Cases T-227/01 to T-229/01, T-265/01, T-266/01 and T-270/01

Territorio Histórico de Álava — Diputación Foral de Álava and Others

v

Commission of the European Communities

‛State aid — Tax advantages granted by a territorial entity within a Member State — Tax credit of 45% of the amount of investments — Decisions declaring aid schemes incompatible with the common market and requiring recovery of aid paid out — Trade association — Admissibility — Classification as new aid or as existing aid — Principle of the protection of legitimate expectations — Principle of legal certainty — Principle of proportionality’

Judgment of the Court of First Instance (Fifth Chamber, Extended Composition), 9 September 2009 II ‐ 3042

Summary of the Judgment

State aid — Examination by the Commission — Examination procedure prior to entry into force of Regulation No 659/1999 — Not subject to specific time-limits — Limit — Compliance with requirements of legal certainty — Obligation to complete within a reasonable period the preliminary examination commenced following a complaint

Actions for annulment — Natural or legal persons — Measures of direct and individual concern to them — Commission decision declaring an aid scheme incompatible with the common market — Action brought by a trade association set up to protect and represent its members

The fact that the Court of First Instance has, by a previous order, granted a person leave to intervene in support of the forms of order of a party does not preclude a fresh examination of the admissibility of the intervention. (see para. 81)

The adoption of a broad interpretation of the right to intervene of representative associations whose object is to protect their members in cases raising questions of principle liable to affect those members is intended to facilitate assessment of the context of such cases whilst avoiding multiple individual interventions which would compromise the effectiveness and proper course of the procedure. Accordingly, where actions for annulment are directed against Commission decisions declaring tax exemption schemes illegal and incompatible with the common market and ordering recovery of aid paid out, a trade organisation which is a cross-sectoral confederation set up, inter alia, to represent and defend the interests of undertakings some of which are the actual beneficiaries of aid granted in accordance with those tax schemes and which, moreover, took part in the administrative procedure which led to the adoption of the decisions at issue, has an interest to intervene in such actions. (see paras 83-90)

The statement in intervention, which must, in accordance with the second subparagraph of Article 116(4) of the Court’s Rules of Procedure, contain a summary of the pleas in law and arguments relied on by the intervener, must, in exactly the same way as an application initiating proceedings, be sufficiently clear and precise to enable the defendant to prepare its defence and to enable the Court to give judgment in the action without the need to seek further information. In order to guarantee legal certainty and sound administration of justice, it is necessary, as it is for an application initiating proceedings, that the basic legal and factual particulars on which the statement in intervention is based be indicated, at least in summary form, but coherently and intelligibly, in the text of the statement itself. In that regard, although specific points in the text of the statement can be supported and completed by references to passages in annexed documents, a general reference to other documents, even those annexed to the statement, cannot compensate for the lack of essential elements of legal arguments which must be included in the statement. Furthermore, it is not for the Court of First Instance to seek and identify in the annexes the pleas and arguments on which it may consider the statement to be based, since the annexes have a purely evidential and instrumental function. Those requirements are not met by a statement in intervention which makes a general reference to statements made in cases joined to that in which the intervention in support is made, when none of the essential material of fact and law on which the intervention is based, either substantially or even summarily, are to be found in the statement in intervention itself. (see paras 94-97, 100, 101)

An association which is responsible for defending the collective interests of undertakings, is, as a rule, entitled to bring an action for annulment against a final decision of the Commission in matters of State aid only if those undertakings or some of those undertakings themselves have locus standi or if it can prove an interest of its own. Natural or legal persons can claim to be individually concerned only if they are affected by the measure in question by reason of certain attributes peculiar to them, or by reason of a factual situation which differentiates them from all other persons and distinguishes them individually in the same way as the addressee. In that regard, while the potential beneficiaries of an aid scheme cannot, solely by virtue of that capacity, be regarded as individually concerned by the Commission decision declaring that scheme incompatible with the common market, an undertaking is however in a different position if it is not only concerned by the decision at issue as an undertaking which is a potential beneficiary of the aid scheme in question, but also as an actual beneficiary of individual aid granted under that scheme, the recovery of which has been ordered by the Commission. Moreover, since the decision obliges the Member State to take the measures necessary to recover from the beneficiaries the aid at issue, the undertakings which received the aid must be regarded as directly concerned by the decision. An association is thus entitled to bring proceedings against Commission decisions declaring aid schemes illegal and incompatible with the common market and ordering their abolition and the recovery of aid paid out where that association is responsible for protecting the interests of undertakings of whom it has been proved, albeit in the oral procedure, that they are actual recipients of individual aid granted under aid schemes and that they would, as such, have standing themselves to bring proceedings. (see paras 107-118)

The concept of aid, within the meaning of Article 87(1) EC, embraces not only positive benefits, such as subsidies, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, therefore, without being subsidies in the strict sense of the word, are similar in character and have the same effect. A measure by which the public authorities of a Member State grant to certain undertakings a tax exemption which, although not involving a transfer of State resources, places the persons to whom the tax exemption applies in a more favourable financial situation than other taxpayers constitutes State aid within the meaning of Article 87(1) EC. That applies to tax credits intended to encourage investment, which, by providing to the beneficiary firms a reduction in their tax burden by an amount equivalent to a percentage of the eligible investment, thereby allowing them not to pay their final tax liability in full and placing them in a position which is more favourable than that of other taxpayers. The fact that those tax credits are intended to encourage investment, with the objective of generating future revenue, is, in that regard, immaterial, since the objective pursued by a measure cannot enable it to escape classification as State aid within the meaning of Article 87(1) EC. (see paras 124-126, 130, 184)

The statement of reasons required by Article 253 EC must be appropriate to the act at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure, in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent court to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. A Commission decision declaring an aid scheme in the form of tax credits incompatible with the common market contains a sufficient statement of reasons relating to the effects of that aid on trade and competition when it is stated that, because it is characteristic of the economy of the Member State concerned that it is open to the outside and its production is geared to exporting, that aid, first, strengthens the position of beneficiary firms vis-à-vis other firms which are their competitors in intra-Community trade and thereby affects trade, and, second, improves the profitability of those beneficiary firms because of the increase in their net profit (profit after tax) and enables them to compete with firms which are not eligible for the tax credit. (see paras 136-138)

Where the result of State aid or aid granted through State resources is that the position of an undertaking is strengthened compared with other undertakings competing in intra-Community trade, the latter must be regarded as affected by the aid, even if the beneficiary undertaking is itself not involved in exporting. The Commission is required not to establish that the measure has a real effect on trade between Member States and that competition is actually being distorted, but only to examine whether the measure is liable to affect such trade and distort competition. In the case of an aid scheme, the Commission may confine itself to examining the general characteristics of the scheme in question without being required to examine each particular case in which it applies, and, in particular, where the tax system at issue was not notified, it is not necessary that the reasoning in that regard contain an up-to-date assessment of its effect on competition and on trade between Member States. (see paras 142, 143)

The classification of tax advantages as State aid within the meaning of Article 87(1) EC cannot be affected by the fact that those tax advantages are temporary, that their influence is small and not decisive, or even that they are not the only factor to be taken into account, since there is no requirement in case-law that the distortion of competition, or the threat of such distortion, and the effect on intra-Community trade, must be significant or substantial. (see para. 148)

The specific nature of a State measure, namely its selective application, constitutes one of the characteristics of State aid within the meaning of Article 87(1) EC. In that regard, it is necessary to determine whether or not the measure entails advantages accruing exclusively to certain undertakings or certain sectors of activity. Tax systems which grant advantages in the form of tax credits constitute a selective advantage ‘favouring certain undertakings’, within the meaning of Article 87(1) EC, where those tax credits benefit only undertakings which make investments exceeding a certain threshold and therefore have at their disposal significant financial resources, to the exclusion of all other undertakings even when they invest, and, moreover, where those tax systems grant to the authorities a discretion enabling them to vary the amount of the tax advantage according to the characteristics of the investment projects submitted for their assessment. (see paras 158-162, 166-168)

The fact that an intra-State entity has autonomy in taxation matters which is recognised and protected by the constitution of a Member State does not however exempt that entity from complying with the provisions of the Treaty concerning State aid. Article 87(1) EC, by referring to aid granted by ‘a Member State or through State resources in any form whatsoever’ is directed at all aid financed from public resources. It follows that measures adopted by intra-State entities (decentralised, federated, regional or other) of the Member States, whatever their legal status and description, fall, in the same way as measures taken by the federal or central authority, within the ambit of Article 87(1) EC, if the conditions of that provision are satisfied. (see para. 178)

When assessing whether a State measure constitutes State aid, the selectivity of that measure may, in certain circumstances, be justified ‘by the nature or overall structure of the system’. If that is the case, the measure is outside the scope of Article 87(1) EC. Thus, a specific tax measure which is justified by the internal logic of the tax system — such as the progressiveness of the tax which is justified by the system’s aim of redistribution — will be outside the scope of Article 87(1) EC. The fact that tax measures are based on objective criteria and are horizontal cannot affect their classification as selective and cannot permit the conclusion that they are measures justified by the internal logic of the tax system concerned, when they benefit only undertakings which make investments exceeding a certain threshold and therefore have at their disposal significant financial resources, to the exclusion of all other undertakings even when they invest. Likewise, the objective pursued by the measures at issue cannot prevent their classification as State aid within the meaning of Article 87(1) EC, and it is not sufficient for public authorities to rely on the legitimacy of the objectives pursued by the adoption of an aid measure for the measure to be regarded as a general measure, outside the scope of Article 87(1) EC. That provision does not distinguish between measures of State intervention by reference to their causes or aims but defines them in relation to their effects. (see paras 179, 180, 184, 185)

The Commission has wide discretion in matters falling under Article 87(3) EC. Judicial review must therefore be limited to establishing whether there has been compliance with the rules governing procedure and the statement of reasons, whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers. The Court is not entitled to substitute its own economic assessment for that of the Commission. In the case of an aid scheme, the Commission may confine itself to examining the general characteristics of the scheme in question without being required to examine each particular case in which it applies. (see paras 198, 199)

The Treaty establishes different procedures according to whether the aid is existing or new. Whereas new aid must, under Article 88(3) EC, be notified in advance to the Commission and cannot be implemented before the procedure has culminated in a final decision, existing aid may, under Article 88(1) EC, be duly implemented as long as the Commission has not found it to be incompatible. Existing aid may therefore only be the subject, should the situation arise, of a decision of incompatibility producing effects for the future. Article 1(b)(i) of Regulation No 659/1999, on the application of Article 88 EC, defines existing aid as, inter alia, ‘all aid which existed prior to the entry into force of the Treaty in the respective Member States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the Treaty’. A tax system granting tax credits set up after the entry into force of the Treaty in the Member State concerned cannot be considered as existing aid where the eligibility conditions for those tax credits, the range of beneficiaries, the taxable base, the percentage and the duration of those tax credits are clearly a substantial alteration of a system existing prior to the entry into force of the Treaty. (see paras 228-234)

The concept of ‘evolution of the common market’ in Article 1(b)(v) of Regulation No 659/1999, on the application of Article 88 EC, can be understood as a change in the economic and legal framework of the sector concerned by the measure in question. Such a change can, in particular, be the result of the liberalisation of a market initially closed to competition. On the other hand, that concept does not cover the situation where the Commission alters its appraisal on the basis only of a more rigorous application of the Treaty rules on State aid. It follows that, even if it were established, a change in the Commission’s rules made after the adoption of the measure at issue, in relation to the selectivity criteria applied in the Commission’s appraisal of that measure in the light of Article 87(1) EC cannot be held to constitute an ‘evolution of the common market’ within the meaning of Article 1(b)(v) of Regulation No 659/1999 (see paras 245, 247, 250)

Article 6(1) of Regulation No 659/1999, on the application of Article 88 EC, provides that, within the formal investigation procedure, interested parties have the opportunity to submit their comments to the Commission. That provision provides that those comments must be submitted within a specified period, which may, in duly justified cases, be extended, but it does not provide that an interested party may lodge further comments with the Commission on his own initiative and after expiry of the period provided for that purpose. It follows that the fact that the Commission did not take into consideration additional comments made by an interested party, on the grounds that they had arrived out of time and that the party concerned had at no time requested an extension of the time-limit pursuant to Article 6(1) of Regulation No 659/1999, cannot, in the absence of precise assurances that any additional comments, even late, would be taken into consideration in the absence of a request for extension of the time-limit, constitute an infringement of the principles of the protection of legitimate expectations and good administration. The right to rely on the principle of the protection of legitimate expectations extends to any individual in a situation where a Community authority has caused him to entertain expectations which are justified, and a person may not plead infringement of the principle unless he has been given precise assurances by the administration. Moreover, among the rights guaranteed by the Community legal order in administrative procedures is the principle of good administration, to which is attached the duty of the competent institution to examine carefully and impartially all the relevant aspects of the individual case. Article 6(1) of Regulation No 659/1999 constitutes an expression, in the procedure for reviewing State aid, of those principles. In the procedure for reviewing State aid, interested parties other than the Member State responsible for granting the aid therefore cannot themselves claim a right to debate the issues with the Commission in the same way as may that Member State, and cannot rely on rights as extensive as the rights of the defence as such. General principles of law, such as the principle of good administration, cannot enable the Community courts to extend the procedural rights which the Treaty and secondary legislation confer on interested parties in procedures for reviewing State aid. (see paras 259-272)

Whilst the fourth paragraph of Article 40 of the Statute of the Court of Justice, which applies to the Court of First Instance by virtue of Article 53 of that statute, and Article 116(3) of the Rules of Procedure of the Court of First Instance do not preclude an intervener from using arguments different from those used by the party it is supporting, that is nevertheless on the condition that they do not alter the framework of the dispute and that the intervention is still intended to support the form of order sought by that party. A complaint made by the intervener, which, though different from that of the applicant, is connected with the subject-matter of the dispute, as defined by the applicant, and does not therefore alter the framework of the dispute is admissible. (see paras 292-294)

Whilst until the entry into force of Regulation No 659/1999, on the application of Article 88 EC, the Commission was not bound by any specific time-limits as regards its review of aid measures, the fundamental requirement of legal certainty nevertheless had the effect of preventing the Commission from indefinitely delaying the exercise of its powers. Since the assessment of the compatibility of State aid with the common market falls within its exclusive competence, the Commission is bound, in the interests of sound administration of the fundamental rules of the Treaty relating to State aid, to conduct a diligent and impartial examination of a complaint alleging the existence of aid that is incompatible with the common market. It follows that the Commission cannot prolong indefinitely its preliminary investigation into State measures that have been the subject of a complaint. Whether or not the duration of the investigation of a complaint is reasonable must be determined in relation to the particular circumstances of each case and, especially, its context, the various procedural stages to be followed by the Commission and the complexity of the case. A period of 38 months between the time when the Commission became aware of the aid schemes at issue and the time when it initiated the formal investigation procedure provided for in Article 88(2) EC does not, having regard to the background to those aid schemes, constitute an unreasonable delay which vitiates the preliminary examination procedure by infringing either the principle of legal certainty or, consequently, the principle of good administration, since, first, the measures at issue required a thorough examination of the national legislation at issue, and, second, the length of the procedure is, at least in part, attributable to the national authorities who, in particular, asked for extensions of the period allowed to reply to requests by the Commission for information. (see paras 296-309)

A legitimate expectation that aid is lawful cannot be invoked unless that aid has been granted in compliance with the procedure laid down in Article 88 EC. In fact, a regional authority and a diligent businessman should normally be able to determine whether that procedure has been followed. Furthermore, since Article 88 EC makes no distinction between aid schemes and individual aid, those principles are equally applicable to aid schemes. However, recipients of aid which is granted unlawfully, because it was not notified, as is the case of the aid schemes at issue in the present case, are not precluded from relying on exceptional circumstances on the basis of which they legitimately assumed the aid to be lawful, in order to oppose repayment of the aid. (see paras 310-314)

The reasonableness of the length of the procedure for review of State aid, whether that relates to the preliminary examination or the formal investigation procedure, must be appraised in the light of the circumstances specific to each case and, in particular, its context, the various procedural stages followed by the Commission, the conduct of the parties in the course of the procedure, the complexity of the case and its importance for the various parties involved. An examination procedure with an overall duration of five years one month (38 months for the preliminary examination procedure and 23 months for the formal investigation procedure) cannot, taking into account the context, the complexity of the measures at issue and the importance of the case, and having regard to the fact that the national authorities contributed, at least in part, because of their conduct, to the lengthening of the examination procedure, be regarded as unreasonable. That length does not represent an exceptional circumstance capable of justifying a legitimate expectation that the aid was lawful. (see paras 336-342, 347)