98/365/EC: Commission Decision of 1 October 1997 concerning alleged State aid granted by France to SFMI- Chronopost [notified under document number C(1997) 3146] (Only the French text is authentic) (Text with EEA relevance)
Date: 1997-10-01
Institutions: European Commission
Subjects: France, State aid, customs procedure suspending duties, postal service, stamp duty, subsidiary

9. 6. 98

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Official Journal of the European Communities

L 164/37

COMMISSION DECISION

of 1 October 1997

concerning alleged State aid granted by France to SFMI-Chronopost

(notified under document number C(1997) 3146)

(Only the French text is authentic)

(Text with EEA relevance)

(98/365/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having regard to the Agreement establishing the Euro-
pean Economic Area, and in particular of Article 62(1)(a)
thereof,

Having, in accordance with the provisions of the above-
mentioned Articles, given notice to the parties concerned
to submit their comments and having regard to those
comments,

Whereas:

I. THE FACTS

A. Background

In France express delivery service is an activity open to
unrestricted competition, unlike the ordinary postal
service, which is subject to the monopoly of the French
Post Office.

The French Post Office belonged to the French public
administration until the end of 1990. On 1 January 1991,
pursuant to the provisions of Law No 90-568 of 2 July
1990, it became an autonomous corporation subject to
French public law, and as such is free to operate in
sectors open to competition, as well as pursuing public
sector activities.

At the end of 1985 and the beginning of 1986, the Post
Office entrusted the management of its express delivery
service, operated under the name of Postadex, to a private
company called Soci(cid:130)t(cid:130) Fran(cid:135)aise de Messagerie Interna-
tionale (SFMI) which had been set up for this purpose.
SFMI was incorporated with a share-capital of FRF 10
million held by Sofipost
(66 %), a holding company
wholly owned by the Post Office, and by TAT Express

(34 %), a subsidiary of the airline Transport A(cid:130)rien Trans-
r(cid:130)gional
(‘TAT’). SFMI provided the express delivery
service under the name of EMS/Chronopost.

The conditions for the operation and marketing of the
express delivery service were set out in an order of 19
August 1986 by the French Ministry of Posts and Tele-
communications. Under this order the service was to be
operated by SFMI using mainly the resources of the Post
Office supplemented by those of TAT. The arrangements
in the order included the requirement that the post office
was to provide SFMI with logistical and commercial as-
sistance. The contractual relations between the Post Office
and SFMI-Chronopost are regulated by way of agreements
entered into by the two parties. The first agreement,
which was concluded in 1986 and was in force until 1992,
was replaced by a second agreement which entered into
force on 1 January 1993.

in which their

In 1992 the structure of the express delivery business
changed. Sofipost and TAT set up a new company, Chro-
nopost SA (‘Chronopost’),
respective
holdings were again 66 % and 34 %. Chronopost took
the domestic activity of SFMI, which remained
over
responsible for international business. SFMI was acquired
by GDEW France, the French subsidiary of the interna-
tional common operator GDEW whose participants are
the Australian company TNT and the German, Canadian,
French, Netherlands and Swedish post offices. It is worth
remembering that GDEW is a concentrative joint venture
which was authorised by Commission Decision of 2
December 1991 (1).

Under this new structure, Chronopost was to act as a
service provider and agent on behalf of SFMI (and thus
GDEW) in the handling of its international dispatches in
France. Moreover, Chronopost could not compete with
SFMI and was its exclusive agent until 1 January 1995.
Chronopost was also granted until
that date exclusive
access to the post office’s network. (In the course of this
Decision reference will be made to ‘SFMI-Chronopost’,
even when only one of the two companies is involved).

(1) OJ C 322, 13. 12. 1991, p. 19.

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B. SFMI-Chronopost’s economic

performance

When SFMI-Chronopost started its operations in 1986,
the international express delivery service in France was a
market dominated by the company DHL with a market
share of over 40 %. The Post Office’s
international
turnover corresponding to its product Postadex was FRF
45 million in 1985 (approximately 10 % of the market).
This market has constantly grown since the entry of
SFMI-Chronopost in 1986 (total sales grew from FRF 500
million in 1986 to FRF 2,7 billion in 1996).

SFMI-Chronopost has been a successful business. It has
conquered market shares and consolidated its market
position and been constantly profit-making. SFMI-
Chronopost increased its market share from 4 % in 1986
to 22 % in 1996 and has distributed dividends each year.
The reasons for its profitability lie in the rapid growth of
the
in SFMI-
Chronopost’s access to the parent company’s network, in
the choice of a sound commercial strategy and in the
significant advertising investments made.

express delivery market

in France,

In particular, especially during the early years of opera-
tion, SFMI-Chronopost subcontracted most of its activity
to the Post Office and therefore incurred limited start-up
costs (in particular, fixed costs). This explains why the
company was provided with very limited equity capital
(FRF 10 million).

SFMI-Chronopost, unlike its competitors which were
mainly active on the international market, decided to
enter both the international and the domestic French
market. This permitted SFMI-Chronopost to operate in a
new market characterised by little competition and to
benefit from the synergies stemming from the combined
operation of the international and domestic markets.

Moreover, the EMS/Chronopost product was less sophist-
icated than other products offered by the competitors and
in particular than DHL’s products. Unlike the latter,
EMS/Chronopost was targeted at the casual customer. The
characteristics of SFMI-Chronopost’s product enabled it
to charge prices lower than those of its competitors. In
particular, SFMI-Chronopost normally collected the occa-
sional customers’ dispatches at the postal offices, while
competitors
SFMI-
Chronopost did not guarantee delivery deadlines, whilst
DHL did so. Geograpical coverage was also more limited
than DHL’s (100 countries in 1988 compared with 175
countries for DHL). Ancillary services, particularly in-
formatics services giving a permanent control of
the
service provided, were less advanced than those of com-
petitors.

at home.

dispatches

collected

SFMI-Chronopost has enjoyed increasing autonomy from
the Post Office, and the share of business subcontracted
to the latter has decreased over time (collection decreasing

from 67 % in 1987 to 39 % in 1994 and distribution
decreasing from 94 % in 1987 to 45,8 % in 1994). In
1996 SFMI-Chronopost employed 1 870 people, had 32
offices,
two transit centres, six international exchange
centres and 600 vehicles. SFMI-Chronopost dealt with
450 subcontractors, amongst which there was the Post
Office.

regards marketing

SFMI-
As
Chronopost had 95 salesmen and only one quarter of its
sales was made through the Post Office.

activities,

1996

by

C. The complaint and the procedure

On 21 December 1990, the Syndicat Fran(cid:135)ais de l’Express
(‘SFEI’), a consortium of companies pro-
International
viding express delivery services
in competition with
SFMI-Chronopost, lodged a complaint with the Commis-
sion on the grounds that the logistical and commercial
assistance provided by
to SFMI-
Chronopost involved State aid under Articles 92 and 93 of
the EC Treaty. This
aid allegedly enabled SFMI-
Chronopost to charge much lower prices than its compe-
titors. An economic study by Braxton, a consulting firm
appointed by SFEI, was attached to the complaint. This
study quantifies the amount of the alleged aid received by
SFMI-Chronopost over the period 1986 to 1989.

the post office

By letter of 10 March 1992, the Commission informed
the complainant that the file had been shelved. SFEI and
a number of SFMI-Chronopost’s competitors brought an
action before the Court of Justice for annulment of the
letter. The Commission withdrew the letter in order to
obtain further information.

At the Commission’s request, France provided informa-
tion by letter of 21 January 1993, by fax from the com-
petent government departments on 3 May 1993, and by
letter of 10 June 1993.

SFEI and five of its member undertakings brought an
action before the Paris Commercial Court on 16 June
1993 against SFMI-Chronopost, the French Post Office
and others. A second study by the consultancy Braxton
was attached to the application. This study updated the
valuation of the aid carried out in the previous one up to
the end of 1991.

On 5 January 1994, the Paris Commercial Court, on the
basis of Article 177 of the Treaty, put eight questions re-
lating to the interpretation of Articles 92 and 93 of the
Treaty to the Court of Justice. The Commission presented
its comments on the matter on 6 May 1994. The French
Government, which intervened in May 1994, attached to
its comments a study by the firm Ernst & Young, in
response to the two Braxton studies.

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L 164/39

In February 1996 the Commission opened the procedure
provided for under Article 93(2) of the Treaty, in respect
inter alia of the assistance provided by the Post Office to
SFMI-Chronopost over the period 1986 to 1991(2). The
Commission considered that the possibility that State aid
had been granted to SFMI-Chronopost by France (directly
or through the intermediary of the Post Office) could not
be ruled out.

tablishment of the joint venture GDEW, had not been
notified to the Commission in accordance with Article
93(3) of the EC Treaty. Those measures could involve
State aid under Article 92(1) of the Treaty and Article
61(1) of the EEA Agreement. Any such aid would not
have been eligible for any of the derogations allowed
under Article 92(2) and (3) of the EC Treaty or Article
61(2) and (3) of the EEA Agreement.

In particular, as regards the assistance by the Post Office
to SFMI-Chronopost, the information available suggests
that only in 1992 did the prices charged by the postal
administration match actual costs plus a profit margin.
The Commission did not have sufficient information to
rule out the possibility that, during the financial years
before and after 1992, SFMI-Chronopost had benefited
from State aid.

France was informed of the opening of the procedure by
letter of 20 March 1996.

The Court of Justice gave its ruling on 11 July 1996 (4).
suspended
The proceedings before the Paris court,
recommenced on 24
pending the Court’s
September 1996.

judgment,

The Commission did not have sufficiently detailed in-
formation to allow it to dismiss the possibility that the es-
tablishment of SFMI-Chronopost had involved a transfer
of resources from the State in some form or other.

France sent a note to the Commission on 30 May 1996
setting out its comments pursuant to the Article 93(2)
procedure.

No information was available as to how far there had
been observance of one of the conditions to which the
participants in the joint venture GDEW had subscribed
when the concentration had been authorised. That condi-
tion was that, unless it was shown that no cross subsidies
had been paid, the parties undertook to offer to compet-
itors the same services as those provided for the joint
venture, in accordance with the principle of equal treat-
ment for equivalent transactions, so as to exclude the risk
of a transfer of public resources to one of the players on
the express delivery market. The same considerations
apply to admittance to the postal infrastructures to oper-
ators other than the joint venture, as from 1 January 1995.

SFEI submitted its comments in August 1996, drawing
the Commission’s particular attention to a number of
additional measures which might be regarded as State aid
to SFMI-Chronopost. These include the use by SFMI-
Chronopost of the Post Office’s trade image, and in par-
ticular its vehicles as an advertising medium, its privileged
access to Radio France’s broadcasting programmes, some
customs and tax privileges conceded both to SFMI-
Chronopost and to the Post Office, and the Post Office’s
investment in dispatching platforms. SFEI extended its
complaint of December 1990 to cover these additional
points.

Nor was any information available on the implementation
of the Commission’s recommendation contained in the
decision on the Post Office’s competitive activities (3). The
Commission urged the need to ensure that the postal
administration’s accounts showed that
there were no
subsidies for non-public service activities, since such
subsidies would be caught by Articles 92 and 93 of the
EC Treaty. Since, under the decision, precise information
on this matter was to be submitted annually, an initial
check on the situation in the express delivery sector had
to be carried out on the basis of the information available
at the end of 1995.

The Commission took the view that
the series of
measures described above, with the exception of the es-

SFEI attached to its comments another economic study
by the consultancy Bain & Company (the ‘Bain study’).
The purpose of this study is also to evaluate the amount
of aid involved in the assistance provided by the Post
Office to SFMI over the period 1986 to 1991. The Bain
study is based on the information contained in the Ernst
& Young report and, according to the SFEI, its figures are
more accurate than those of the two previous studies by
Braxton. SFEI further asked the Commission to take
interim measures in respect of the alleged aid granted to
SFMI-Chronopost. The complainant repeated its request
letter of 7
in a
for
November 1996. The Commission replied to the
complainant by two letters of 22 October and 13
November 1996, setting that it did not intend to take
interim measures since it was not yet in a position to es-
tablish whether State aid was involved.

interim measures

subsequent

(2) OJ C 206, 17. 7. 1996, p. 3.
(3) OJ C 262, 7. 10. 1995, p. 11.

(4) Case C-34/94, SFEI and Others v. La Poste and Others (‘La

Poste’),

[1996] ECR I-3547.

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9. 6. 98

SFEI’s comments were transmitted by the Commission to
France in September 1996. In reply to SFEI’s comments,
France addressed another note to the Commission, at-
taching to it a comprehensive economic study by the
consultancy Deloitte Touche Tohmatsu (the ‘Deloitte
study’). The Deloitte study examines and replies to the
the Bain study. Upon the Commission’s
findings of
request,
information and clarifications were
provided by the French authorities.

further

A number of meetings took place between the Commis-
sion and the French authorities. The last meeting took
place in Paris on 10 June 1997.

The complainant sent another letter to the Commission
on 21 April 1997, asking for information about
the
progress of the examination of the case. SFEI requested
the Commission to provide detailed information on
France’s reply to the opening of the Article 93/(2) pro-
cedure and on the Commission’s position and intentions
in the matter. The Commission replied to the complain-
ant by letter of 30 April 1997, stating that the information
provided by France was commercially sensitive and could
not be disclosed and that the Commission had sufficent
evidence to take a position on the case. In the same letter
the Commission asked the complainant to provide clari-
fication on certain points made previously. SFEI replied
to the Commission by letter of 14 May 1997.

D. The measures at issue

The measures which the Commission will examine under
State aid rules are the following:

1. Logistical assistance, which constists in making avail-
able to SFMI-Chronopost
the postal
infrastructure for the collection, sorting, transport and
delivery of its dispatches.

the usage of

The price of the logistical assistance is calculated by
multiplying the number of items handled (as regards
collection, for example) or the total weight of the items
transported (as regards forwarding) by the Post Office,
by the unit price of the different operations carried out
by the Post Office in performing the relevant service.
Unit prices are negotiated each year between the Post
Office and SFMI-Chronopost. They are based on the
costs incurred by the Post Office, plus a margin.

overheads are then allocated in proportion to the
operating costs of each service.

As regards the production range, the Post Office did
not have an analytical accounting system which
enabled it to calculate the real costs incurred in provi-
ding the logistical assistance to SFMI-Chronopost.
Until 1992 those costs were calculated on the basis of
approximations. The
services provided to SFMI-
Chronopost were divided into elementary operations,
which before 1992 had not bee timed. To establish
those costs the Post Office compared the correspond-
ing services to similar existing postal services, whose
operations had already been timed and valued (such as
the deposit of a registered letter). In 1992 those opera-
tions were timed and valued, account being taken of
the actual traffic volumes of the express courier ac-
tivity. This has enabled the Post Office to assess the
actual cost of the logistical assistance.

In order to determine the cost of the logistical as-
sistance more accurately, the Post Office has applied to
unit costs in 1992 a discount factor corresponding to
the wages growth rate. The choice of this rate is justi-
fied by the fact that wages represent the main cost
incurred for
the logistical assistance (over 75 %).
Hence the actual costs of 1992, corresponding to the
real production range, have been discounted backwards
and multiplied by the actual traffic volumes of each
year during the period 1986 to 1991. By means of this
method of backward projection the Post Office has
been able to arrive at a reliable estimate of the actual
costs incurred by the Post Office from 1986 to 1991.

It is apparent from a comparison of the costs of the
logistical assistance with the remuneration paid by
SFMI-Chronopost that the cumulative cover rate of
total costs was 116,1 % over the period 1986 to 1991
and 119 % over the period 1986 to 1995. It is only in
1986 and 1987 that the revenues from the logistical
assistance did not cover the corresponding costs en-
tirely (the cover rates were 70,3 % and 84,3 % re-
revenues covered direct costs
spectively). However,
before central and local offices’ overheads.

Since 1993, SFMI-Chronopost has been paying annual
fixed fees by way of contribution to the postal network
(see below); accordingly, unit prices have decreased.
However, the remuneration paid by SFMI-Chronopost
has been in excess of the costs incurred by the Post
Office.

To calculate the total cost of the assistance to SFMI-
Chronopost, the Post Office calculates first the direct
operating costs before central and local offices’ over-
heads on the basis of the production range (chain of
elementary operations) of the services provided and the
actual traffic volumes. The central and local offices’

The advantages derived from the logistical assistance
are amplified, according to the complainant, by the
fact that SFMI-Chronopost benefits from a preferential
customs-clearance procedure (see below) and from
delays in payment.

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L 164/41

Until 1992 the Post Office sent monthly invoices to
SFMI-Chronopost which had to be paid no later than
90 days after the end of the month to which they
referred.

3. Use of the Post Office’s vehicles as advertising media

for SFMI-Chronopost’s operations.

2. Commercial assistance, which consists

its goodwill. In this connection,

in SFMI-
Chronopost’s access to the Post Office’s customers and
the
enjoyment of
complainant maintains that in 1986 the Post Office
transferred the customers of the Postadex product to
SFMI-Chronopost for no consideration (Postadex was
replaced by EMS-Chronopost in 1986). In addition,
and advertising
from promotional
SFMI benefits
campaigns undertaken by the Post Office.

France has made it clear that the prices paid by SFMI-
Chronopost in return for the logistical assistance cover
the total costs incurred by the Post Office. Hence those
prices cover the costs of the commercial assistance
(through the deposit and cashing operations). In addi-
remuneration, SFMI-Chronopost
tion to this direct
amount depends on SFMI-
pays
fee whose
a
Chronopost’s
increase (*).
annual
SFMI-Chronopost paid out
the following amounts
during the 1986-95 period:

turnover

and its

— 1986/1987:

FRF 26 million,

— 1988:

— 1989:

— 1990:

— 1991:

— 1992:

— 1993:

— 1994:

— 1995:

FRF 31 million,

FRF 39 million,

FRF 47 million,

FRF 49 million,

FRF 56 million,

FRF 45 million,

FRF 56 million,

FRF 76 million.

This remuneration is structured in such a way as to
encourage the Post Office to promote the subsidiary’s
products. To this end the Post Office launches adverti-
sing campaigns regularly.

This system of remuneration was amended in 1993.
Remuneration now consists of a fixed part, which is an
annual contribution of FRF 25 million to the sales
network, and a variable part, namely a premium on
SFMI-Chronopost’s
since 1994
SFMI-Chronopost has been paying a contribution to
the Post Office’s distribution network (FRF 30 million
in 1994 and FRF 33 million in 1995).

In addition,

sales.

(*) Business secret.

4. Acces to Radio France’s advertising spots. SFEI main-
tains
that SFMI-Chronopost advertised its product
Skypack on Radio France under preferential condi-
tions.

5. Tax, customs and other privileges. SFEI claims that the
Post Office was exempted from ‘taxe sur les salaires’
(payroll tax) until October 1994, the equivalent aid
being FRF 457 million in 1994. It maintains that the
Post Office is exempted from stamp duty, equivalent to
aid amounting to FRF 800 million a year. SFMI-
Chronopost could have benefited from those advant-
ages in relation to the activity subcontracted to the
Post Office. In addition, SFMI-Chronopost enjoys a
privileged customs regime, as opposed to the common
regime applicable to private undertakings. SFMI-
Chronopost benefits under assistance from French
Bureau d’(cid:130)change which performs the customs clear-
ance procedures for its dispatches. Finally, SFEI claims
that SFMI-Chronopost benefits from an investment of
FRF 1,2 billion made in 1995 by the Post Office to
construct a number of dispatching platforms.

E. The complainant’s arguments

SFEI’s main arguments may be summarised as follows:

— the logistical and commercial assistance provided by
the Post Office to SFMI-Chronopost involves State
aid. The total amount involved was FRF 1,516 billion
over the period 1986-1991,

The aid is the difference between the normal price of
the logistical assistance and the actual remuneration
paid by SFMI to the Post Office. The complainant, on
the basis of his interpretation of the abovementioned
preliminary ruling of the Court in La Poste, maintains
that this normal market price is what an undertaking
‘operating in normal market conditions, should have
charged for the services in question, no account being
taken of the economics of scale enjoyed by the Post
Office by virtue of its monopoly, since those eco-
nomics were precisely the root-cause of the distortion
in competition’.

The Bain study quantifies the aid element involved in
the logistical assistance at FRF 1,048 billion (FRF 725
million for
the
period 1986 to 1991. The valuation is based on two

the international operations) over

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9. 6. 98

methods, the ‘market price’ method and a method
based on a comparison between SFMI’s estimated
costs and the actual costs incurred by a group of
competitors. The first method calculates the cost of
the logistical assistance
the main components of
(wages and leases) and deducts from it the actual price
paid by SFMI. It values the cost that an undertaking
would incur in setting up and operating a network
similar to the Post Office’s. The second method refers
only to the international activity of SFMI and values
the aid at FRF 725 million.

the Post Office’s costs and to enable it to offer its
assistance at lower prices.

F. The French authorities’ reply

France rejects all SFEI’s allegations as unfounded.

As regards the commercial assistance SFEI values the
corresponding aid at FRF 468 million (FRF 126
million for the international operations) during the
1986 to 1991 period. Of
this amount, FRF 230
million is the difference between the amount actually
paid by SFMI-Chronopost and an amount corres-
incurred by the
ponding to the marketing costs
private undertaking members of SFEI (20 % of the
tunover during the first years and 6 % afterwards);
FRF 38 million is the aid corresponding to the free
transfer of Postadex customers to SFMI in 1986 (the
aid corresponds to Postadex’s estimated turnover in
1985); and FRF 200 million is the aid stemming from
the advantageous conditions of access to the Post
Office’s counters.
the
complainant and the Bain study do not explain how
this last figure has been calculated.

to be pointed out

It has

In support of its reasoning the Bain study points out a
number of elements. which are supposed to prove that
SFMI-Chronopost benefits from State aid. In particu-
lar, SFMI-Chronopost’s growth was abnormally rapid
during the period 1986 to 1991. Growth has slowed
down since then, as the amount of aid granted by the
Post Office has decreased.
In addition, SFMI-
Chronopost has a better balance sheet structure than
its competitors, and the return on the Post Office’s
investment in SFMI-Chronopost is particularly high,

— the Commission should examine under Articles 92
and 93 the other measures mentioned above (credit
periods, use of the Post Office’s vehicles, privileged
access to Radio France, tax and custom privileges, and
use of the dispatching platforms), which constitute ad
hoc aid to SFMI-Chronopost. The Commission should
also look at SFMI-Chronopost’s and the Post Office’s
tax
customs arrangements and the Post Office’s
system in respect of payroll tax and stamp duty. Any
benefit accrued to the parent could be passed on to
the subsidiary. Such benefits are claimed to decrease

In general, the Post Office has behaved like a private
investor under normal market conditions in setting up
and operating the subsidiary SFMI-Chronopost. After a
two-year period, which corresponds to the period in
which the subsidiary started up its operations, the Post
Office has been able to cover the total costs of the assist-
ance, and the investment has been fully profitable. The
Post Office’s behaviour is comparable to that of a holding
company or a group of undertakings pursuing a structural
policy, global or sectoral, and guided by long-term profit-
ability aims. To support
statements France has
provided detailed information covering the period 1986 to
1995. This information relates inter alia to the remunera-
the logistical and commercial assistance, and
tion of
SFMI-Chronopost’s
that
financial performance
period.

over

its

Moreover,

— as regards customs clearance, France has confirmed
that since February 1987 SFMI has been carrying out
its customs clearance operations at its own interna-
tional centre, without making any use of the Post
Office’s centres, contrary to the complainants’ allega-
tions on this specific point. In addition, SFMI is
subject to the usual customs clearance rules provided
for by law. Before that date (from April 1986 to
February 1987) it was the Post Office which carried
SFMI-
out
customs
Chronopost’s
this
on SFMI-
had not
Chronopost,

international business. However,

advantages

operations

conferred

clearance

any

for

— as

regards

the credit periods allowed to SFMI-
Chronopost, France has confirmed that these were
aimed at offsetting the latter’s loss of earnings due to
the period needed by the Post Office for crediting to
SFMI-Chronopost the revenues received on its behalf.
Those credit intervals were due to accounting practice
and were on average longer than the credit periods
granted to SFMI-Chronopost. By way of example: in
1989 the average period for the Post Office’s payments
was 132 days whereas the average credit period for
SFMI-Chronopost’s payments was 105 days. Since
1992 shorter periods have been granted to SFMI-
Chronopost for the payment of its monthly invoices.
If this deadline is not adhered to, the Post Office is
entitled to the principal plus interest,

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L 164/43

— as regards the condition undertaken by the particip-
ants of the joint venture GDEW, France maintains,
first, that it has been able to prove the absence of
cross-subsidy in favour of SFMI-Chronopost. Secondly,
the Post Office has received so far no application
seeking access to its network,

which is a fiscal substitute for VAT, while private
companies are exempted from this tax. As far as the
dispatching platforms
are concerned France has
informed the Commission that SFMI-Chronopost’s
dispatches did not use them.

— as regards the implementation of the recommendation
in the Commission’s decision relating to the Post
Office’s competitive activities (5), France has stated that
since 1995 the Post Office has been improving its
accountancy. The Post Office’s analytical accountancy
is based upon a distinction between the following
areas: postal delivery services,
services,
financial
‘R(cid:130)seau Grand Public’
(offices open to the public),
supporting services and overheads. The Conseil de la
Concurrence has examined the Post Office’s ac-
counting system and confirmed the validity of the
methodology employed. The Conseil has concluded
that the analytical accountancy put in place by the
Post Office points to a presumption that there is no
cross-subsidy,

— as regards commercial assistance, France has pointed
out that SFMI-Chronopost carries out its own advert-
ising campaigns, which are separate from those of the
Post Office. As to the use of the Post Office’s vehicles
as a medium for the subsidiary’s advertisement, this is
very limited since SFMI-Chronopost may use the Post
spare space
Office’s vehicles only when there is
available,

— as regards Radio France’s advertising activities, France
maintains that SFMI-Chronopost paid the market
price for the advertising of Skypack. SFMI-Chronopost
carried out
its advertising campaign for Skypack
without the help of the Post Office. SFMI-Chronopost
consulted an advertising agency, which contacted six
radio stations,
including Radio France. It was the
advertising agency which negotiated and concluded
the contract with the radio stations on behalf of
SFMI-Chronopost,

— as regards payroll tax and stamp duty, France has
explained that SFMI-Chronopost is a company subject
to the same tax arrangements as are applicable to its
private competitors. On the other hand,
the Post
Office is subject to a special scheme which is less
favourable than the common scheme applicable to
private companies. The Post Office is exempted from
VAT under Article 13 A of the Sixth Council Dir-
ective on VAT (6). Consequently, it cannot deduct or
obtain reimbursement of VAT paid on its purchases.
Private companies, on the other hand, are subject to
VAT and may deduct the whole amount of VAT paid
out. The Post Office is now subject to a payroll tax,

(5) See footnote 2.
(6) OJ L 145, 13. 6. 1977, p. 1.

II. ASSESSMENT

Article 92(1) of the Treaty and Article 61(1) of the EEA
Agreement provide that any aid granted by a Member
State or through State resources in any form whatsoever
which distorts or threatens to distort competition by
favouring certain undertakings or
the production of
certain goods is, in so far as it affects trade between the
Member States, incompatible with the common market.

The Treaty and the Agreement set up the principle of
neutrality with regard to the system of property ownership
in the Member States and the principle of equality
owned and private undertakings
between publicly
(Articles 222 and 90 of the Treaty and Articles 125 and 59
of the Agreement). In accordance with those principles
the Commission must not prejudice or favour publicly
owned undertakings,
in particular when examining an
operation in the light of Article 92 of the Treaty and
Article 61 of the Agreement.

In this case it is necessary to distinguish between two sets
of measures:

— the provision by the Post Office, as subcontractor of
and commercial

logistical

of

SFMI-Chronopost,
services,

— the individual measures, such as the privileged access
to Radio France and the tax and customs privileges.

In respect of the first set of measures, by way of a prelim-
inary remark it should be noted that France has been able
to show that the cumulative remuneration paid by SFMI-
Chronopost for the Post Office’s logistical support was
higher than the total operating costs incurred over the
period 1986 to 1995.

Marketing and commercial costs are included among the
operating costs. Fixed costs have been allocated in
proportion to the business carried out by the Post Office
on behalf of the subsidiary. Therefore the remuneration
paid by SFMI-Chronopost covers the marketing costs
incurred by the Post Office. The fixed costs were appor-
the services
tioned in accordance with the scale of
provided by the Post Office for the benefit of the subsi-
diary.

With regard to the period 1986 to 1991, the Commission
considers that the calculation of the costs by backward
projection from the actual unit costs in 1992 is a sound
and conservative approach. The structure of the produc-

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9. 6. 98

tion range in 1992 was more complex and sophisticated
(that is, more costly) than in the early years of operation.
Thus backward projection produces figures which in the
absence of any contrary indication cannot be lower than
the costs actually incurred by the Post Office during 1986
to 1991.

The figures provided by France show that the estimation
of the cost of the logistical assistance (FRF 1,048 billion)
and the marketing costs (FRF 230 million) made by the
complainant is inaccurate.

As regards the logistical assistance, the Commission is of
the opinion that there is no point in evaluating the cost
of setting up ex novo an alternative network (and infra-
structure) to the Post Office’s. SFMI-Chronopost does not
need to create it since such a network is already in exist-
ence. Moreover, comparisons with private companies
competing with SFMI-Chronopost must be treated with
care. Those companies have a different cost structure;
unlike SFMI-Chronopost in 1986 to 1991, they are integ-
rated concerns which had their own network and made
limited use of subcontractors.

As regards commercial assistance, the Commission con-
siders that the complainant overestimates the cost of the
marketing support given by the parent company to the
subsidiary (FRF 230 million). The complainant does not
take into account SFMI-Chronopost’s own marketing
efforts and exaggerates the costs of the promotional acti-
vity of SFMI-Chronopost’s products. The cost of provi-
ding space for the display of advertising posters and of
placing leaflets on post office counters should be negli-
gible. The only possible significant cost is the proportion
of post office staff’s time spent on providing information
on the products or directing the customers to SFMI-
Chronopost’s salesmen. Again, taking into account the
wide range of services provided by such staff and the
similar nature of the service provided it is unlikely that
this expense is material. In any event the figures provided
by France contradict the complainant’s valuation.

The Commission believes that when the complainant
talks about commercial assistance it refers not only to the
direct marketing business but also to the more general use
of the Post Office’s trade image.

As regards the use of the trade image, it is worth recalling
that the complainant values the aid at FRF 38 million for
Postadex and at FRF 200 million for advantageous condi-
tions of access to the Post Office’s network. The Commis-
sion is of the opinion that the calculation of the value of
these forms of commercial support by the Post Office to
its subsidiary is highly subjective. The commercial assis-
tance includes the use of the Post Office’s goodwill (as in

the case of the transfer of Postadex’s customers to SFMI-
Chronopost), which is an intangible asset. Access by a
subsidiary to the parent company’s customers and good-
will is a common feature of any relationship within a
group of companies. The transfer of Postadex’s customers
to SFMI-Chronopost is the logical corollary of the cre-
ation of SFMI-Chronopost as the subsidiary in charge of
the Post Office’s express delivery activities, and therefore
of Postadex. For these reasons the Commission does not
consider that the transfer, which does not entail any cash
advantage for SFMI-Chronopost, represents State aid to
the latter.

In its abovementioned preliminary ruling, the Court of
Justice upheld the view that ‘the provision of logistical
and commercial assistance by a public undertaking to its
subsidiaries, which are governed by private law and carry
on an activity open to free competition, without normal
consideration in return is capable of constituting State aid
within the meaning of Article 92 of the Treaty’ (7). The
Court concluded that
logistical and
commercial assistance by a public undertaking to its
subsidiaries, which are governed by private law and carry
on an activity open to free competition, is capable of
constituting State aid within the meaning of Article 92 of
the EC Treaty if the remuneration received in return is
less than that which would have been demanded under
normal market conditions’ (8).

‘the provision of

could obtain from a

According to the Advocate-Generalis conclusions in La
Poste, State aid is involved if the assistance is provided ‘on
financial terms that are more favourable than those which
the undertaking
comparable
commercial investor [. . .] in deciding whether there is a
subsidy, it seems to me that it is necessary to consider
whether a commercial investor would be satisfied with the
level of
the consideration received for the assistance,
having regard to factors such as the cost of providing the
assistance, the size of its investment in the undertaking
and its return from it, the importance of the activity of
the undertaking to the investing group as a whole, condi-
tions on the market in question and the period for which
the assistance is granted’ (9).

According to the complainant, the Court’s ruling shows
that in deciding whether there is State aid, the Commis-
sion should examine whether SFMI-Chronopost paid the
‘normal market price’ for the logistical and commercial
services provided by the Post Office. The complainant
does not give a precise definition of normal market price.

(7) La Poste, ante, at paragraph 57.
(8) La Poste, ante, at paragraph 62.
(9) Advocate-General Jacob’s conclusions in La Poste, ante, at

paragraph 61.

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L 164/45

However, it may be inferred from its reasoning that it is
the price at which a comparable private company would
provide the same services to an unrelated company. This
price should include a fee for the access to the postal
network.

the Commission should
The complainant claims that
disregard the group’s strategic interests and the economies
of scale arising from the privileged access of SFMI-
Chronopost to the Post Office’s network and infrastruc-
ture. According to the complainant, such considerations
could not be taken into account in this case because the
Post Office has a monopoly. SFMI-Chronopost should
bear the costs that a private undertaking would incur in
creating a network equivalent to that of the Post Office.

The complainant’s reasoning reflects a fundamental flaw
in the interpretation of the Court’s judgment.

The Commission considers that internal prices at which
products and services are transacted between companies
belonging to the same group do not involve any financial
advantage whatsoever if
they are full-cost prices (total
costs plus a mark-up to remunerate equity capital invest-
ment). In this case payments made by SFMI-Chronopost
did not cover total costs over the first two years of opera-
tion, but covered total costs before central and local
offices’ overheads. The Commission considers that this
situation is not abnormal since revenues from the opera-
tions of a new firm belonging to a group of companies
may cover only variable costs in the start-up period. Once
the undertaking has stabilised its position on the market,
the revenues generated by it must be in excess of variable
costs so as to make a contribution to the fixed costs of the
group. Over the first two years (1986 to 1987) of operation
payment made by SFMI-Chronopost covered not only
variable costs, but also some fixed costs (such as buildings
and vehicles). France has shown that as from 1988 the
remuneration paid by SFMI-Chronopost for the assistance
covers all the costs incurred by the Post Office, plus a
contribution by way of
interest on its equity capital.
Therefore, the logistical and commercial assistance was
provided by the Post Office to its subsidiary under normal
business conditions and did not constitute State aid.

that

Nothing in the Court’s case-law suggests
the
Commission should disregard the strategic considerations
and the synergies stemming from the fact that the Post
Office and SFMI-Chronopost belong to the same group.
On the contrary, strategic considerations, such as the wish
to penetrate a new market, play an important role in the
investment
a holding
company. This principle applies directly to this case,
where we are considering the behaviour of a parent
company and its subsidiary.

decision-making process

of

that

The fact
the transaction takes place between an
undertaking operating in a reserved market and its subsi-
diary operating in a competitive market is of no relevance
to this case. The Court of Justice has never suggested that
in determining whether State aid is involved the Commis-
sion must apply a different approach if one of the parties
to the transaction has a monopoly.

The Commission has also considered whether the Post
Office behaviour as a shareholder of SFMI-Chronopost
was commercially justified under the market economy
investor principle. Under that test, to establish whether a
transaction between a Member State and an undertaking
contains State aid, it is necessary to verify whether the
undertaking would have been able to obtain the monies
on the private capital markets. To assess whether the Post
Office has behaved like a market economy investor the
the return to the parent
Commission has to look at
company in terms of dividends distributed and capital
growth.

Accordingly, the relevant question is whether the terms of
the transaction between the Post Office and SFMI-
Chronopost are comparable to those of an equivalent
transaction between a private parent company, which may
very well be a monopoly (for instance, because of the
ownership of exclusive rights), and its subsidiary. The
‘normal market price’ criterion put
forward by the
complainant does not answer this question since it over-
looks the fact that the transaction takes place between two
companies within the same group. In this context it is
worth remembering that the Court in La Poste took the
view that to establish whether State aid is involved one
has to verify if the parent company received the normal
consideration in return from the subsidiary.

No State aid arises if the internal rate of return (‘IRR’) of
the investment exceeds the cost of capital of the company
(that is to say, the normal rate of return that a private
investor would require under similar circumstances). To
work out
taken into
the IRR the Commission has
account, on the one hand the equity injection by the Post
Office in 1986, and on the other hand the dividends
distributed by SFMI-Chronopost over the period 1986 to
that company in 1991. The
1991, and the value of
Commission following standard investment
appraisal
techniques, has calculated SFMI-Chronopost’s value in
1991 by inflating the cashflow generated by that company

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9. 6. 98

in that year, using a multiplier coefficient. That multiplier
coefficient is a function of both the average growth rate
(10 %, which was the expected growth rate of the delivery
express market in France at the end of 1991) of the cash-
flow and the discounting rate used (13,91 %). The latter is
the cost of equity (10). The formula used is,

C/r-g

where

C is the cashflow in 1991,

r

g

is the cost of equity,

is the growth rate.

has taken into account on the one hand the equity injec-
tions and the costs incurred by the Post Office in pro-
viding the assistance and on the other hand the dividends
distributed, the subsidiary’s value in 1991 and the remu-
neration paid for the assistance. The Commission has
treated the sum of FRF 38 million corresponding to the
free transfer of Postadex as an equity capital injection,
which took place in 1986, and the sum of FRF 200
million as a one-off fee, paid in 1986, to have access to
the period 1986 to
the Post Office’s network over
1991 (12). The calculation carried out by the Commission
shows that even taking into account those amounts the
IRR is again higher than the cost of equity in 1986.

The Commission has, on this basis, valued SFMI-
Chronopost at FRF 564 million at the end of 1991. The
reliability of this figure is confirmed by the price of FRF
180,4 million paid by GDEW in June 1992 for the ac-
SFMI-
quisition of
Chronopost, which accounted for approximately one-third
of the total business (FRF 180,4 (cid:253) 3 = FRF 541,2
million).

international

business

the

of

The analysis carried out by the Commission covers the
period 1986 to 1991 (before SFMI was transferred to
GDNEW). This is the start-up period when, according to
the complainant, SFMI-Chronopost received the largest
amount of State aid.

the profitability of

The Commission has worked out the IRR and compared
it with SFMI-Chronopost’s cost of equity in 1986
(13,65 %) (11) the year when the company was incorp-
orated and started its operations. This has permitted it to
verify whether
the whole capital
venture has been adequate. The IRR calculated by the
Commission is largely in excess of the cost of equity in
1986. Therefore no State aid was involved in the financial
transactions between the Post Office and its subsidiary
over the years 1986 to 1991. This conclusion is all the
more valid for the years subsequent to 1991, when the
amount of dividends paid out was higher than in the
previous period.

stated above that

it does not
The Commission has
endorse the complainant’s claim that SFMI-Chronopost
should pay a fee to have access to the parent’s network
and goodwill. However, even taking into account
the
alleged aid involved in SFMI-Chronopost’s access to the
Post Office’s goodwill and network (FRF 238 million) the
conclusion that the relationship between the Post Office
and its subsidiary is commercially justified remains valid.
To that end the Commission has calculated the global
IRR on the Post Office’s investment in its subsidiary.
Amongst the elements of the calculation the Commission

(10) Source: Eurostat and Associ(cid:130)s en Finance.
(11) Source: Eurostat and Associ(cid:130)s en Finance.

resources

SFMI-Chronopost. Therefore,

to SFMI-Chronopost. Moreover,

As regards the customs clearance procedure, France has
informed the Commission that since 4 February 1987
SFMI-Chronopost has carried out the customs clearance
procedure in its own customs centre and has been subject
to the normal customs arrangements applicable to private
companies (see above). Before that date, those customs
procedures were performed by the Post Office on behalf
of
SFMI-Chronopost’s
dispatches were subject to a special scheme only for the
period from April 1986 (when the company started to
operate) to February 1987. The Commission has verified
that the temporary application of the special arrange-
ments involved no financial advantage granted out of
State
the
Commission does not hold any evidence showing that
SFMI-Chronopost derived any economic advantage what-
soever from the application of the special scheme during
its first months in business. In any case, even if the
special scheme applicable to the Post Office was more
favourable than the common regime (inasmuch as
customs clearance procedure would be more rapid), the
corresponding advantage would be very modest, since
SFMI-Chronopost’s level of activity was at that time very
small.
In 1986 (the first year of operation) SFMI-
Chronopost’s turnover corresponding to its international
activity, which was
launched in October 1986, was
approximately only FRF 2,9 million before tax, corres-
ponding to 10 500 packages. Of those, only some 15 %
were taxable packages (meaning that approximately 1 600
packages were subject
to the customs clearance pro-
cedure). The others were non-taxable packages which,
given their modest value, were exempted from the normal
customs procedure.

In respect of the other points raised by the Commission
at the time of the opening of the Article 93(2) procedure
and the other
the
Commission has arrived at the following conclusions.

issues raised by the complainant,

(12) The other figures estimated by SFEI (i.e. FRF 1,048 billion
for the logistical assistance and FRF 230 million for the com-
mercial assistance) cannot be taken into account since they
have been proved inaccurate (see above).

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As regards the conditions subscribed by the Post Office
within the framework of the authorisation of the GDEW
joint venture, the Commission has been able to prove that
no State aid has been granted to SFMI-Chronopost. More-
over, France has informed the Commission that the Post
Office had received no application to gain access to its
network. This is acknowledged by SFEI, which admits to
being unaware of any such application lodged with the
Post Office. SFEI’s member undertakings are integrated
firms, which are not
interested in access to the Post
Office’s network.

As regards the alleged tax exemptions, by way of a prem-
limary remark the Commission points out that SFMI-
Chronopost is a normal company which is subject to the
same tax system as its private competitors. The Commis-
sion has verified in this case whether SFMI-Chronopost
benefits from any direct or indirect advantage in relation
to stamp duty and payroll tax. In respect of stamp duty,
France has
informed the Commission that SFMI-
Chronopost’s dispatches are subject to this tax irrespective
of whether they are transported by the Post Office or not.
Consequently, as far as this tax is concerned SFMI-
Chronopost enjoys no special
financial
advantage over its competitors.

treatment or

As regards the payroll tax, the complainant’s claim about
the Post Office being exempted from this tax until
October 1994 is unfounded. Before that date the Post
Office was subject to a reduced tax rate of 4,25 %. The
tax charge borne by the Post Office ranged from FRF
1,049 billion in 1986 to FRF 1,136 billion in 1990. The
ordinary tax rate of 9,25 % has been in force since
October 1994. However, the tax treatment of the Post
(including express
Office in the dispatching sector
courier) has always been in this respect less favourable
than the common tax system. The Post Office is
exempted from VAT under Article 13 A of the Sixth VAT
Directive. Hence the Post Office pays VAT on its
purchases but is unable to deduct or apply for reimburse-
ment of the tax paid out. On the other hand, the Post
Office, unlike the ordinary companies which are subject
to VAT, is subject to a payroll tax, which is an alternative
to VAT. As a result the tax charge borne by the Post
Office is heavier than that of ordinary companies irres-
pective of the reduced rate of payroll tax.

competitors). On the other hand, the Post Office suffered
from a FRF 278 million disadvantage in respect of the
customers which are subject
to VAT. The global net
disadvantage stemming from the exemption from VAT
and the payment of payroll tax is at least FRF 174,6
million. 1993 was a typical year in terms of volume of ac-
tivity and expenses of the Post Office and the conclusions
drawn for that year are valid for the other years prior to
1994. Therefore, as regards stamp duty the Post Office did
not profit from any particular tax benefit which might
have been transferred to SFMI-Chronopost.

As regards the periods allowed for payment, the Commis-
sion is satisfied with the information provided by France,
which clearly show the absence of any kind of advantage
for SFMI-Chronopost.

As regards the utilisation of the Post Office’s vehicles as
advertisting media, the Commission considers that this
forms part of the commercial assistance provided by the
Post Office to SFMI-Chronopost. The considerations set
out above for the commercial assistance are also valid in
this respect.

As regards Radio France’s advertising, the Commission
has no evidence that SFMI-Chronopost paid a price below
the market price for the advertising of Skypack. It is clear
from the information provided by France that SFMI-
Chronopost enjoyed no preferential treatment.

As for the dispatching platforms, France has stated that
SFMI-Chronopost’s dispatches do not transit on them.
Therefore, SFMI-Chronopost does not benefit from any
advantage in relation to that investment.

As regards the recommendation in the Commission’s
decision on the Post Office’s competitive activities, the
Commission is satisfied with the general methodology
and principles underlying the Post Office’s analytical
accountancy. A correct
them will
ensure transparency and allow verification that there is no
cross-subsidy between the various businesses run by the
Post Office,

implementation of

HAS ADOPTED THIS DECISION:

France has demonstrated that in 1993 (namely before the
introduction of the normal tax rate) the Post Office was in
a disadvantageous position compared to the companies
subject to the common tax system. The Post Office paid
FRF 78 million by way of payroll tax, and the non-re-
fundable VAT was FRF 274 million. The Post Office’s
turnover in the dispatches sector was FRF 5,465 billion in
1993. Of the corresponding customers 16,6 % were not
subject
to VAT. It
follows from the calculation carried out by the French
the Post Office enjoyed a theoretical
authorities that
advantage in respect of the customers not subject to VAT
(the advantage is theoretical because this is a segment of
the dispatching market which is not operated by the

to VAT and 83,4 % were subject

Article 1

The logistical and commercial assistance provided by the
Post Office to its subsidiary SFMI-Chronopost, the other
financial transactions between those two companies, the
relationship between SFMI-Chronopost and Radio France,
the customs arrangements applicable to the Post Office
and SFMI-Chronopost,
tax and
stamp duty applicable to the Post Office and its (*) invest-
ment in the dispatching platforms do not constitute State
aid to SFMI-Chronopost.

the system of payroll

(*) Business secret.

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This Decision is addressed to the Republic of France.

Article 2

Done at Brussels, 1 October 1997.

For the Commission

Marcelino OREJA

Member of the Commission