Opinion of Mr Advocate General Geelhoed delivered on 11 October 2001. - Kingdom of Spain v Commission of the European Communities. - State aid - Regulation (EC) No 1013/97 - Aid to publicly-owned shipyards - Declaration of compatibility of aid to the publicly-owned shipyards in Spain - Failure to comply with conditions - Recovery. - Case C-36/00.



European Court reports 2002 Page I-03243



Opinion of the Advocate-General

I - Introduction

1. On 26 October 1999, the Commission adopted Decision 2001/131/EC on State aid implemented by Spain in favour of its publicly-owned shipyards (hereinafter referred to as the contested decision). Essentially, this decision provided that there was no longer any justification for aid in the form of special tax credits granted by the Kingdom of Spain to the publicly-owned shipyards, and that this aid, designated as new aid, is incompatible with the common market pursuant to Article 87(3)(e) EC.

II - Facts and legal background

A - Legal background

2. Council Directive 90/684/EEC of 21 December 1990 on aid to shipbuilding as extended by Council Regulation (EC) No 3094/95 on aid to shipbuilding adopted on 22 December 1995, establishes a number of specific rules governing aid in this sector, which form an exception to the general prohibition contained in Article 87(1) EC.

3. By Council Regulation (EC) No 1013/97 of 2 June 1997 on aid to certain shipyards under restructuring, the Council approved restructuring aid to shipyards in certain Member States, including publicly-owned Spanish shipyards.

4. Article 1 of this regulation - in so far as relevant - provides:

1. Notwithstanding the provisions of Regulation (EC) No 3094/95, for the yards under restructuring specified in paragraphs 2, 3 and 4 of this article the Commission may declare additional operating aid compatible with the common market for the specific purposes and up to the amounts specified.

...,

4. Aid for the restructuring of the publicly-owned yards in Spain may be considered compatible with the common market up to an amount of ESP 135 028 million in the following forms:

- interest payments of up to ESP 62 028 million in 1988 to 1994 on loans taken on to cover unpaid previously approved aid,

- tax credits in the period 1995 to 1999 of up to ESP 58 000 million,

- capital injection in 1997 of up to ESP 15 000 million

All other provisions of Directive 90/684 shall apply to these yards.

The Spanish Government agrees to carry out according to a timetable approved by the Commission and in any case before 31 December 1997 a genuine and irreversible reduction of capacity of 30,000 cgrt.

5. Article 2 of the same regulation goes on to provide that the Commission is to monitor the actual use of aid, in compliance with the restructuring plan, and the enforcement of capacity reductions. The monitoring programme is to include onsite monitoring by the Commission, assisted if necessary by independent experts. Moreover, until the end of June 1999, the Spanish authorities must supply the Commission with quarterly reports on progress towards completing the restructuring programme, and information on the shipyards receiving aid, including information on the use of aid, investments, productivity performance, capacity reductions and limitations, workforce reductions and financial viability. The Commission is in turn to provide the Council with twice yearly reports on progress in implementing the restructuring plan.

B - Facts

6. In 1995 the Spanish authorities submitted a restructuring plan containing an aid package to the Commission. In 1996, in accordance with Directive 90/684, the Commission initiated the formal procedure applying inter alia to the proposed tax credits in the package. In June 1997, on the basis of Article 92(3)(e) of the EC Treaty (now Article 87(3)(e) EC), the Council adopted Regulation No 1013/97 approving aid to shipyards under restructuring in a number of countries including the Kingdom of Spain. This regulation allowed the granting of tax credits.

7. In letter D/6715 dated 6 August 1997 (hereafter the authorising decision), the Commission approved a total of ESP 229.008 million in State aid, ESP 93.980 million was authorised under Articles 6 and 7 of Directive 90/684, and ESP 135.028 million pursuant to Article 4(1) of Regulation No 1013/97. In accordance with Regulation No 1013/97, this decision provides inter alia that a maximum of ESP 58 billion in special tax credits may be paid to the shipyards in question for the period 1995 to 1999. The reason for the authorisation of special tax credits was that it was intended that the shipyards would cease to be able to claim general tax credits.

8. The authorising decision specifies that the maximum amount of aid authorised per category may not be exceeded. Moreover, the decision imposes certain conditions such as capacity reduction, production limits and compliance with the monitoring provisions.

9. During a periodic monitoring visit, it transpired that the Spanish Government might have paid out too much in tax aid to the shipyards concerned. From 1997 these yards had once again become part of a holding company with a tax consolidation system, so from then on tax credits were again available to them. The Commission therefore first obtained further information, and then, in the letter dated 15 February 1999, initiated the procedure pursuant to Article 93(2) of the EC Treaty (now Article 88(2) EC).

C - The contested decision

10. In its decision, the Commission concludes that the publicly-owned shipyards received aid amounting to ESP 18.451 billion in special tax credits from the Spanish authorities without any legal justification. The Commission observes that the common ceiling for such aid payments was not exceeded, but that that ceiling was merely a maximum. Within that ceiling aid should be restricted to taxable losses, and had been approved on the assumption that the shipyards would not be eligible for tax credits under the general tax consolidation system in Spain. This was an essential condition for the approval of the aid, and therefore for compatibility with the common market pursuant to Article 87(3)(e) EC.

11. The Commission observes that a total of ESP 76.062 billion in special aid has been paid out to the shipyards, ESP 58 billion of which was special tax credits. ESP 39.549 billion of the total ESP 58 billion was paid out in 1997, relating to claims arising in 1995 and 1996, when the shipyards could not claim tax credits under general tax legislation. However, the situation was different in 1997, when they were eligible under general tax legislation. From that year on, there therefore ceased to be any justification for the granting of aid in the form of special tax credits under special tax rules. Thus in 1997 there was no longer any basis for the payment of the ESP 18.451 billion relating to that year, but disbursed in 1998 under these specific provisions.

12. Since the Commission considers that in the light of circumstances the payment of ESP 18.451 billion in 1998 was incompatible with Article 87(3)(e) EC and therefore with the common market pursuant to Article 87(1) EC, it concludes that that sum plus interest should be recovered.

III - Pleas in law

13. The Spanish Government is bringing this action against the above decision. It seeks to have the decision annulled, and an order for costs against the Commission.

14. The application is based on four pleas in law, of which two are procedural and two substantive.

15. Under its first plea in law the Spanish Government complains that the Commission has breached the principle of the protection of legitimate expectations, the principle of legal certainty and the principle of sound administration by wrongly following the procedure applying to new aid rather than that governing existing aid.

16. Under its second plea in law the Spanish Government complains in the alternative that the Commission has failed to state reasons, since in the contested decision it, wrongly, fails to deal with the consequences of declaring the aid in question unlawful.

17. Under the third plea in law the Spanish Government complains that the Commission:

- wrongly described the ESP 58 billion in aid approved in 1997 as being purely compensation for the tax credits which the shipyards stood to lose, whereas that aid was the outcome of general negotiations regarding the Spanish plan for these shipyards. In so doing, the Commission infringed Regulation No 1013/97 and the principle of the protection of legitimate expectations;

- wrongly construed the amount of tax aid approved as a ceiling, which is tantamount to denying the definitive nature of the authorising decision. That amounts to an infringement of Article 87(3) EC and a breach of the principles of legal certainty and the protection of legitimate expectations;

- wrongly offset the amount of authorised aid by the tax credits available under general tax legislation. This, according to the Spanish Government, is contrary to Article 87(1) EC.

18. The fourth plea in law, put forward in the alternative, concerns the infringement of the principle of the protection of legitimate expectations and a manifest error of assessment. The Spanish Government contends, under this plea, that even if the ESP 58 billion in aid approved cannot exist concurrently with general tax credits, it has still been justifiably approved.

19. The Commission contends that the application should be dismissed, that the applicant should be ordered to pay the costs.

IV - Appraisal of the first and second pleas in law (procedural aspects)

A - The first plea in law: Infringement of the principle of the protection of legitimate expectations and the principle of sound administration

Arguments of the parties

20. Under the first plea in law the Spanish Government argues that the Commission should have followed the procedure under Article 88(1) EC, since the case involves previously authorised existing aid which does not exceed the ceiling applying to that aid. The Commission has failed to use the correct procedure in this instance, and has therefore infringed the principle of the protection of legitimate expectations, the principle of legal certainty and the principle of sound administration.

21. The Spanish Government further observes that it is to be inferred from the contested decision that the Commission considers one of the conditions attached to the authorising decision to have been infringed, since the shipyards again fall under the general tax consolidation regime. It argues that any justification for the special tax credits thereby ceases; these had been authorised on the assumption that the shipyards would no longer be eligible for the offsetting of losses under the general scheme. The Commission failed to inform the Spanish Government of this. It waited until the last payment was made in 1988, before initiating the procedure under Article 88(2) EC alleging that the granting of special tax credits in 1997 was equivalent to new aid. In so doing, the Commission has infringed the principle of legal certainty and the principle of sound administration.

22. The Spanish Government submits that the Commission may not invoke the argument that existing aid becomes incompatible with the common market if it ceases to be necessary. The reference to the judgment in Philip Morris v Commission to underpin the argument is unconvincing, since one cannot infer from the judgment in that case that each time an authorised aid measure is applied it must be shown to be necessary.

23. Furthermore, the Spanish Government is of the opinion that even if the application of existing aid were to require independent justification, the inadequacy of the statement of reasons and the complexity of the authorising decision itself require that the Commission notify them thereof in due time. All the more so in this instance, since the Commission was aware of the dissolution of Agencia Industrial del Estado (AIE) and the integration of the yards into a new undertaking with effect from 1997. In the contested decision, the Commission finds, without any prior notice, that an aid already authorised is incompatible with Community law. In so doing it has infringed the principles of legal certainty and the protection of legitimate expectations and that of sound administration.

24. That being so, continues the Spanish Government, the Commission should have used the procedure of Article 88(1) EC which applies to existing aid. If the Commission considers that the aid concerned is no longer compatible with the common market, it should review the position in accordance with the procedure laid down in that provision.

25. The Commission contests the Spanish Government's point of view. Aid granted in accordance with all the rules governing the authorisation of such aid may be considered to be existing aid. It is deemed to be authorised with the rules on which it is based. If, however, aid is in fact granted in breach of the conditions governing these rules, then the protection afforded by the authorisation lapses. It would then be new aid which must be notified and assessed according to the provisions of Article 88(2) and (3) EC.

26. The Commission also considers that it has followed the correct procedure in this case. Its opinion is based both on Article 6 of Regulation No 659/1999 and on relevant case-law. In this case the application of aid is not covered by conditions governing the authorisation of special tax aids, precisely because the shipyards were not eligible for tax credits under the general tax system. The aid must therefore be deemed new aid, with all the consequences flowing from that under the EC Treaty. The procedure advocated by Spain, that of Article 88(1) EC, makes the recovery of aid paid out in clear contravention of the authorising decision impossible. That is an undesirable result.

B - Second plea in law: inadequate statement of reasons

1. Arguments of the parties

27. In its second plea in law, the Spanish Government argues, as an alternative claim, that once the Commission had determined that this was a case of new aid, it should have assessed the aid on the basis of all the criteria in Article 87(1) EC. However, in the contested decision, no statement of reasons is given at all for two of the concurrent requirements specified in the decision for aid to be declared incompatible, namely influencing trade between Member States and distortion or threatened distortion of competition.

28. The Commission's view is that this is undeniably a case of aid. In this respect, it refers to its decision of 6 August 1997 which declared the aid compatible with the common market under the conditions set down in that decision. Such an authorisation presupposes the existence of aid. The Commission goes on to refer to the relevant legislation, in particular Directive 90/684 and Regulation 1013/97. It can be inferred from those measures that in the vulnerable shipbuilding market any national aid will almost by definition influence trade between Member States and competition in that market. According to case-law, the Commission need not in such instances demonstrate the actual effect of the aid.

29. In response to this line of defence from the Commission, the Spanish Government remarks that case-law does not suggest that the Commission is completely free of its obligation to demonstrate the effects of the aid in trade between Member States and on competition. The Spanish Government believes that no arguments can be drawn from the above decisions since the contested decision does not refer to the respective statements of reasons of those decisions. The reference to case-law, in particular Siemens v Commission is, according to the Spanish Government, misconceived. In that case the Court held that a partial statement of reasons supplemented by the facts and context of the case was sufficient. That judgment does not however imply that the Commission is completely freed of its obligation to give a statement of reasons. Finally in this instance, the Commission wrongly cites case-law relating to non-notified aids. The Commission was aware that the shipyards had been incorporated into a new holding company and should have been aware of the consequences of this in respect of the application of general fiscal legislation on tax credits.

2. Assessment

(a) Preliminary comments

30. The emergence of the so-called new industrial countries since the end of the 1960s has had a major impact on the world shipbuilding industry. The capacity of shipyards for both construction and repair has outstripped demand world-wide, whilst shipyards in Japan and later South Korea and Taiwan could manufacture at costs considerably below those in North America and Western Europe. As a result, since the beginning of the 1970s the European shipbuilding industry has been in a state of virtually permanent crisis, with all the concomitant economic and social consequences thereof. With a view to protecting this industry, considered to be of vital importance, and to avoiding as far as possible the shock waves caused by sudden yard closures, a number of States began to subsidise their shipbuilding industry as early as the 1960s. Understandable as this policy was from a strictly national point of view, its effect on the shipping market both in Europe and world-wide was to compound rather than alleviate the problem: unproductive capacity was artificially maintained whilst subsidies simply depressed prices still further.

31. In order to prevent a costly and pointless battle over subsidies in this highly sensitive sector, the Community took the initiative early on via Article 87(3)(e) EC, imposing strict conditions on national subsidies to shipbuilding. The first shipbuilding directive dates back to 1969 and has since been replaced several times. Directive 90/684 applies to the case in hand. The initial directive had a two-fold aim: maintaining competitiveness of European shipyards in the world market without distorting competition between Community shipyards. Subsequently the emphasis shifted towards the necessary restructuring of shipbuilding so as to enhance its competitiveness on the world market. This objective is underpinned by OECD agreements providing for a general reduction in production aid to shipbuilding, and leading ultimately to its complete abolition. The current Council Regulation (EC) No 1540/98 on aid to shipbuilding, adopted on 29 June 1998, prohibits production aid. Community regulations are characterised by stricter and restrictive implementation of the derogations and stringent monitoring provisions.

32. Directive 90/684 is thus now considered to be a sectoral derogation to the general State aid scheme. Regulation No 1013/97 introduces a further derogation from the sectoral rules for the Spanish shipyards amongst others. It opens up the possibility of special aid for those yards being declared compatible with the common market, aid which otherwise would be incompatible with Directive 90/684 cited above. This extra aid facility was made available so that the Spanish yards concerned could undergo extensive restructuring which would restore their competitiveness. Since this is a derogation, the conditions under which the aid is granted must be strictly construed.

(b) The first plea in law

33. The first plea in law raises the question of whether the Commission followed the correct procedure. To answer this question, one must first ascertain whether what is concerned is a new aid or aid covered by a previous authorising decision.

34. Case-law states that if a Member State grants aid to an undertaking in breach of the conditions under which the Commission approved the aid, or if such aid goes beyond the parameters of the authorising decision, then the decision declaring the aid unlawful and ordering its recovery must be taken in accordance with Article 88(2) EC. If the Commission feels that a given Member State has infringed a number of the conditions set down in its earlier decision, the applicable procedure is that of the second subparagraph of Article 88(2). If the Commission considers that it is new aid which was not examined in the procedure preceding its earlier decision, then the procedure of Article 88(2), first subparagraph, applies.

35. The Court has adopted a similar approach in its judgment in Italgrani which centred on the individual application of previously approved aid. In its judgment, the Court held that if the Commission establishes that the decision authorising the scheme does not cover any individual aid measure, that aid should be deemed new aid.

36. It is an undisputed fact that when the restructuring plan for the Spanish shipyards was approved, the yards were still part of the Instituto National de Industria (INI). Through INI they could therefore reduce their losses after tax by 28%, pursuant to the general legislation on tax consolidation of profits and losses within a holding company. However, from 1 August 1995 the yards became part of the (loss-making) State holding company Agencia Industrial del Estado (AIE), thus ending that opportunity for offsetting losses. In order to enable the yards in question to benefit from these tax facilities, Spain adopted Law No 13/96. This law envisaged granting the yards similar benefits until 31 December 1999. During this period they were to continue to receive the equivalent of the sum to which they would have been entitled under the general tax law on consolidated taxation.

37. This special law was expressly mentioned, as an integral part of the plan, in the Spanish Government's notification of restructuring measures in November 1995. Since the Commission viewed it as a specific measure benefiting the shipyards and therefore as aid, it examined the measure more closely. After being empowered to do so by the Council Regulation No 1013/97 the Commission finally approved the aid in the form of tax credits, albeit subject to a ceiling.

38. The relevant passage from the authorising decision reads as follows: As to the ESP 58,000 million, the then shareholder INI, in accordance with usual Spanish practice regarding holding companies, reduced losses after tax by offsetting tax against profits elsewhere in the undertaking. According to the financial forecasts of the plan, these tax credits were to be available till the end of 1998. They have been approved by the Commission under Article 1(4) of Regulation 1013/97.

39. On 1 September 1997 the shipyards however became part of the Sociedad de Participaciones Industriales (SEPI), and were able, under general Spanish law on consolidated tax, to offset losses before tax against profits elsewhere in the group, as indeed had been the case when they were part of INI.

40. The Commission contends that the justification for the aid had therefore become invalid, and that the ESP 18.451 billion, paid by the Spanish Government as special tax credits, was in breach of the earlier authorising decision, since the aid was only approved because the shipyards had ceased to be part of an undertaking with profits which could be used for tax consolidation purposes, so were therefore unable to use general tax rules to offset their losses. The aid was approved with that aim in mind. The intention never was to give the shipyards the right to both tax credits.

41. My opinion is that the whole context of the case shows that the authorisation was not intended to cover a situation where tax credits under general legislation could exist concurrently with tax credits under special legislation. The aid was approved precisely because shipyards were unable to claim tax credits under general legislation. The Spanish Government had notified the tax credits under general Spanish law 13/96, which preceded the adoption of Regulation No 1013/97 and the authorising decision, as part of the restructuring plan. It is therefore perfectly reasonable for the Commission, in assessing the compatibility of the aid, to assume that this measure could only apply to undertakings ineligible for general tax credits. The passage quoted above from the authorising decision also testifies to this. Moreover, as the Commission has indeed observed, this is a two-fold derogation from the prohibition. The authorisation must therefore be strictly construed. It is also clear that the authorisation of aid only related to a situation where the shipyards were not eligible for tax credits under the general legislation.

42. In the light of the above, I therefore agree with the Commission that the aid is not covered by the earlier authorising decision. Once the shipyards again became part of a holding company to which general legislation on taxation applies, and received tax credits under this law, the aid was no longer justified and the Spanish Government could no longer rely on the Commission's original authorisation. Thus the aid in the form of tax credits paid in 1998 but relating to 1997, must be regarded as new aid.

43. As the Commission correctly observes, every authorising decision must contain a justification of the aid. If this justification ceases to exist, the authorisation itself becomes inoperative. In this case, the justification for the granting of special tax aid to the shipyards lay in the fact that they were to become part of a loss-making holding company and would therefore cease to benefit from tax credits available under the general tax legislation. This type of fiscal offsetting of losses was required in order to give the yards sufficient financial scope for successful restructuring. The Council and the Commission therefore authorised the Spanish Government to provide specific tax facilities to compensate the shipyards for the tax credits they would otherwise lose. However, when the shipyards became part of a profit-making holding company the justification for granting special tax facilities ceased to exist. Consequently the special tax aid subsequently granted to the shipyards by the Spanish Government falls outside the scope of the authorising decision. It is therefore a new aid measure within the meaning of Article 88(2) EC.

44. The Spanish Government's argument that the Commission should have informed it in advance, or at least at an earlier stage, that it considered that the aid had become incompatible due to a change in circumstances, and that its failure to do so breached the principles of legal certainty, the protection of legitimate expectations and sound administration is also untenable. The Commission need not have inferred from the fact that in 1997 the publicly-owned shipyards again became part of a holding company, to which the general tax consolidation scheme applied, that the Spanish Government would necessarily continue to grant special tax credits. The Spanish Government should and must have known that there was no longer any justification for such tax credits.

45. In the light of the above, I conclude that in this instance the procedure of Article 88(2), first subparagraph, EC is the appropriate procedure. I do not therefore share the Spanish point of view that the Commission should have followed the procedure for existing aid under Article 88(1) EC.

(c) The second plea in law

46. On the Spanish Government's argument that since this is a new aid, the Commission should have dealt with the effect on trade between Member States and distortion of competition in its statement of reasons I can be brief, given the sector involved and its past history.

47. In a comprehensive judgment, the Court has stated that in assessing whether an adequate statement of reasons is given for a decision, not only the text and the context of a decision, but also the whole complex of legal rules governing the case must be considered.

48. As previously stated, this is a sector characterised by structural overcapacity and highly sensitive competitive relations both within and outside the Community. Thus clearly any sectoral aid can distort competition and affect trade between Member States.

49. The contested decision must be read in the context of the authorising decision, Regulation No 1013/97 and Directive 90/684. It follows from Directive 90/684 that given the difficulties experienced by European shipbuilders on the world market, State aid can distort competition between Community shipyards and hence influence the placing of orders and trade between Member States. This directive therefore regulates the granting of State aid very closely, and subjects it to stringent controls. Derogations from the directive are subject to the stringent procedural requirement of prior approval by the Council. In this instance, approval was given in Regulation 1013/97. This stringent procedural requirement stems from the fact that any specific derogation from the general rules of the directive would affect competition between Member States on the shipbuilding market. The sensitivity of the market is likewise reflected in the authorising decision of 1997, which imposes a series of precisely defined conditions on both the entire aid package and the individual component measures which are designed to ensure that the package attains its defined objective, namely, far-reaching restructuring of the shipyards concerned and a return to competitiveness, without unduly straining competitive relations within the Community. It may be seen from this context that unilateral derogations from the approved package which result in the yards receiving substantially more public money than was envisaged in the package, will almost by definition distort intra-Community competition in the shipbuilding sector, and affect trade between Member States - the placing of orders. A Commission decision finding that a Member State has granted more aid to its shipyards than was authorised can in this market and managerial context be concise. The recipient State should and must have known that the additional aid it granted would have this effect.

50. In the light of the above, I therefore conclude that the complaint against the Commission of failure to state adequate reasons should be rejected.

V - Assessment of the third and fourth pleas in law

A - Third plea in law: infringement of Articles 87(1) and (3)(e) EC, of Regulation No 1013/97 and breach of the principle of the protection of legitimate expectations

Submissions of the parties

51. Under the third plea in law the Spanish Government claims that Article 87(1) and (3)(e) EC, Regulation No 1013/97 and the principle of the protection of legitimate expectations have been breached. This plea falls in three parts.

52. In the first part, the Spanish Government claims that the ESP 58 billion authorised cannot per se be deemed pure compensation for the tax credits the shipyards were to lose, but is rather part of a total package resulting from negotiations. By failing to adopt this approach the Commission has infringed Council Regulation No 1013/97 and the principle of the protection of legitimate expectations created by its decision giving definitive approval to a specific fixed amount of aid. The Spanish Government submits that if the authorising decision had intended to make payment of part of the aid dependent on the continued existence of a certain set of circumstances, the Commission should have stated this explicitly in its authorising decision.

53. According to the Spanish Government, the parties negotiated on the total sum of aid and this total was taken into account in determining the quid pro quo on the part of the recipient yards, namely an irreversible capacity reduction of 30 000 cgrt. Regulation No 1013/97 would not have set the same conditions for a quid pro quo had the total sum not been that fixed by the regulation itself. The Spanish Government submits that it has fulfilled the conditions of the regulation and the authorising decision, both regarding the capacity reductions and compliance with the maximum aid ceiling.

54. The Spanish Government furthermore submits that the sum payable to the yards under a tax consolidation scheme cannot be forecast in advance since this depends on the taxable base (the tax credit is 28% of the base figure). If the Commission's view was that the specific tax credits mentioned in the authorising decision were intended as compensation for tax credits no longer available under general tax legislation, it should have described and defined them as such. The fact that the Commission confines itself to approving a fixed sum does not suggest that this was compensation.

55. Moreover, the Commission itself did not reserve itself the right to review the sum authorised as aid in the form of tax credits once the precise sum to which the yards were entitled became known. It confines itself to authorising aid in a clear and unconditional manner, for a specific sum, under certain specific conditions.

56. In summary, the Spanish Government submits that the Commission position is inherently contradictory. Either the ESP 58 billion in aid is justified as compensation or it is part of a package of aid measures conditional on a substantial and irreversible capacity reduction, on various aspects of which the parties had had the opportunity to negotiate. The first view, as defended by the Commission, implies the option of paying out sums greater than that authorised specifically if it transpires that the sum to be compensated is much higher than anticipated. The Commission clearly finds the latter option unacceptable.

57. The Commission rejects the Spanish Government's reasoning. It clearly assumes that the only conditions the authorising decision imposes on tax credits are compliance with the ESP 58 billion ceiling on aid and the capacity reductions established. The Commission's view, by contrast, is that authorisation was only justified because the Spanish yards could no longer benefit from general tax credits. This justification inherent in the authorisation has ceased to exist, and thus the authorisation itself becomes invalid. The Commission points out that for aid to be authorised, necessity must be demonstrated, both in terms of the amount and of the specific objective of the aid. If other means such as the applicability of general tax legislation seem adequate for attaining the same objective, then the aid cannot be authorised.

58. The Commission submits that no decision authorising aid in general terms is subject to the sole restriction of compliance with a ceiling. In its decisions it always indicates the maximum sum authorised and the underlying objective. A complete aid package has never been approved without further detailed conditions, particularly not in a sensitive sector such as this where aids are generally categorically prohibited. In this context, the Commission refers to the detail of the authorising decision which describes each category of aid separately, and expressly lists the conditions under which each may be approved. This would have been pointless if only the total sum of aid approved and the corresponding capacity reduction were relevant.

59. The Commission does not therefore share the Spanish Government's point of view as regards the outcome of the general negotiations. The Commission's position is that Regulation No 1013/97 and the authorising decision are clear. These specify that the Kingdom of Spain must not only adhere to the total sum authorised but must also comply with the objectives and the ceilings set for each authorised category of aid. The basis for the Spanish Government's submissions of breach of the protection of legitimate expectations and of Regulation No 1013/97 is unclear to the Commission.

60. The Commission explains that the maximum of ESP 58 billion is based on information received from the Spanish Government. This is derived from forecasts of the yards' losses before tax and not from forecasts relating to their future taxable losses, which would theoretically have been preferable. Since these were forecasts rather than definitive figures, the Commission did not demand further detail from the Spanish authorities. It would have been impossible to obtain more accurate calculations in advance since they would have been substantially influenced by the future results of the undertaking, which were by definition uncertain.

61. A second reason for having recourse to a calculation based on anticipated losses before tax is that a calculation based on the expected taxable base would have been even less accurate: tax legislation changes from year to year, which makes any advance forecasts very uncertain. An estimate based on the anticipated net results of the shipyards concerned offers greater certainty in this respect.

62. However, the actual application of special credits is calculated under the special Law No 13/96 using the taxable base rather than losses before tax. It was unnecessary to state this expressly in the authorising decision since it followed from special Law 13/96.

63. Finally, the figure of ESP 58 billion in tax credits could be accepted because it was a ceiling. This means that if the shipyards' losses were less than anticipated, compensation under Law 13/96 would be proportionately reduced, since this law is predicated on the taxable base. If, on the contrary, losses and therefore also the compensation under Law 13/96 were greater than anticipated, then the sum actually paid out in tax credits could not in any event exceed ESP 58 billion, since this was expressly stated to be a maximum. This mechanism therefore guarantees that competition is not affected beyond the authorised limit, irrespective of the development of the undertaking

64. The Spanish authorities' observation that the Commission would never in any event have authorised more than ESP 58 billion, even if the actual losses had been higher, is therefore correct. The Commission considers this limit to be a maximum, which was still acceptable without damaging competitive relations excessively. An alternative view would be tantamount to giving the Spanish State carte blanche, enabling them to continue to grant an undertaking aid in the form of tax credits even if the extent of that undertaking's losses indicated that it was no longer viable. Consequently, the authorised limit was not to be exceeded under any circumstances.

65. The Commission disputes the link alleged by the Spanish Government between capacity reduction and the maximum authorised amount in the decision. The capacity reduction is an integral part of the authorising decision, by implication a quid pro quo to offset to an extent the adverse effects of aid on competition. This does not mean that there is an automatic relationship or link between capacity reduction and the level of aid authorised.

66. Under the second part of this plea in law, the Spanish Government submits that the Commission's interpretation of the maximum amount applying to authorised tax credits is incompatible with Article 87(3) EC, the principle of legal certainty and the principle of the protection of legitimate expectations. This amounts to a denial of the definitive nature of the authorising decision. The Commission's position in point 42 of the contested decision would mean that the authorisation granted degenerated into a declaration of intent, which would oblige the Spanish authorities when implementing the restructuring plan continually to demonstrate the necessity of granting the aid which had already been authorised.

67. The fact that the sums authorised constitute a ceiling does not mean that they are provisional, in the sense that when plans are implemented substantially lower sums may be acceptable. The Commission's contrary interpretation is, in the opinion of the Spanish Government, contrary to Article 1 of Regulation No 1013/97 under which the Commission may also declare new aid compatible with the common market provided that the objectives and the ceiling on aid specified in the regulation are respected.

68. In its response to the second part of the third plea in law, the Commission points out that fiscal compensation is to a great extent dependent on developments within the undertakings concerned and therefore it is logical that the precise amount is not specified. Since it was impossible to fix the amount in advance, the Commission has set a ceiling in order to prevent an undertaking with extremely bad results from automatically receiving aid and thereby adversely affecting competition. It is equally logical that where results are better than expected, less compensation should be received under Spanish Law 13/96 (calculated on the basis of 28% of the taxable base). It cannot therefore be submitted that the authorisation is temporary in nature. The actual sum to be paid out may be unspecified, but the same is not true of the mechanism for calculating it with the ceiling of ESP 58 billion linked to it.

69. Under the third part of this plea in law, the Spanish Government contends that the Commission's line of reasoning in the contested decision means that tax credits under the general legislation are added to those paid under special legislation. According to the Spanish Government, this is conceptually incorrect, since the tax credits under general provisions are not aid measures. The addition of the two therefore infringes Article 87(1) EC.

70. The Commission responds that in the contested decision it merely observed that the justification for aid in the form of tax credits lapsed on 1 January 1997 and that the existence of the authorisation itself cannot be justified. Consequently, the aid must be considered unauthorised from that point on. The Commission has not therefore aggregated any amounts, nor investigated the cumulative effect of these two types of tax aid, but has merely observed that the special tax credits previously authorised are no longer justified.

B - The fourth plea in law: infringement of the principle of the protection of legitimate expectations and error of assessment

1. Submissions of the parties

71. Under the fourth plea in law the Spanish Government contends in the alternative that even if it is admitted that aid authorised in the form of tax credits cannot exist concurrently with general tax credits, the ESP 58 billion granted to the yards is still justified. The Commission has therefore infringed the principle of the protection of legitimate expectations and committed a manifest error of assessment.

72. In this context the Spanish Government asserts that the tax credits received by the yards under the general tax consolidation scheme amounted to 28% of the taxable base. When the special tax credits were authorised, 28% of net results before tax was the base figure used. The Commission should have taken this criterion into account.

73. The Commission however considers that the aid paid in 1998 is devoid of justification. It observes in this context that the aid approved does not correspond to 28% of forecast losses during the period under consideration as asserted by the Spanish Government, but rather to the sum, albeit a maximum, which the shipyards could otherwise have received under the general tax rules. The basis for this was in Law 13/96. This law preceded the adoption of Regulation No 1013/97 and the authorising decision. The latter therefore, in authorising the tax credits, refers to the Spanish law. The aid paid out under this law does not correspond to 28% of losses before tax but rather to the sum which could have been claimed if the shipyards had remained in a tax consolidation scheme. The Commission therefore believes that it used the only correct criterion.

2. Assessment of the third and fourth pleas in law

74. The Spanish Government fails to appreciate that this case concerns not whether the aid paid was above or below the ceiling, but rather the fact that the aid was no longer justified and therefore was not covered by the authorising decision.

75. Regulation No 1013/97 and the authorising decision are clear regarding the total amount granted, the maximum sum per category of aid and the Kingdom of Spain's obligation to cut capacity by 30 000 cgrt.

76. I recall that Regulation No 1013/97 and the authorising decision empower the Spanish Government to grant exceptional aid to a number of shipyards in order to facilitate restructuring by, inter alia, capacity reduction. The linear relationship asserted by the Spanish Government between the total aid deemed permissible and the extent of the capacity reduction is neither mentioned in Regulation No 1013/97 nor in the authorising decision. Article 1(1) of the regulation provides that with a view to restructuring the publicly-owned shipyards in Spain, the Commission may authorise additional operating aid. Under Article 1(4) of the regulation, it may only do so bearing in mind the objectives and the maximum amounts laid down in that text. For these purposes and within these maximum limits, the aid measures may be deemed compatible with the common market provided they are necessary to attain the said objectives. As to the special tax credits at issue here, as is evident from the authorising decision, they were justified because of the fact that the yards concerned were no longer eligible for tax credits under the general tax legislation. When, subsequently, they again became eligible, this category of aid was no longer necessary. The fact that Regulation No 1013/97 created scope for granting special aid to Spanish yards does not release the Commission from its obligation to examine whether the justification, that is the necessity for the aid, continued to exist. The fact that one category of aid out of a whole package of measures ceases to be necessary obviously has no bearing on the obligation to restructure and to cut capacity, which are conditions attached to the authorisation of the package.

77. The Spanish Government's submission that the Commission's reasoning implies that the authorisation granted is in fact provisional is also unfounded. The authorisation was granted definitively, clearly under the assumption that the special grounds justifying the various parts of the package of exceptional measures would continue to exist. It was precisely the exceptional nature of the measures that obliged the Commission to continue to monitor the need for measures strictly.

78. The Spanish Government's assertion that general credits under general measures applicable at national level are not aid in the sense intended by the Treaty is correct per se. However that is not the point at issue. As is clear from the above, the authorisation does not allow the granting of special tax credits alongside general tax credits. The aid authorised was exceptional and was specifically intended to compensate for the loss of the entitlement to general tax credits and thus to facilitate restructuring. So when the yards again became eligible for normal tax credits under the general rules, the aid ceased to be justified. The Commission is not therefore aggregating the separate amounts, but stating that the aid ceased to be justified once the yards' claim to loss compensation under the general legislation revived.

79. Nor do I consider the Spanish Government's complaint regarding the Commission's method of calculation to be tenable. In setting the maximum aid in special tax credits the Commission used information supplied by the Spanish Government. These data were based on estimated net results before tax (losses). The Commission has indicated that an estimate based on the future taxable base would have been more accurate, but also considerably more problematic and uncertain. Since the Commission had to set a maximum and had in any event to do so on the basis of estimates, the Commission deemed it neither necessary nor possible to exact greater accuracy of the Spanish authorities. The level of tax credits for which the yards were eligible was calculated on the basis of Law 13/96, using the taxable base. In calculating the excess aid in the form of tax credits paid to the shipyards for 1997, the Commission operated in accordance with the provisions of that law. This I consider to be the only correct approach in the light of the rationale of the authorising decision. Law 13/96 specifies that special tax credits are to be granted on the same basis as general tax credits. The aid paid under this law corresponds to the amount the shipyards would have been able to claim had they remained part of a profit-making holding company able to consolidate profits and losses. That sum is calculated using the taxable base, that is the accounting result, corrected in respect of permanent items and items temporarily not coming into consideration. Although the authorising decision does not specify the basis for assessment, this does not detract from the validity of the Commission's chosen approach. The authorisation pertained to precisely those special tax credits envisaged when the Spanish law was adopted. When the special tax credits ceased to be justified, the unlawfully paid aid had to be calculated using the legislative rules under which the tax credits had been granted.

80. The Spanish Government's arguments according to which the Commission's basic premiss should have been the criteria used for calculating the maximum permissible amount for this tax aid at ESP 58 billion, is also unpersuasive. As I have set out above, this method of calculation, based on anticipated net results, was required in order to give a reliable prior estimate of the tax credits likely to be lost by the yards concerned if they became part of a loss-making holding company. However in calculating the amount of unlawfully paid aid retrospectively, the logic of the legislative rules under which the aid was originally paid must be used. It is not a question of estimates based on forecasts, but rather of the calculation of a sum, to be done using certain criteria, all of which are to be found within the law itself.

81. For what it may be worth, I would further observe that, this action is not about whether the ceiling of ESP 58 billion was exceeded, but rather whether Law 13/96 should still have been applied when from 1997 it ceased to be justified as the shipyards concerned were again eligible for tax credits under general legislation.

82. I therefore conclude that the third and fourth pleas in law are unfounded.

VI - Conclusion

83. In the light of the foregoing I propose that the Court should:

(a) dismiss the application of the Kingdom of Spain as unfounded;

(b) order the applicant to pay the costs pursuant to Article 69(2) of the Rules of Procedure.