo ") and an "economic account" (" conto economico ") for each of the "aziende" ( tobacco, salt, quinine ) and a general statement of account (" riassunto ") for the whole administration .

The industrial and commercial receipts of the AAMS are entered in the budget of the autonomous administration ( Article 4 ). Only the fiscal receipts are entered directly in the budget of the State .

Finally and most importantly, the budget of the autonomous administration also provides for a series of transfers between that administration and the State Treasury . ( 10 )

Thus, Item No 169 of the budget concerns the "sums paid by the Treasury for the repayment of advances made by the deposit and loan bank to cover administrative deficits ".

That item could possibly constitute one of the "financial relations" referred to by Article 3 of Directive 80/723, namely "the setting-off of operating losses ".

Then there is Item No 510, "Sums paid by the Treasury for the construction of the new tobacco factory at Lucca"; it could be asked whether this constitutes "the provision of capital" or "non-refundable grants ".

On the expenditure side, Item No 128 covers the "reimbursement to the Treasury of expenditure corresponding to the emoluments of employees of the State' s general accounting service working at the AAMS", Item No 129 the "reimbursement to the Treasury of the AAMS share of the funding of the 'Guardia di Finanza' and Item No 137 "taxes and other charges payable on immovable property owned by the AAMS ".

It thus seems to me that it may be concluded that "financial relations" do exist between the autonomous administration on the one hand and the Italian State as such ( through the Treasury ) on the other . Directive 80/723 must therefore apply to those relations since I have found in another connection that the AAMS may be regarded as a "public undertaking ".

The final objection raised by the Italian Government must now be considered .

It contends that it follows from Annex I to Council Directive 80/767/EEC of 22 July 1980 adapting and supplementing in respect of certain contracting authorities Directive 77/62/EEC coordinating procedures for the award of public supply contracts ( Official Journal, L 215, p . 1 ) that "the tobacco monopoly is an organ of the Italian Ministry of Finance" ( page 4 of the defence ).

Annex I to Directive 80/767/EEC lays down the list of "purchasing entities" or "contracting authorities" which are required, when they conclude a public supply contract, to comply with the rules laid down by the directive and, in particular, the prohibition of discrimination on the ground of nationality .

The Italian Ministry of Finance is included in that list . A footnote relating to that Ministry states : "Not including purchases made by the tobacco and salt monopolies ".

It seems to me that two conclusions may be drawn from Annex I .

The first is that the AAMS is an adjunct of the Ministry of Finance, as the Italian Government rightly points out . However, it has also been seen that the AAMS, as its name indicates, enjoys a large measure of autonomy and has a budget separate from that of the Ministry .

The second conclusion which may be drawn from that list is that contracts entered into by the AAMS are not of the same type as those entered into by the Ministry of Finance itself because if they were, they would not be excluded . That tends to prove that the AAMS pursues activities which differ in nature from the traditional activities of the Ministries . Having regard to what is known above on the status and activities of the AAMS, it may be concluded that the contracts it enters into are of the same type as those awarded by a private industrial or commercial undertaking .

4 . Consequences of the proposition that the directive is inapplicable

Finally, the issue may usefully be clarified by considering the implications of a judgment of the Court in which it was held that a body such as the AAMS did not come within the scope of Directive 80/723 .

( a)*If it were to decide that a body which offers goods or services on the market can never be regarded as an undertaking if it does not itself have legal personality, the Court would be abandoning first of all the economic or functional interpretation which it has given to the term "undertaking" in the context of the EEC Treaty .

Secondly, it would call into question the uniform application of Directive 80/723 in all the Member States .

It can be seen from a comparative analysis of the actual situation in the various Member States that the legal forms in which the public authorities, that is to say, the State or local authorities, carry out economic activities are very varied . They vary from one Member State to another and within each Member State, and also vary in time, in accordance with prevailing national legislation and policies . The choice of one form or another does not necessarily reflect objective criteria but is often a function of political or historical considerations or even of simple expediency or convenience of management .

By making possession of a separate legal personality a necessary criterion for the existence of a public undertaking, the AAMS would be excluded from the scope of Directive 80/723 but the "Service d' exploitation industrielle des tabacs et des allumettes" ( Seita ), which exercises a similar activity in France, would continue to come within the scope of that directive .

The Danish railways, which constitute a Directorate-General of a Ministry, would be subject to the directive whereas the Deutsche Bundesbahn ( German Federal Railways ), established in the form of a "special fund" "Sondervermoegen" and enjoying a certain autonomy of management without having legal personality, would not be affected.(11 )

For the same reason, the Deutsche Bundespost ( German Federal Post Office ) would not be subject to the directive whereas the Régie des postes and the Régie des télégraphes et des téléphones in Belgium, established as State bodies with legal personality but subject to the supervision of the Ministry concerned, would come within the scope of the directive . Furthermore, it is interesting to note in this connection that, until the beginning of the 1970s, the Belgian postal administration was regarded as a State undertaking and, for that reason, although carrying out exactly the same activities and also coming under the authority of the Minister concerned, did not have its own legal personality .

It is also interesting to note that in Belgium, gas and electricity are sometimes distributed at the municipal level through municipal bodies established under local government law and managed separately from the general services of the municipality without, however, having separate legal personality . At the intermunicipal level, the same services are provided by public law associations which do have legal personality .

In Italy, differences appear to exist even within the category of "Amministrazioni autonome" of the State . Certain have legal personality while others, such as the AAMS do not . One writer ( 12 ) also indicates that the latter could be transformed into a "ente pubblico di gestione", a category having legal personality .

Those examples clearly emphasize that at the Community level the expression "public undertaking", which must necessarily have a uniform meaning, cannot be defined by reference to the different legal concepts of the national legal systems . For the purposes of defining the concept of an "undertaking" within the meaning of Community competition law and the expression "public undertaking" within the meaning of Directive 80/723, greater importance must therefore be attached to function than to form .

( b)*If the Court were to decide that Directive 80/723, as presently drafted, does not cover State bodies which do not have legal personality and that therefore the AAMS does not come within the scope of the directive, the Commission would probably consider itself compelled to amend it .

Such an amendment would undoubtedly take the form of a provision such as the following :

"' Public undertakings' within the meaning of this directive includes State bodies which offer, for consideration, goods or services on the market, even if those bodies do not have a legal personality separate from that of the State ."

However, as we have seen, the Italian Government states that "in order for the public authorities to be able to exercise influence over a public undertaking, both must have a distinct legal personality" and that "it can be seen from the very nature of the financial relations the transparency of which must be ensured that such relations exist and must exist between separate legal persons ".

That government would therefore probably raise the same objections to the new version of the directive as it raised to the previous one and we would be back where we started .

( c)*Faced with such a situation, some might ask whether it is really necessary that the directive should apply to "imprese-organo ". Don' t Articles 92 and 93 of the Treaty already permit the Commission to supervise aid granted by the Member States?

That objection has already been raised in Joined Cases 188 to 190/80, in which it was claimed that "in the sphere of State aids Article 93 ( 1 ) empowers the Commission to keep under constant review all systems of aid in the Member States . The requirement of cooperation, read together with Article 5, would enable the Commission to ask for information if it suspected that aid had been granted but not notified : if the information was provided, the Commission could examine the measure in question; if not, it could proceed under Article 169" ( France, Italy and United Kingdom v Commission (( 1982 )) ECR 2545 at p . 2569 ).

However, in its judgment in that case the Court rejected that argument and stated, in particular, that :

"In view of the diverse forms of public undertakings in the various Member States and the ramifications of their activities, it is inevitable that their financial relations with public authorities should themselves be very diverse, often complex and therefore difficult to supervise, even with the assistance of the sources of published information to which the applicant governments have referred . In those circumstances there is an undeniable need for the Commission to seek additional information on those relations by establishing common criteria for all the Member States and for all the undertakings in question" ( paragraph 18 ).

For the reasons explained above, I am of the opinion that the expression "all the undertakings in question" also includes public undertakings which are State bodies and which do not have legal personality .

Conclusion

I therefore propose that the Commission' s application should be granted and that the Court should :

Declare that by refusing to supply the information requested by the Commission concerning the Amministrazione Autonoma dei Monopoli di Stato, the Italian Republic has failed to fulfil its obligations under Article 5 ( 2 ) of Commission Directive 80/723 of 25 June 1980 on the transparency of financial relations between Member States and public undertakings;

Order the Italian Republic to pay the costs .

(*) Translated from the French .

( 1 ) See in particular B . Sibilio Parri, Motivazioni e forme di intervento dello Stato nell' economia delle aziende, Padova, Cedam, 1983, p . 61 .

( 2 ) Judgment of 7 June 1983 in Case 78/82 Commission v Italy (( 1983 )) ECR 1955 .

( 3 ) Judgment of the Court of 11 July 1985 in Case 107/84 Commission v Federal Republic of Germany (( 1985 )) ECR 2655, in particular paragraphs 14 and 15 .

( 4 ) See, in particular, the judgments of 17 December 1980 and 26 May 1982 in Case 149/79 Commission v Belgium (( 1980 )) ECR 3881 and (( 1982 )) ECR 1845; the judgment of 3 June 1986 in Case 307/84 Commission v France (( 1986 )) ECR 1725; the judgment of 3 July 1986 in Case 66/85 Lawrie-Blum v Land Baden Wuerttemberg (( 1986 )) ECR 2121 .

( 5 ) Judgment of 22 March 1961 in Joined Cases 42 and 49/59 Snupat v High Authority (( 1961 )) ECR 53 ( in particular, pp . 80 and 81 ); judgment of 13 July 1962 in Joined Cases 17 and 20/61 Kloeckner and Hoesch v High Authority (( 1962 )) ECR 325 ( in particular p . 341 ); judgment of 13 July 1962 in Case 19/61 Mannesmann v High Authority (( 1962 )) ECR 357 ( in particular pp . 371 and 372 ).

( 6 ) See H . Schroeter, in Groeben, Boeckh, Thiesing, Ehlermann : Kommentar zum EWG-Vertrag, Third Edition, p . 885; R . Franceschelli, R . Plaisant, J . Lassier : Droit européen de la concurrence, 1978, p . 219; J . Schapira, G . Le Tallec, J.-B . Blaise : Droit européen des affaires, 1984, p . 231; J.A . Van Damme : La politique de la concurrence dans le CEE, 1979, p . 113 et seq .

( 7 ) Judgment of 16 December 1963 in Case 36/62 Société des aciéries du Temple v High Authority (( 1963 )) ECR 289; judgment of 16 June 1966 in Case 50/65 Acciaierie e ferriere di Solbiate v High Authority (( 1966 )) ECR 147 .

( 8 ) For other references to the case-law, see the Opinion of Mr Advocate General Lenz in Case 170/83, cited above (( 1984 )) ECR 3024 at p . 3024 and 3025 .

( 9 ) Gleiss and Hirsch : Kommentar zum EWG-Kartellrecht, Third Edition, 1978, p . 396; R . Franceschelli, R . Plaisant, J . Lassier, op . cit ., p . 219; A . Deringer : The competition law of the EEC, 1968, p . 228; idem, in FIDE, Eighth Congress ( Copenhagen ), 1978, p . 22 .

( 10 ) See, for example, Law No 42 of 28 February 1986 on the budget of the State for the 1986 financial year, Gazzetta Ufficiale of 28 February 1986, p . 322 et seq .

( 11 ) Directive 85/413 of 24 July 1985 amending Directive 80/723 ( Official Journal, L 229, p . 20 ) extended the scope of the latter, in particular, to the sectors of transport, posts and telecommunications, water and energy .

( 12 ) Ruju, in the section "Monopoli Fiscale" in Enciclopedia del diritto, Milan, 1976, p . 853 .