98/476/EC: Commission Decision of 21 January 1998 on tax concessions under § 52(8) of the German Income Tax Act [notified under document number C(1998) 231] (Only the German text id authentic) (Text with EEA relevance)
Date: 1998-01-21
Institutions: European Commission
Subjects: Germany, State aid, tax on income, tax relief

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 January 1998

on tax concessions under § 52(8) of the German Income Tax Act

(notified under document number C(1998) 231)

(Only the German text is authentic)

(Text with EEA relevance)

(98/476/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 on the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given the other Member States and interested
parties notice to submit their comments, in accordance
with Article 93(2) of the EC Treaty,

Whereas:

I

By Decision of 26 February 1997 the Commission
initiated proceedings pursuant to Article 93(2) in respect
of a provision in the German Annual Tax Act 1996
(Jahressteuergesetz 1996) (1) which amended § 52(8) of the
to
Income Tax Act
modify a scheme laid down in § 6b of the latter Act. The

(Einkommensteuergesetz)

so as

Commission informed Germany of its Decision by letter
dated 25 March 1997 (2), and published the letter in the
Official Journal of the European Communities on 6
June 1997 (3). Germany submitted its comments by letter
of 13 May 1997. No observations were received from
other Member States or interested parties.

The provision at issue introduces a special tax concession
for the years 1996, 1997 and 1998 which is intended to
strengthen the market in holdings in companies in the
new German L(cid:132)nder and West Berlin, and thus to
increase their equity capital. The concession can be
summarised as follows.

Under German tax law, gains accruing from the sale of
certain assets to natural persons resident in Germany (§ 1
of
in
the Income Tax Act) or legal persons resident
Germany (§ 1 of the Corporation Tax Act (K(cid:148)rperschafts-
steuergesetz)) are subject to income tax; the Corporation
Tax Act (§ 8) states that legal persons are to be treated in
accordance with the relevant provisions in the Income
Tax Act.

§ 6b of the Income Tax Act allows natural and legal
persons who sell certain movable and immovable assets or
shares in companies (Kapitalgesellschaften) to offset up to
50 % of the taxable gain on the sale, and in some cases
up to 100 %, against the cost of acquiring or producing
certain assets in the year of sale or the following four

(1) BGBl. 1995 I 1250; entered into force 1 January 1996.

(2) SG(97) D/2381.
(3) OJ C 172, 6. 6. 1997, p. 2.

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years (1). A 100 % offset under § 6b of the Income Tax
Act was inter alia already possible before the Annual Tax
Act 1996, in relation to the cost of purchasing shares in a
company acquired by a holding company within the
meaning of the Holding Companies Act (Gesetz (cid:129)ber
Unternehmensbeteiligungsgesellschaften).

This inquiry concerning the aid rules is not concerned
with the possibility that an advantage may thereby be
conferred on holding companies, and this Decision does
not prejudice any position the Commission may in future
take with respect to any such advantage.

As amended with effect from 1 January 1996, § 52(8) of
the Income Tax Act broadens the tax concession in § 6b
for the financial years 1996, 1997 and 1998. Up to 100 %
of the gain may now be offset against acquisition or
production costs, provided that the gain in question is
used to acquire shares in companies, that this is done on
the occasion of an increase in capital or the setting up of
a new company, and that the company:

(cid:190) has its registered office and central administration in
one of the new L(cid:132)nder or West Berlin (2), and at the
time the shares are acquired has no more than 250
employees currently employed, or

(cid:190) is a holding company (Beteiligungsgesellschaft) whose
sole object under its own statutes is to acquire or to
administer and sell temporary holdings in companies,
and which at the time the holdings are acquired has
its registered office and central administration in one
of the new L(cid:132)nder or West Berlin and has no more
than 250 employees currently employed.

According to Germany’s estimates the measure will lead
to a temporary loss in tax revenues of some DEM 150
million (approximately ECU 75 million). Several thou-
sand companies in the new German L(cid:132)nder and West
Berlin may benefit; and the scheme is not confined to
particular industries. There is no rule to prevent combina-
tion of this measure with other State aid schemes.

II

The Commission was informed of the provision at issue
by letter of 13 October 1995, belatedly, after the legisla-
tion had been enacted, and only at the Commission’s own
express request. The Annual Tax Act 1996 entered into
force on 1 January 1996, before the Commission’s author-
isation had been granted. The Commission accordingly
registered the scheme as an unnotified aid measure (NN
9/96). An administrative instruction issued by the Federal
Ministry of Finance on 2 January 1996 postponed the

application of the scheme pending authorisation by the
Commission (3).

In the Decision initiating the proceedings the Commis-
sion took the view that § 52(8) of the Income Tax Act
constituted a State aid measure caught by Article 92(1) of
the EC Treaty and Article 61(1) of the EEA Agreement.
The Commission considered that there were two groups
which benefited: taxpayers liable under the Income Tax
Act, and companies in eastern Germany and Berlin with
250 employees or less.

The Commission was first of
the opinion that a tax
concession given to taxpayers selling certain assets, who
could then offset the gain on the sale when they acquired
other assets, was a general measure with no aid com-
ponent because all taxpayers who invested gains in a
certain way, irrespective of their size, business or location,
would qualify for the concession.

But
the Commission took the view in the decision
initiating proceedings that the provision requiring that in
order to qualify for the tax concession the taxpayer had to
take a holding in a company with its registered office and
central administration in the new L(cid:132)nder or West Berlin
did constitute State aid for the purposes of Article 92(1).
The Commission pointed out
that according to the
consistent case-law of the Court of Justice of the Euro-
pean Communities an assessment of whether a measure
constituted State aid within the meaning of Article 92(1)
had to be based on whether or not it had the effect of
conferring benefit. The effect of the measure at issue here
was to increase the profitability of holdings in companies
with their registered office and central administration in
the new L(cid:132)nder and West Berlin, as compared with hold-
ings in companies with their registered office and central
administration in western Germany or outside Germany
altogether. In their letter of 13 October 1995 the German
authorities had argued that
the economic advantage
conferred by this measure would be very small, indeed
almost non-existent; but
the Commission once again
referred to the case-law of the Court of Justice of the
European Communities, according to which the fact that
the advantage conferred was small did not as such exclude
the possibility that
intra-Community trade might be
affected.

The Commission accordingly doubted whether
the
measure was compatible with the common market. It was
not
linked to investment, and had accordingly to be
regarded as operating aid; but it was the Commission’s
established practice that operating aid was permitted only
on certain conditions, and only in areas assisted pursuant
to Article 92(3)(a) of the EC Treaty. The scheme also
applied in Berlin. Under the Commission Decision on

(1) Constitution of reserves under § 6b(3) of the Income Tax Act.
(2) § 1(2) of the Assisted Areas Act (F(cid:148)rdergebietsgesetz).

(3) Bundessteuerblatt 1996, Teil I, No 1, p. 2.

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to Article 92(3)(c), but

the designation of assisted areas for the years 1997 to
1999 (aid measure N 613/96), East Berlin could qualify as
an assisted area pursuant
the
Decision allowed it to be treated in the same way as the
neighbouring areas assisted pursuant to Article 92(3)(a) for
that period; on the other hand West Berlin was an
assisted area pursuant to Article 92(3)(c), but it was not
given the benefit of any similar transitional arrangement,
so that it did not meet the conditions set out above
regarding compatibility of operating aid.

The fact that the grant of aid was not linked to invest-
ment also meant that there was a substantial danger that
the aid might have economic effects outside the assisted
areas. The Commission further took the view that the
scheme infringed the ban on discrimination imposed by
the freedom of establishment provision in Article 52 of
the EC Treaty, because one of the conditions for the
the registered office and central
concession was that
administration of
the company in which shares were
purchased had to be located in the new L(cid:132)nder or West
Berlin. Lastly, the scheme did not provide for compliance
with the specific rules which governed aid to sensitive
industries.

III

In its letter of 13 May 1997 Germany argued that the
measure did not constitute State aid within the meaning
of Article 92(1). The German position on the proceedings
initiated can be summarised as follows.

Germany drew attention, first of all, to the structural
deficiencies of the economy in eastern Germany, which
continued to be serious, and especially to the low rates of
capitalisation of east German companies, which this
scheme was intended to improve. The German authorities
considered that it was unlikely that any companies in
sensitive industries would be assisted under the scheme,
as holding companies provided venture capital primarily
to companies whose centre of activities was in promising
markets.

The tax concession was merely a deferral of taxation;
there was no remission of tax, since even if the taxpayer
did not sell the holding acquired for a long time, its value
would at the very latest appear when the firm was being
wound up, and the gains would be taxed at that stage.

There was a tax advantage only to the party providing the
capital, but not to the party receiving it. The recipient was
obtaining additional capital the cost of which was freely

negotiable and determined by the market. A direct rela-
tionship between a tax concession to the recipient of the
capital and the cost of that capital was not discernible,
and certainly could not be quantified. The mere fact that
a tax concession was being given for the purchase of
shares in companies located in a defined area did not
justify the conclusion that there was a State aid equivalent
present. There would be a State aid equivalent only if
capital provided under § 52(8) of the Income Tax Act was
made cheaper to east German and Berlin companies than
the other share capital available. Germany saw nothing to
suggest that this was so; in its Decision the Commission
had merely stated that this effect was possible, without
setting out any precise evidence in support of that view.
On the contrary, it was to be supposed that the advantages
of the tax deferral would not be passed on to companies
with their registered office and central administration in
the new L(cid:132)nder or West Berlin, because those advantages
were small, and would have no further attraction if they
changed hands.

In Germany’s view, therefore, the tax concession was a
general measure not only as far as the provider of capital
was concerned but also as far as the recipient was
concerned; this was so especially as the advantage to the
recipient arose only as a result of the tax concession given
to the provider, and the tax concession given to the
provider was a general measure in the Commission’s
opinion too.

In conclusion, the Commission had failed both to show
who was to benefit under the alleged aid scheme and to
quantify the aid. In the alternative,
the advantage to
companies in the new L(cid:132)nder and West Berlin was
extremely limited, if it was measurable at all, so that the
de minimis rule ought to be applied (1).

IV

The broadened tax concession under § 52(8) of
the
Income Tax Act constitutes State aid, within the meaning
of Article 92(1) of the EC Treaty and Article 61(1) of the
EEA Agreement, to companies with no more than 250
employees, and having their registered office and central
administration in the new L(cid:132)nder or West Berlin in
which a holding be acquired, either directly or through a
holding company, on the occasion of an increase in
capital or the setting up of a new company, in order to
qualify for the tax concession on gains accruing on the
sale of certain assets or shares in companies. However, the
concession is a general measure, and does not comprise
any aid component, in so far as it benefits persons subject
to income tax who sell certain assets and can offset the
taxable gains so arising when they acquire other assets.
The Commission has arrived at this conclusion on the
following grounds.

(1) OJ C 68, 6. 3. 1996, p. 9.

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First, the measure is ‘aid granted by a Member State or
through State resources' within the meaning of Article
92(1) of the EC Treaty. In order to assess whether a State
measure constituted aid, the Court of Justice of the Euro-
pean Communities held in SFEI that it had to be estab-
lished ‘whether the recipient undertaking receives an
advantage which it would not have received under normal
market conditions' in the absence of the State measure at
issue (1).

§ 52(8) of the Income Tax Act offers a tax concession to
natural or legal persons (‘share purchasers') who realise a
gain on the sale of an asset, in that it allows them to offset
up to 100 % of the gain on that sale against the cost of
acquiring shares in certain companies and on certain
conditions, so that there is a tax payment they need not
make. An advantage is thereby conferred on these persons
as compared with the treatment for which they would
qualify under the ordinary tax rules, which provide for a
reduction of up to 50 % in taxable profits if they reinvest
the gain anywhere in the Federal Republic of Germany.
The 100 % tax offset is permissible only if the taxpayer
acquires shares in certain companies and the acquisition
takes place on the occasion of a capital increase or the
setting up of a new company. The scheme thus requires
taxpayers to acquire shares in such a way as to increase
the capital of a company or to set up a new company;
thus the tax measure has the consequence, and indeed the
stated aim, of promoting demand for investment capital
in certain companies, and consequently increasing or
launching the equity capitalisation of these firms.

As a result of
the increased demand for holdings in
companies with their registered office and central admin-
istration in the new L(cid:132)nder or West Berlin (‘share sellers')
which arises as a result of the State measures, the financial
investment behaviour of share purchasers as a whole will
be affected, other things being equal, to the extent that
they will now acquire holdings on terms more favourable
to the share seller than they would have been without the
introduction of § 52(8) of the Income Tax Act, holdings
which in the absence of the tax concession they would
not have acquired at all or would have acquired on terms
true, as
less advantageous
Germany points out, that the share seller receives capital
the costs of which are freely negotiable and in line with
market conditions, but the measure affects the market,
with the consequence that capital provided in the frame-
work of § 52(8) becomes more attractive as compared with
similar capital otherwise available to companies with their
registered office and central administration outside the
new L(cid:132)nder and Berlin.

to the share seller.

It

is

The change in the financial investment behaviour and an
increase in the equity of the companies concerned is in
fact the declared intention of the German legislature; but

in their comments the German authorities contend that
the scheme has no measurable effect on the east German
and Berlin companies in which the holdings are to be
taken.

The tax scheme confers a direct advantage on certain
natural and legal persons, who are the direct beneficiaries,
to encourage them to acquire certain assets from certain
firms, who are the indirect beneficiaries. The economic
advantage conferred is the greater demand for shares in
the indirect beneficiary companies as compared with the
legal situation which existed before § 52(8) entered into
force; investors, the direct beneficiaries, will consequently
be prepared to acquire holdings in east German and
Berlin companies on terms more favourable to those
companies
than the terms which would have been
obtained if the measure had not been introduced. As a
result, the volume of holdings in those companies will
rise, or the terms of the acquisition of the holding (price
as compared with nominal value, duration of holding,
return on holding, etc.) will be shifted in favour of those
companies, or both.

The measure is accordingly likely to confer an economic
advantage on the indirect beneficiaries under § 52(8) of
the Income Tax Act, which have their registered office
and central administration in the new L(cid:132)nder or West
Berlin, an advantage they would not have enjoyed without
it; and it does not require anything in return.

In its comments Germany contends that the measure is
merely a deferral and in no way a remission of tax. It
should be pointed out, first of all, that under § 222 of the
German Tax Code (Abgabenordnung) there is deferral of
tax only where the due date of a tax claim which has
already arisen is postponed; here, however, a tax claim
under § 6b of the Income Tax Act is extinguished, and a
fresh claim may possibly arise on a further disposal. In
addition, it is irrelevant whether the tax concession can be
deemed to be a tax deferral in economic terms, since
there would be an indirect economic advantage to the
share seller even in the case of a tax deferral
(see
Commission Decision 93/349/EEC in the British Aero-
space and Rover case (2)).

it
As Germany has argued in its comments, however,
would be difficult here to demonstrate a specific advant-
age in each individual case, or to quantify the State aid
component. Nevertheless, as has already been explained,
it can safely be said that an economic advantage is indeed
being conferred in the typical case. When the matter is
examined ex ante,
the economic advantage conferred
cannot be determined with certainty for each holding
acquired, because the measure hinges on the business
conduct of a private financial investor who takes invest-
investment
ment decisions on the basis of

financial

(1) Case C-39/94 SFEI and Others v. La Poste and Others [1996]

ECR I-3547, paragaph 60.

(2) OJ L 143, 15. 6. 1993, p. 7.

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conditions which have been deliberately modified by
State intervention. It cannot be abstractly shown that the
behaviour of an individual share purchaser has been
changed by the State measure. The advantage cannot be
quantified with certainty ex ante, and indeed will not
always be quantifiable ex post either.

constitute State aid, as the advantage conferred on partic-
ular companies is attributable to State action even if the
measure is not financed directly out of State resources,
because the parafiscal charge is levied on a compulsory
basis.

It should be noted that in assessing whether a measure
constitutes State aid the Commission need not refer to
each individual case. The Court of Justice of the Euro-
pean Communties held in Case 248/84 Germany v.
Commission that in the case of an aid programme the
Commission could confine itself to examining the char-
acteristics of the programme in question in order to deter-
mine whether by its nature the scheme was caught by
Article 92(1) (1). In order to come to the conclusion that
there was no State aid, then, the Commission would have
to be able to show that there was no case in which an
economic advantage was conferred and hence State aid
granted. It must be concluded that by its nature the
scheme has the effect of conferring an economic advan-
tage on an ascertainable class of companies, namely those
with no more than 250 employees and their registered
office and central administration in the new L(cid:132)nder or
West Berlin.

In order to calculate the economic advantage in indi-
vidual cases a comparison would have to be made
between the terms on which a company in eastern
Germany or Berlin with 250 employees or less could
secure an investment with or without the tax concession,
other things being equal.

Under this measure an economic advantage is to be
granted through State resources. The scheme does cause a
reduction in tax revenue, because the gain on the disposal
of the asset is not taxed, and this for an indeterminate
period. The tax advantage granted through State resources
is passed on in part to the beneficiary of aid under a legal
provision which seeks to guide the investment behaviour
of private investors.

As the Court of Justice has held in similar circumstances,
for example in Van der Kooy (2), the State is using a
legislative provision to cause the share purchaser to pass
on the tax advantage to specific firms. The measure thus
has the same effect as the parafiscal charges financed by
some industries which are used by a body administering
the resources thus assembled to subsidise projects to be
carried out by particular firms. The Court of Justice has
consistently held, for example in Compagnie commer-
ciale de l’Ouest (3), that depending on the use to which
the revenue from these parafiscal charges is put, they may

[1987] ECR 4013, paragraph 18.

(1)
(2) Joined Cases 67/85, 68/85 and 70/85 Van der Kooy and

Others v. Commission [1988] ECR 219.

(3) Joined Cases C-78/90 to C-83/90 Compagnie commerciale de
l’Ouest and Others v. Receveur des douanes de La Pallice Port
[1992] I-1847, paragraph 35.

In the present case the economic advantage is passed on
not by an official or private body administering the
revenue which was set up to pass on the benefit, but
instead by State guidance of the investment behaviour of
private share purchasers. Because of the influence brought
to bear, the economic effect of this State guidance is
comparable. It follows that the passing on of the ad-
vantage to particular companies is caused by the State,
through the relevant legislative provision.

it

The measure does favour certain undertakings:
is
confined to a particular region (cid:190) the company must have
its registered office and central administration in the new
L(cid:132)nder or West Berlin (cid:190) and to companies of a specified
size (cid:190) the company must have no more than 250
employees. It is admittedly not possible to identify these
companies individually in advance, but a category of
advantaged companies can be determined which is suffi-
ciently well-defined to allow it to be said that these are
the companies on which the advantage is conferred. The
scheme is therefore sufficiently specific to distinguish it
from general measures that confer an advantage on all
businesses in a Member State, and which consequently
fall outside the scope of Article 92(1) of the EC Treaty.

Lastly, the scheme threatens to distort competition, since
it favours undertakings with their registered office and
central administration in the relevant region as compared
with those in the rest of Germany and in other Member
States. The German authorities’ view that the aid intensity
indeed close to zero, changes
involved is very small,
nothing; as
the European
Communities held in the Tubemeuse case, an effect on
trade between Member States cannot be ruled out on the
sole ground that
the aid is small (4). Nor have the
German authorities undertaken to comply with the de
minimis notice.

the Court of Justice of

On the basis of these considerations, then, the Commis-
sion concludes that the broadened tax concession under §
52(8) of the Income Tax Act constitutes State aid, within
the meaning of Article 92(1) of the EC Treaty and Article
61(1) of the EEA Agreement, given to companies having
their registered office and central administration in the
new L(cid:132)nder or West Berlin, in which a holding is to be
acquired, either directly or through a holding company,
on the occasion of an increase in capital or the setting up

(4) Case C-142/87 Belgium v. Commission [1990] ECR I-959.

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of a new company, in order to qualify for the tax conces-
sion on gains accruing on the disposal of certain assets or
shares in companies.

of its special geographic position, the fact that it was
considered an Article 92(3)(a) area in the period 1994 to
1996, and the history of the city of Berlin; this puts it on
the same footing as the five new L(cid:132)nder (State aid
measure N 613/96).

V

The aid scheme at issue has the effect of favouring the
acquisition, on the occasion of a capital increase or the
setting up of a new company, of holdings in companies
with up to 250 employees which have their registered
office and central administration in the new L(cid:132)nder and
West Berlin at a price that is more advantageous to the
share seller or on terms more advantageous to the share
seller than would have been obtained if the provision had
not been introduced. The scheme consequently favours
the strengthening of those firms’ equity base.

The aid scheme is not ‘conditional on initial investment'
within the meaning of the Commission communication
on regional aid systems (1), but instead has an ongoing
character, being designed to overcome specific structural
disadvantages, as the German authorities have expressly
confirmed. In accordance with the judgment of the Court
of Justice of the European Communties in Siemens v.
Commission (2), therefore, it must be treated as operating
aid.

It is the Commission’s established practice to allow oper-
ating aid only in exceptional cases, on certain conditions,
and in areas within the scope of Article 92(3)(a) of the EC
Treaty, that is to say in ‘areas where the standard of living
is abnormally low or where there is serious underemploy-
ment' (see point 6 of the Commission’s 1988 communi-
cation on the method for the application of Article
92(3)(a) and (c) to regional aid) (3).

in respect of

The five eastern L(cid:132)nder (Brandenburg, Mecklenburg-
Western Pomerania, Saxony, Saxony-Anhalt and Thur-
ingia) are areas assisted pursuant to Article 92(3)(a); a
Commission Decision of 18 December 1996 classed them
as such until the end of 1999 (State aid measures N
the period up to 1996, and
464/93 (4),
N 613/96 (5), in respect of the period 1997 to 1999).
Until the end of 1996 the Commission also accepted that
East Berlin could be assisted pursuant to Article 92(3)(a)
(State aid measure N 464/93), and as a transitional
arrangement for the period 1997 to 1999 the Commission
has decided that East Berlin can be treated in the same
way as an area assisted pursuant to Article 92(3)(a), in view

(1) OJ C 31, 3. 2. 1979, p. 9.
(2) Case C-278/95 [1997] ECR I-2507, paragraph 55.
(3) OJ C 212, 12. 8. 1998, p. 2.
(4) OJ C 373, 29. 12. 1994, p. 3.
(5) OJ C 288, 23. 9. 1997, p. 5.

However, the aid to these areas cannot be considered
compatible with the common market pursuant to Article
92(3)(a) of the EC Treaty, for the following reasons:

(cid:190) The Commission’s 1988 communication, referred to
above, states that operating aid will be allowed in
Article 92(3)(a) regions only in exceptional cases, if the
aid is ‘designed to promote a durable and balanced
development of economic activity'. In addition, it has
been the Commission’s constant practice to require
that the aid should be granted for a predetermined
period only, and should fall over time.

The effect of the scheme at issue here is to strengthen
the equity base of the recipient firms; the scheme
does not ensure that the capital provided to the reci-
pient companies will be used for the economic devel-
opment of the recipient companies in the Article
92(3)(a) regions, and that it will not in reality benefit
companies whose economic activities lie outside an
assisted area. On the basis of an examination of the
scheme it cannot be ruled out that companies which
belong to large companies, or which are independent
companies outside the assisted areas, may benefit from
the scheme without any real contribution being made
to the economic development of companies in the
assisted area and thus to the assisted area itself (6).
Thus the scheme cannot be classed under the exemp-
tion for regional aid provided for in Article 92(3) of
the Treaty. Lastly, there is no provision for the scheme
to be run down over time.

(cid:190) There is nothing to prevent the scheme from being
applied to companies in sensitive industries for which
specific State aid rules have been laid down (rules of
this kind currently exist
in the synthetic fibres
industry, the motor industry, shipbuilding, transport,
agriculture, fisheries, the ECSC sectors and non-ECSC
steel). But the Commission’s 1988 communication,
referred to above, states that aid is not to ‘give rise to a
sectoral overcapacity', something that typically exists
in these sensitive industries.

(6) See Commission Decision 98/194/EC of 1 October 1997
concerning the extension of
the 8 % investment premium,
[1986] ECR 273 State aid measure C 28/96 (OJ L 73, 12. 3.
1998, p. 38).

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(cid:190) Lastly, there is nothing to prevent the scheme from
being applied to firms
in difficulty, within the
meaning of the Community guidelines on State aid
for rescuing and restructuring firms in difficulty (1),
even if the general design of the scheme does make
this unlikely. The scheme would not be compatible
with the conditions for the grant of aid to firms in
difficulty which are laid down in those guidelines.

As regards the application of the aid scheme to compan-
ies with their registered office and central administration
in West Berlin, it should be noted that on the basis of the
abovementioned decisions West Berlin was until 1996
only in part, and for the period 1997 to 1999 in its
entirety, an assisted area pursuant to Article 92(3)(c). This
means that the scheme also applies to companies outside
areas assisted pursuant to Article 92(3)(a), that is to say in
unassisted areas and areas assisted pursuant to Article
92(3)(c). According to the Commission’s established prac-
tice, already referred to, operating aid outside areas
assisted pursuant to Article 92(3)(a) cannot be declared
irrespective of
compatible with the common market,
whether it is granted to companies in sensitive industries
or to companies in difficulty.

The scheme consequently cannot be considered compat-
ible with the common market under the exemption
clauses in Article 92(3)(a) and (c). Nor is it intended to
promote the execution of an important project of
common European interest or to remedy a serious dis-
turbance in the economy of a Member State, or to
promote culture and heritage conservation within the
meaning of Article 92(3). Nor is it compatible with the
common market pursuant to Article 92(2): in particular,
the Commission has no information to suggest that the
to compensate for
scheme is required in order
the
economic disadvantages
caused by the division of
Germany within the meaning of Article 92(3)(c).

‘that

of Justice of the European Communities held in Case
270/83 Commission v. France (2). The ban on discrim-
ination applies not only to direct discrimination but also
to measures having equivalent effect. Article 54(3)(h) of
the EC Treaty provides that the Commission is to satisfy
itself
the conditions of establishment are not
distorted by aids granted by Member States'. In applica-
tion of this provision, the Council provided in its 1962
General Programme for the abolition of restrictions on
freedom of establishment that rules and practices that
eliminated or restricted the exercise by foreigners, but not
of domestic nationals, of the rights normally associated
with a self-employed activity, or made it subject to condi-
tions, were to be done away with (3). These rules or prac-
tices include direct or indirect State aid measures.

By banning restrictions on the right of establishment,
Article 52 et seq. seek to ensure that those companies are
treated in the same way as companies with their regis-
tered offices in the host Member State. But the aid under
the scheme at issue is available only to companies that
have their registered office and central administration in
the new L(cid:132)nder and West Berlin. In order to qualify,
companies with their
registered offices and central
administration outside that region would have to transfer
their registered office and central administration there.
The scheme thus favours east German and Berlin com-
panies as compared with companies with their registered
offices outside Germany, and consequently infringes the
ban on discrimination in Articles 52 et seq.

On the ground that the application of the scheme was
postponed by the Ministry of Finance’s administrative
instruction of 2 January 1996, Germany objects that it has
not yet been applied and that no aid has been paid under
the scheme has in fact already been applied,
it. If
Germany will have to take the necessary steps to recover
aid already paid out,

The scheme further makes it a condition for the tax
concession that the firm in which the holding is taken
should have its registered office and central administra-
tion in the new L(cid:132)nder or West Berlin. This provision is
in contradiction with the ban on discrimination in Article
52 of the EC Treaty on the right of establishment.

HAS ADOPTED THIS DECISION:

Article 1

Article 52 et seq. provide for the removal of restrictions on
establishment. Articles 52 to 58 also guarantee the
freedom to carry on a business through a branch or
subsidiary. For the purposes of Article 58, the nationality
of a firm is to be determined by reference to the Member
State in accordance with whose law it is formed and to its
registered office and central administration, as the Court

1.
The tax concession provided for in § 52(8) of the
Income Tax Act constitutes State aid to companies with
no more than 250 employees and having their registered
office and central administration in the new L(cid:132)nder or
West Berlin and is incompatible with the common
market pusuant to Article 92(1) of the EC Treaty and
Article 61(1) of the EEA Agreement.

(1) OJ C 368, 23. 12. 1994, p. 12.

[1986] ECR 273.

(2)
(3) OJ 2, 15. 1. 1962, p. 36/62.

30. 7. 98

EN

Official Journal of the European Communities

L 212/57

2. Germany is called on to repeal § 52(8) of the Income
Tax Act.

Article 2

1. Any aid already paid under the scheme referred to in
Article 1(1) is unlawful, having been granted before the
Commission Decision.

2. Germany shall ensure that any aid unlawfully
granted is repaid.

The aid shall be recovered in accordance with the proced-
ures and provisions of national law, and in particular the
national rules on default interest, with interest running
from the date of the grant of the unlawful aid, and the
rate applied being the reference interest rate used in
Germany at the time the aid was granted for calculating
the grant equivalent of regional aid.

Article 3

Germany shall
inform the Commission within two
months of notification of this Decision of the measures it
has taken to comply with it.

Article 4

This Decision is addressed to the Federal Republic of
Germany.

Done at Brussels, 21 January 1998.

For the Commission

Karel VAN MIERT

Member of the Commission