2000/620/EC: Commission Decision of 22 December 1999 on aid scheme C 1/99 (ex NN 133/98)/State aid to non-residential building tenants in the Customs House Docks Area in Dublin (notified under document number C(1999) 5206) (Text with EEA relevance) (Only the English text is authentic)
Date: 1999-12-22
Institutions: European Commission
Subjects: State aid, application of EU law, milk product, property leasing, tax relief, town planning

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Official Journal of the European Communities

L 260/37

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 December 1999

on aid scheme C 1/99 (ex NN 133/98)/State aid to non-residential building tenants in the Customs
House Docks Area in Dublin

(notified under document number C(1999) 5206)

(Only the English text is authentic)

(Text with EEA relevance)

(2000/620/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having
called
comments (1) pursuant
having regard to their comments,

interested

on

their
to the provisions cited above and

submit

parties

to

Whereas:

I

PROCEDURE

(1)

(2)

The Commission was informed on the above State aid
scheme while examining notified aid scheme N 267/98,
concerning tax incentives in a 12-acre site in the
Customs House Docks Area (CHDA).

In 1986 the Commission had approved the urban
renewal scheme ‘Incentives for development of certain
inner city areas’ (N 56/86, letter to the Irish authorities
SG (86) D/10282 of 19 September 1986) providing for
a package of tax incentives for building owners and
tenants in a 27-acre site in the CHDA (the ‘original’ site).
Following a request by the Commission,
the Irish
authorities informed it of the extension of the above

scheme with regard to its geographical scope and its
termination date, by letter of 28 June 1990. At the time,
the Commission did not react to this communication.

The Irish authorities further modified this scheme by
way of the Finance Acts of 1992 to 1994 and 1995,
without notifying these modifications to the Commis-
sion. However, by letter of 30 January 1998 the Irish
authorities notified to the Commission a scheme
providing for the same package of incentives for a 12-
acre site in the CHDA. By letter of 8 May 1998, the Irish
authorities withdrew from this notification the tax
incentives offered to tenants. By letter of 20 October
1998 the authorities announced that despite their with-
the tax incentives for
drawal
tenants could be lawfully awarded, since, according to
Ireland, they were covered by the approval in 1986 of
the first urban renewal scheme (N 56/86).

from the notification,

the Commission
By letter dated 9 February 1999,
informed Ireland that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the tax incentives for tenants awarded on the
basis of the Finance Acts of 1992 to 1994 and 1995.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to
submit their comments on the aid.

(3)

(4)

(5)

(1) OJ C 99, 10.4.1999, p. 2.

(2) See footnote 1.

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(6)

(7)

The Irish authorities submitted their comments to the
Commission by letter of 9 March 1999. By letter dated
27 July 1999 Ireland informed the Commission that no
grants had been made after 2 December 1998 and that
no further grants would be made under the scheme, the
scheme having terminated on that date. By letter dated
22 November 1999 Ireland informed the Commission
that it would modify the scheme.

The Commission has also received comments from the
following interested parties:
the Irish Business and
Employers Confederation (IBEC), A & L Goodbody, the
Dublin Chamber of Commerce and KPMG Chartered
Accountants. The Commission has
forwarded these
comments to Ireland, which was given the opportunity
to react.

II

DESCRIPTION OF THE AID

(8)

The aid covered by this investigation procedure takes the
form of tax incentives for tenants of non-residential
property. The incentives in question are the following:

— ‘double rent relief’, meaning that for tax purposes the
company is deemed to pay double the actual annual
rent. In principle, this aid is granted against trading
income for 10 years,

— ‘local rates remission’, meaning relief, in principle for

10 years, from the local property tax.

(9)

(10)

The geographical area concerned consists of two sites in
the CHDA, namely, a 27-acre site, designated in 1986,
and a 12-acre site designated at a later stage.

(15)

The aid recipients are tenant companies entering into
leasing contracts in relation to non-residential buildings
in the CHDA. The scheme is not sector-specific. Inter-
national financial services companies are not excluded.
industrial
The scheme does not apply to sectors of
to special rules and frameworks of
activity subject
Community law,
including sectors falling under the
ECSC Treaty, and those of shipbuilding, transport, fish-
eries and agriculture, together with the processing and
marketing of agricultural products (as set out in the
relevant guidelines (3)).

(16)

(11) Qualifying leases are long-term (at least 15 years at the
27-acre site and 25 years — with one case of 14 years
— at the 12-acre site).

(12)

The purpose of the scheme is to promote regional devel-
opment by providing an incentive to companies to
operate in the area in question, which used to be one of
the most derelict and dangerous of Dublin. It is noted
that the whole of Ireland qualifies, until 31 December

(3) OJ C 29, 2.2.1996, p. 4.

1999, as an assisted region under Article 87(3)(a) EC for
the purposes of national regional aid and as an Objective
1 region for the purposes of the Structural Funds.

Duration of the scheme

(13)

is noted that

It
the initial urban renewal scheme,
including the modifications communicated in 1990, had
a termination date set at 24 January 1993 (a time limit
within which expenditure qualifying for the award of
capital allowances to the building owners must have
been incurred). The same date was also the deadline for
entering into leasing contracts giving entitlement to tax
incentives for the tenants.

(14) With the 1992 to 1994 Finance Acts the scheme's
termination date was extended to 24 January 1997 and
the following special clause was added:

‘a lease for double rent relief purposes may be entered
into for up to two years after the scheme's termination
date.’

This clause applies when no leasing contracts have been
entered into during the construction works, or before,
and thus the completed building has no tenants.

By virtue of this clause, the deadline for entry into
qualifying leasing contracts was extended to 24 January
1999. The 1995 Finance Act also extended the scheme's
termination date to 24 January 1999 and consequently,
in accordance with the special clause mentioned above,
the deadline for qualifying leasing contracts to 24
January 2001.

By letter dated 27 July 1999 Ireland informed the
Commission that the scheme had been modified, the
termination date of the scheme now being 2 December
1998. In addition, during the course of the proceedings
Ireland informed the Commission that it would modify
the scheme. Under the terms of the modified scheme,
the two reliefs will be available only until 31 December
2003 (that is, the reliefs will be available only in relation
to rent and rates normally accruing up to and including
31 December 2003), unless certain conditions are
fulfilled. Those conditions are either
the
construction of the building was completed before 1
April 1998 or (b)
the building
commenced before 1 April 1998 and the tenant occupa-
tion of the completed building commenced before 9
February 1999. Where either condition (a) or (b) applies,
the two reliefs will continue to their intended end-date.
This Decision is restricted to assessing the compatibility
with the common market of the modified scheme.

the construction of

that

(a)

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Grounds for initiating the procedure

(a) Unlawfulness of the aid

(17)

The non-notified modifications to the initial scheme,
effected by the 1992 to 1994 and 1995 Finance Acts,
extended significantly the scheme's termination date, the
deadline for entering into leasing contracts and conse-
quently the end of the enjoyment of the double rent
relief and rates remission. In the Commission's view,
such modifications to a scheme are not simply imple-
menting measures and, although they do not alter the
nature of the aid, they change the scheme to a substan-
tive degree. Thus
they should have been notified
pursuant to Article 88(3) EC which lays down that ‘the
Commission should be informed, in sufficient time to
enable it to submit its comments, of any plans to [...]
alter aid’.

(b) Doubts as to the compatibility of the aid

(18)

In its decision opening the procedure the Commission
stated its view that the double rent relief and the local
rates remission constitute operating aid because they
relieve the ordinary tax burdens of a company.

(19) No derogation among those provided under Articles
87(2) and 87(3)(c) EC may apply in relation to this aid.
The only possible derogation from Article 87(1) EC
would be the one laid down in Article 87(3)(a) EC (aid
to promote the economic development of areas where
the standard of living is abnormally low or where there
is serious underemployment). This is possible,
first,
because Ireland as a whole qualifies as an assisted area
for national regional aid on the basis of that Article.
Secondly, it is possible because, according to the 1988
Commission communication on the method for the
application of Article 92(now Article 87)(3)(a) and (c) to
regional
specifically point 6 thereof
concerning the range of aid instruments required to
promote regional development in Article 87(3)(a) areas,
it is accepted that the Commission may, by way of
derogation, authorise certain operating aid in Article
87(3)(a) regions under certain conditions which must be
demonstrated by the Member States. Thus, the aid must
be:

aid (4)

and

industrial enterprises involving the processing of
agricultural products are to be observed;

— not granted in violation of the specific rules on aid

granted to companies in difficulties.

to the
In addition, an annual report must be sent
Commission,
indicating total expenditure (or loss of
revenue in the case of tax concessions and social security
reductions) by type of aid and an indication of the
sectors
to
Furthermore,
promote exports to other Member States is excluded.

concerned.

designed

aid

(20)

The 1988 communication, mentioned above, recognises
that ‘in the early stages of development [of the Article
87(3)(a) regions] maintenance of existing investment,
perhaps on a short or medium-term basis, can form a
sine qua non for the attraction [through operating aid]
of new investment which will help in turn to develop
the region’. Considering that
the regions
concerned were no longer in the early stages of their
development and also that the operating aid awarded
through the tax incentives for tenants is enjoyed for 10
years, the question at this stage is whether successive
geographical and time extensions of a scheme with long-
lasting effects could be in keeping with the above posi-
tion taken in the 1988 communication.

in 1994,

(21)

It was in these circumstances that
the Commission
expressed its doubts, in a decision opening the Article
88(2) EC procedure, as to whether the tax incentives for
Tenants under the 1992 to 1994 and 1995 Finance Act
were compatible with the common market (5).

III

COMMENTS FROM THE IRISH AUTHORITIES

— limited in time and designed to overcome the struc-
located in those

tural handicaps of enterprises
regions,

— designed to promote a durable and balanced devel-
opment of economic activity and not give rise to
overcapacity at the Community level, such that the
resulting Community sectorial problem produced is
more serious than the original regional problem; in
this context a sectorial approach is required and in
particular the Community rules, directives and guide-
lines applicable to certain industrial
(steel, ship-
building, synthetic fibres, textile and clothing) and
agricultural sectors, and those concerning certain

(4) OJ C 212, 12.8.1988, p. 2.

(22)

In their written comments, the Irish authorities have
presented three lines of argument.

(23)

The contested aid is not unlawful (NN) but covered by
the approved 1986 urban renewal scheme (N 56/86).
The authorities' response aims to prove that, without
time extensions of that original scheme, no results in
terms of urban development would have been achieved.

(5) It is noted that in the decision opening this procedure the Commis-
sion has approved the tax incentive of capital allowances for buil-
ding owners in the 12-acre site (N 267/98, termination date, 31
December 1999) and for the 27-acre site (NN 133/98, termination
date 24 January 1999).

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Thus, the authorities consider these extensions to be
‘essential implementing measures’ of the 1986 scheme
and not, as the Commission maintains, substantive
modifications to the original scheme which justify a
notification.

(24)

logic:

The double rent relief and rates remission in favour of
tenants are not operating aid. The authorities insist on
incentives to both owners and
the ‘package’
tenants are necessary in order to attract the investments
in the derelict areas concerned. Thus, the whole package
constitutes investment aid. On the basis of this logic, the
Commission had approved this combination of reliefs in
1986, without making any mention of whether the aid
was investment or operating aid. The Commission did
not contest this logic up to as recently as December
1997, when it approved as investment aid the same
package of
reliefs for different enterprise zones in
Ireland.

(25)

Even if the reliefs for tenants were to be considered
operating aid, this is compatible with the relevant rules.
The authorities describe how the award of the aid in the
27 and 12-acre sites complied with the conditions for
the admissibility of regional operating aid as these are
laid down in the 1988 guidelines.

(26)

Specifically, the incentives are limited in time.

Incentives to overcome the structural handicaps of
enterprises

incentives

The fiscal
in question were specifically
designed to overcome the structural handicaps of the
enterprises operating in the area in question.

The argumentation on this point must be read in the
context of a regional development policy for an area
covered by the derogation under Article 87(3)(a) EC as
well as in the context of a targeted and integrated urban
development policy (also endorsed by other Community
actions,
reasons
the URBAN initiative).
pertaining to the condition of the site, the structural
handicap of the enterprises receiving aid is related to
their location.

like

For

(27)

(28)

(29)

(30)

with associated poverty, crime and vandalism. During
this period most new commercial and residential devel-
opment within the city took place on the more fashion-
able south side of the river Liffey, continuing an estab-
lished trend. In the absence of occupier demand to settle
in these areas, no commercial developer was prepared to
risk operating there. The bias against the CHDA was
reinforced by the fact that it was located beside a local
authority residential complex (in Sheriff Street) with a
reputation for social deprivation, drug-taking, crime and
vandalism.

(a) The period between 1986 and 1991

(31)

(32)

The Customs House Docks Development Company has
been awarded, by way of an international competition,
the contract for the development of the CHDA. The
winning proposal for the CHDA included offices, resi-
dential apartments, and hotel, car-parking, cultural, retail
and leisure facilities.

In 1987 it was recognised that the development of the
CHDA would have to act as a catalyst for the develop-
ment of adjoining sites. On 23 May 1988 the 12-acre
site was designated as a buffer between completed devel-
opments and further dereliction in the eastern part of
the CHDA, notably
residential
complex. The Irish authorities have provided clear
evidence (letter of 11 June 1999) showing that this
designation was annexed to the 1990 communication to
the Commission concerning modifications to the initial
scheme.

the Sheriff Street

(33)

Construction works on the 27-acre site commenced in
June 1988.

(b) The period between 1991 and 1994

(34)

By the end of 1991, only 34 % of the total development
proposed in the 27-acre site had been completed. No
development took place between 1991 and 1994 owing
to the economic crisis (the Gulf war, economic reces-
sion, the currency crisis of 1992 to 1993, high interest
rates and an unprecedented decline in the Irish property
market). Unlike the more established southern location,
commercial banks were unable to secure project finance.

The authorities provide a historical review and photo-
graphic record of the urban renewal process specifically
as follows.

(c) The period between 1994 and 1997

The first urban renewal scheme was approved in 1986
in order to reclaim former dockland areas which had
become redundant with the transfer of the port facilities
to a new location. With the continuing decline of port
employment, the area became under-utilised and derelict
and also suffered from significant social problems during
the 1970s and 1980s, notably high unemployment,

(35)

By the end of May 1995 only 38 % of the 27-acre site
was fully developed. The extension of the tax incentives
allowed for 60 % of the site to be developed by the end
of
that period. The difficulties over the 12-acre site
continued and posed a problem of image and security
for candidate projects in the 27-acre site.

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(d) The period since 1997

(42)

The scheme has not given rise to sectorial overcapacity
at the Community level.

(36) Only when the development of the 27-acre site was
substantially advanced was it possible to envisage the
development of the 12-acre site. The authorities cite
professional views according to which the continued
availability of tax incentives was a sine qua non for the
continuation of development works. The demolition and
redevelopment of the Sheriff Street residential complex,
owing to residential tax incentives, also favoured the
cultural revolution required if commercial office devel-
opment was to take place in the most deprived inner
city area of Dublin.

(37)

The professional advisors cited by the Irish authorities
confirm that tenants would be most unlikely to operate
in the CHDA,
in preference to other more attractive
It is also
areas, unless the incentives were available.
pointed out in the authorities' comments and in the
supporting reports that
the existence of pre-letting
agreements, or agreements for lease, were important for
the investors in buildings and for banks in the granting
of loans.

(38)

The incentives offered were designed to alleviate the
structural handicap of the enterprises operating in the
area by helping to improve it.

Durable and balanced development

(39)

(40)

The tax incentives have been designed to promote a
durable and balanced development of economic activity
in the CHDA and not to give rise to sectorial over-
capacity.

The durable character of the results obtained through
this scheme is a priority objective of the scheme. In their
written opinion the authorities emphasise that all tax
reliefs (double rent relief, rates remission and the capital
allowances) are combined and structured in a way which
seeks to tie both the owners and the tenants into a
long-term commitment to the area. (The capital allow-
ances for instance are adjusted downwards if the owner
sells the building during the 14-year write-off period).
the double rent relief and rates remission
Without
spread over ten years,
it would not be possible to
persuade tenants to commit themselves for such long
periods to the area. Through this commitment, the area
is given time to become established and accepted as a
business location.

(41) As regards the balanced nature of the development, the
authorities prove that the incentives in the CHDA have
been provided, without targeting specific sectors, as part
of an integrated and wider development plan of the area
which is
authority and
combines, successfully, enterprise and residential devel-
opment.

coordinated by a

single

(43)

Special rules on State aid in certain sectors and on
enterprises in difficulties have been adhered to.

(44)

The incentives in question were never designed to
promote exports to other Member States.

(45)

(46)

(47)

(48)

(49)

Since the incentives under examination had never been
described by the Commission as operating aid, the Irish
authorities have not submitted annual reports. They
have, however, made regular public pronouncements
(such as public invitations for tender in the C series of
the Official
European Communities)
the
announcing the development of the site. In the context
of this investigation procedure, however, the authorities
the
have provided all
projects in the CHDA.

information requested on all

Journal

of

Furthermore the authorities have underlined that the
double rent relief and the rates remission for non-resi-
dential property tenants have not been included in the
new urban renewal (N 563/98) or pilot rural renewal
scheme (N 564/98), nor in the scheme concerning an
enterprise zone adjacent to the Cork regional airport
(N 204/99).

this

In its letter initiating the Article 88(2) EC procedure, the
Commission had also pointed out that the successive
extensions of
long-lasting operating aid might
extend the effect of this aid beyond the ‘early stages of
development’. The authorities answer this point by refer-
ring to the slow progress in developing the CHDA,
completed development representing by now just 13 %
of the ‘urban waste land’

in the Docklands area.

IV

COMMENTS FROM INTERESTED PARTIES

Comments
summarised as follows.

submitted by interested parties may be

The incentives are either not State aid or are, at least, aid
exempted under Article 86(2) EC, because the State is
only rewarding in a reasonable manner the ‘occupants’
for taking the risk (which would have been otherwise
borne by the State) of developing the site. The Customs
House Docks Authority (and its successor, the Dublin
Docklands Development Authority) has been entrusted
with the public service obligation to develop the sites in
question.
essentially
performing, through joint ventures with this Authority,
some of the tasks which have been entrusted to the
Authority on behalf of the State. The aid is permissible
in the light of Article 86(2) EC, as being necessary to
ensure the performance of a service of general economic
interest.

‘occupants’

site's

The

are

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(50)

(51)

(52)

(53)

The measures in question are not unlawful aid, because
they represent an ‘immaterial’ modification to an
existing scheme which was approved by the Commis-
sion under Article 87(3)(a) EC in 1986. Geographical
extensions do not alter in any material way the condi-
tions on the basis of which that approval was granted.
Furthermore,
the 12-acre geographical extension had
been communicated to the Commission in 1990. Time
extensions were introduced in order to help fulfil the
urban renewal objective of the scheme which was being
achieved at a very slow pace.

The measures in question do not fall within the scope of
Article 87(1) EC because they do not affect
trade
between Member States, and because the levels of aid
received by individual recipients are de minimis.

To the extent to which the aid is considered to fall
within the scope of Article 87(1) EC it qualifies for
exemption under Article 87(3)(a) EC, as regional invest-
ment aid. Besides the status of the area in question as an
area qualifying for regional aid, the party underlines the
unemployment situation, the lengthy process of devel-
opment and the absolute need to find and secure
tenants.

Even if the scheme were to be considered operating aid,
it is compatible with the common market because it
complies with the conditions set
forth in the 1988
communication on the application of Article 87(3) to
regional aid, as far as the granting of aid in regions
contemplated by Article 87(3)(a) is concerned.

(54) A legitimate expectation has been created on the part of
the recipients who are already installed in the area and
who have taken all diligent and prudent steps to verify
themselves that the aid was legal; a tenant in the ‘origi-
nal’ site had moved activities there on the clear under-
standing and expectation that the CHDA as a whole
would be developed.

(55)

It is questioned how the Commission could conclude
that
the scheme is incompatible with the common
market without having researched comparable urban
renewal incentives in other Member States. It is claimed
that such incentives are very common and feature in
URBAN programmes.

V

ASSESSMENT OF THE AID

V.1. State aid

(56) After having considered the opinion of the Irish authori-
ties as well as the arguments of the parties, the Commis-
sion maintains its position, expressed in the letter to the
Irish authorities initiating the Article 88(2) EC proce-
dure, that the aid scheme under examination constitutes

(57)

(58)

unlawful, operating State aid, within the scope of Article
87(1) EC.

The Commission considers that the measures in ques-
tion involve aid granted by the Member State or through
State resources. Article 87(1) EC refers to aid granted ‘in
any form whatsoever’. Aid granted in the form of tax
exemptions (such as rates remission) or other favourable
involve
tax arrangements (such as double rent relief)
State resources, in so far as the Member State thereby
forgoes fiscal income, or the possibility of fiscal income,
that would normally accrue to it. This is so whether or
not such aid is granted by the central authorities of the
Member State or by its local authorities, which are part
of or emanations of the Member State. The Commission
considers that such aid clearly distorts or threatens to
distort competition by favouring the recipient undertak-
ings compared with other undertakings located in the
same Member State that do not
receive such aid.
Furthermore, having regard to the broad terms of the
scheme, it cannot be excluded that such aid may affect
trade between Member States. This is confirmed by the
information that the Commission has concerning the
activities of certain of the individual beneficiaries.
In
particular, for example, the Commission considers that
aid to undertakings operating in the financial services
sector (and related or analogous sectors) is, in principle,
capable of affecting trade between Member States. In the
first place, there is significant intra-Community trade in
financial services, a sector that has been the subject of
extensive liberalising legislation at Community level, and
which may be profoundly affected by the introduction
financial services
of
companies are increasingly mobile, and State aid may
well be a significant factor affecting their assessments of
the best place to operate their business. Similarly, in a
the geographic
sector such as hotels,
market that the particular establishment may be said to
be serving,
there always remains the possibility that
undertakings in other Member States may wish to estab-
lish themselves in that market, but are prevented or
deterred from doing so because of the State aid. In such
cases, too, the Commission considers that an effect on
trade between Member States cannot be ruled out.

In the second place,

regardless of

the euro.

The Commission does not accept the contention that,
even if the Member State is only rewarding the beneficia-
ries in a reasonable manner because they have agreed to
behave in a way that not only benefits them but also
fulfils one of the Member State's (and the Community's)
policy objectives, it follows that no State aid is involved.
Such an application of Article 87(1) may be appropriate
in certain cases where the Member State is directly
purchasing,
securities or
services for consumption by it. It is not appropriate

for example,

land, goods,

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Official Journal of the European Communities

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when, as in this case, the State is inducing behaviour
intended to achieve more general policy objectives, such
as those indicated in Article 87(2), Article 87(3) or
Article 86(2) EC. Any other approach would risk
depriving Article 88(3) EC of its effectiveness. Presenting
the arrangements under consideration as a ‘transfer of
risk’ by the Member State does not change this view, but
confirms it. Thus, whether or not the subsidy in the
present case may be considered compatible with the
common market must be assessed not in the context of
Article 87(1) EC but in the context of Article 87(3) EC
and, where appropriate, in the context of Article 86(2)
EC (6).

V.2. No existing aid scheme

(61)

The Commission considers that, in principle, any modi-
fication of an existing scheme requires notification. In
any event,
the Commission does not consider that
temporal extensions to aid schemes could, as a general
rule, be described as immaterial — certainly not in this
case, where the extensions cover several years. Neither
does the Commission consider that modifications of the
essential elements of a scheme, whether of its substan-
tive provisions, territorial scope, or temporal application,
could be considered to be implementing measures. Nor
would considerations of practical expediency, including
the assertion that the extension contributed in practice
to the realisation of
the original scheme's objective,
release the Commission from its obligation to apply the
appropriate Treaty rules (7).

(62) Having regard to all these considerations, the Commis-
sion confirms its view that the aid scheme in question is
not an existing aid scheme, and that the individual aid
grants concerned are not covered by any existing aid
scheme.

(59)

Ireland and certain of the interested parties have argued
that the scheme under examination is an existing aid
scheme, or that the individual aid grants in question are
covered by an existing aid scheme. The Commission
notes that the argument invoked does not concern the
substantive conditions of the individual aid in relation to
the scheme that is alleged to cover it. The problem is
purely temporal. Furthermore, there is no dispute as to
the facts. The date on which the aid scheme previously
authorised by the Commission came to an end is not
disputed: neither are the dates on which the individual
aids in question were granted. Nor is it disputed that the
individual grants were made after the end of the period
of validity of the scheme originally authorised by the
Commission. Finally,
it is not disputed that the new
scheme (or the extension of the original scheme) was
not notified to the Commission and has never been
authorised by it. Thus,
the argument advanced by
Ireland and certain of the interested parties is essentially
a question of principle, in respect of which the Commis-
sion requires no further factual information in order to
reach its determination.

V.3. Failure to notify

(63)

(64)

The Commission recalls the rule contained in Article
88(3) EC pursuant to which the Commission is to be
informed, in sufficient time to enable it to submit its
comments, of any plans to grant or alter aid. The
Commission notes and regrets that, in this case, Ireland
has not complied with that obligation.

The Commission would further recall that undertakings
in receipt of State aid that has been implemented
without being notified to the Commission, and which
has been found by the Commission to be incompatible
with the common market, are not entitled to rely on the
Community law principle of legitimate expectations in
order to justify retaining such State aid. In any event,
such considerations are irrelevant, regard being had to
the Commission's determination that
the scheme, as
modified by Ireland,
is compatible with the common
market.

(60) When the Commission approves an aid scheme that is
established for a defined period of time, the Commis-
sion's authorisation only covers the scheme up to the
specified date. If a new scheme is established to cover
the period after the specified date, or if the existing
scheme is modified so as to extend its period of validity,
or if new individual aids are granted, then new aid is
involved, which is not covered by the Commission's
original authorisation. Such new aid must be notified to
the Commission in accordance with Article 88(3) EC.
The Commission is not entitled to treat such arrange-
ments as existing aid.

V.4. De minimis

(65)

The Commission stresses that this Decision concerns the
scheme. not the individual measures implementing the
scheme in relation to specific undertakings, some of
which may constitute State aid within the meaning of
Article 87(1) EC, and some of which may not. This
Decision does not affect any State measures which do
not constitute State aid within the meaning of Article
87(1) EC. Such measures may continue to be imple-
In
mented without contravening the State aid rules.

(6) Case T-106/98 FFSA v Commission [1997] ECR II-229.

(7) Case C-295/97 Piaggio,

judgment of 17 June 1999, paragraphs 45

and 46, not yet published in the Official Journal.

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particular, the Commission points out that measures in
conformity with the de minimis rule (8) are not caught by
Article 87(1) EC. Should the Member State have any
doubt as to whether or not, in a specific case, Article
87(1) EC applies, it is for the Member State to notify the
Commission of the specific case.

V.5. Compatibility with the common market

(66)

Operating aid

the Commission does not consider the
In principle,
payment of periodic taxes,
rates or other charges,
expenses or rents to be in the nature of investment. On
the contrary, the Commission considers that an under-
taking doing business in Ireland would normally have to
bear the expense of paying taxes on its taxable income,
established,
in principle, on the basis of income less
costs, without any special provision for artificially
inflating such costs (such as double rent relief). Such
undertakings would also normally have to bear the
expense of paying local rates and other charges or rents.
In the Commission's view,
such expenses would
normally have to be borne by the undertaking in its
day-to-day management or its usual activities. They
would normally occur periodically over a continuous
and indefinite period. The Commission concludes that
the aid in this case is aid intended to relieve an under-
taking of the expenses which it would itself normally
have had to bear in its day-to-day management or its
usual activities (9). In this respect, the Commission recalls
its view that operating aid typically takes the form of tax
exemptions. The Commission concludes that such aid is
not investment aid, but operating aid. The Commission
does not consider that assertions about the unemploy-
ment situation, the lengthy process of development, the
risks taken by tenants and the absolute need to find and
secure tenants are capable of altering the objective char-
acteristics of
the aid. Neither does the Commission
consider in all the circumstances of this case that the
aids in question should be considered together with the
capital allowances granted to developers as a single
‘package’, the whole being construed as investment aid.
Such an approach could well cause operating aids to be
given the more favourable treatment reserved for invest-
ment aid, not only in regions covered by Article 87(3)(a)
EC, but also in regions covered by Article 87(3)(c) EC.
Such an approach would also be a matter of particular
concern in regions shortly due to lose their Article
87(3)(a) status, as in this case. In the light of all these

(8) Commission notice on the de minimis rule for State aid (OJ C 68,

(9) Case T-459/93 Siemens v Commission [1995] ECR II-1675, paragraph

6.3.1996, p. 9).

48.

considerations, the Commission confirms its view that
the measures in question involve operating aid.

(67)

(68)

Application of the substantive regional aid rules

The aid in question will be assessed on the basis of
Article 87(3)(a) EC which is the only derogation from
Article 87(1) EC which may apply in this case.

The Commission accepts the arguments put forward by
the Irish authorities on the compliance of this operating
aid with the substantive conditions laid down in the
regional aid communication specifically as follows.

(69)

The aid is limited in time

(70)

(71)

The history of the development of the site, professional
experts' opinions and the comments of tenants, prove
that the handicap suffered by the enterprises operating
in the CHDA has been the poor condition of the site and
the fear that its deservedly negative reputation in terms
of safety would reflect upon the image of the company.
The incentives were specifically designed to overcome
this handicap.

The incentives have been designed to promote a durable
and balanced development of economic activity in the
CHDA and do not give rise to sectorial overcapacity.
The incentives have not targeted specific sectors but
were designed to alleviate the structural handicap of
enterprises operating in the area, by helping to improve
the area as such. Furthermore, the overall effect of the
scheme has been a balanced economic development in
the CHDA, achieved as part of an overall plan having a
impact upon the residential sector as well.
beneficial

(72)

Special rules on State aid in certain sectors and on
enterprises in difficulties have been adhered to.

(73)

The incentives were never designed to promote exports
to other Member States.

(74)

In the context of the procedure under Article 88(2) EC,
the Irish authorities have fully informed the Commission
on the implementation of the scheme so far.

Employment

(75) One of the interested parties (but not the Member State)
has referred to the guidelines on employment aid (10).
Having regard to the fact that the Commission approves
the modified scheme as compatible with the common
market, the Commission considers that these submis-
sions are no longer pertinent.

(10) OJ C 334, 12.12.1995, p. 4.

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L 260/45

Effects of the aid beyond the period of eligibility as
an assisted area

assisted areas, ensuring that aid is focused on those
regions that most need it.

(76)

(77)

In principle,
the Commission takes as the point of
departure for its analysis the time at which an aid is
granted as opposed to the time when payments are
subsequently made. However, when assessing whether
or not it may consider an aid to be compatible with the
common market, the Commission takes into account all
the relevant facts, which may in certain circumstances
include the time at which the costs (in respect of which
aid is granted) accrue and the time at which the aid is
paid. In the great majority of cases, no special difficulty
should arise. A difficulty may arise, however, particularly
in the case of operating aid, where aid is granted in
relation to costs which are expected to accrue periodi-
cally over a relatively long period of time in the future,
the aid also being paid periodically as those costs accrue.
This may apply especially when the period of time in
question extends significantly beyond the validity of an
existing legislative framework, and particularly when the
aid grant would post-date the time at which relevant
changes in the legal framework became reasonably fore-
seeable. Such considerations are further reinforced in
cases of fiscal aid, in respect of which the Commission is
making special efforts to ensure equitable conditions of
competition (11).

These concerns may be particularly pertinent
in the
context of regional aid, especially when the region in
question loses its status as an assisted region, or changes
its status, with the consequence that operating aid can
no longer be authorised. Exceptionally, operating aid
may be considered to contribute to regional develop-
ment in Article 87(3)(a) regions, provided that certain
conditions continue to be fulfilled. Such aid may be
justified because of the handicap affecting the under-
taking as a result of its location in an Article 87(3)(a)
region, and because of the contribution that the under-
taking makes, simply by its presence, to the develop-
ment of the Article 87(3)(a) region. As long as both of
these elements are present — that is, as long as the
region continues to fall under Article 87(3)(a) — such
aid may continue to be justified. However, as soon as
the region ceases to fall under Article 87(3)(a), the justi-
fication for such operating aid also ceases.
It is this
continuous nature of operating aid that particularly leads
to the conclusion that such aid should not, in principle,
be authorised in relation to periodic costs that continue
to accrue for a significant period after the date on which
the region in question ceases to fall under Article
87(3)(a). Otherwise, the restrictive and strict nature of
the derogation, as an exception from the general rule,
would not be respected. Any other approach could
compromise the effectiveness of the exercise by which
the list of
the Commission periodically establishes

(11) Commission notice on the application of

measures
relating
10.12.1998, p. 3).

to direct

business

the State aid rules to
taxation (OJ C 384,

(78)

The Commission would also point out that periodic tax
exemptions are as a rule regarded as schemes, having
regard to the fact that Member States usually remain, in
principle, free at any time to alter their fiscal arrange-
ments. As aid schemes, periodic tax exemptions would
be susceptible to the procedure provided for by Article
88(1) EC. The Commission would also recall that its
objective as regards regional aid schemes is to limit their
period of validity to the period of validity of the existing
the Commission
regional aid maps. For example,
proposed appropriate measures to that effect
in the
context of the introduction of the 1998 regional aid
guidelines.
the Commission
cannot accept that by the simple device of the Member
State's entry into a formal commitment, whether by
administrative act or by contract, what is in reality an
aid scheme potentially caught by the Article 88(1) EC
procedure could be presented as escaping that proce-
dure, and as not being subject to any further scrutiny.
The formal circumstances of the grant should not be
permitted to obscure the real effect of the aid.

In these circumstances,

(79) Having regard to all of

these considerations, having
regard to the complex social and economic assessments
that may be involved, and having regard to the need to
ensure that aid does not adversely affect trading condi-
tions to an extent contrary to the common interest, the
Commission may consider such arrangements to be
incompatible with the common market.

(80)

In this case, it is anticipated that Dublin, which has been
a region eligible for regional aid under Article 87(3)(a)
EC, will become a region eligible for regional aid under
Article 87(3)(c) EC with effect from 1 January 2000.
Consequently, it would not be possible for Ireland to
grant regional aid in the form of operating aid, in the
Dublin area, with effect from that date Notwithstanding
this situation, the Member State originally envisaged that
it would allow periodic tax incentives (in the form of
double rent relief and rates remission) to be available in
relation to costs normally incurred and taxes paid peri-
odically over a period of some 10 years, such period
potentially extending, substantially beyond the date on
which Dublin's status as an assisted region under Article
87(3)(a) would normally be lost. Having regard to the
considerations set out already and to all the circum-
stances of the case, the Commission would not normally
consider that such a measure would be compatible with
the common market. However, the Commission has also
taken into account the fact that Ireland has modified the
original scheme, introducing, with certain exceptions, a
termination date of 31 December 2003. Having regard
the case, and
to all
particularly to the fact
the Commission treated
that
similar aid measures as investment aid until the end of

the particular circumstances of

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arrangements

1997, the Commission considers that such arrangements
would be reasonable, also having regard to the length of
transitional
considered
compatible with the common market in similar circum-
stances. The Commission concludes that the modified
considered compatible with the
scheme may be
common market.

that may be

Article 86(2) EC

(81) One of the interested parties (but not the Member State)
has invited the Commission to take cognisance of the
relevance of Article 86(2) EC to this case. Having regard
to the fact that the Commission approves the modified
scheme as compatible with the common market, the
Commission considers that these submissions are no
longer pertinent.

VI

CONCLUSIONS

(82)

The Commission finds that Ireland has unlawfully imple-
mented the aid in question, in breach of Article 88(3) of
the Treaty. However, after examining the modified
scheme (and taking into account the undertaking given
by Ireland) the Commission has concluded that it may

be considered compatible with the common market
pursuant to Article 87(3)(a) EC,

HAS ADOPTED THIS DECISION:

Article 1

The modified State aid scheme by which entitlement to double
rent relief and rates remission may be granted to lessees in the
relevant area of the Customs House Docks Area of Dublin,
Ireland,

is compatible with the common market.

Article 2

This Decision is addressed to Ireland.

Done at Brussels, 22 December 1999.

For the Commission

Mario MONTI

Member of the Commission