2001/180/EC: Commission Decision of 16 May 2000 on the aid scheme which Germany is planning to implement for company founders (Text with EEA relevance) (notified under document number C(2000) 1402)
Date: 2000-05-16
Institutions: European Commission
Subjects: Germany, State aid, application of EU law, business start-up, tax exemption, tax on income

8.3.2001

EN

Official Journal of the European Communities

L 66/35

COMMISSION

COMMISSION DECISION

of 16 May 2000

on the aid scheme which Germany is planning to implement for company founders

(notified under document number C(2000) 1402)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/180/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,

on

interested

parties

to

submit

their

Having
comments (1),

called

Whereas:

I. PROCEDURE

(1)

By letter dated 9 August 1996, registered as received by
the Commission's Secretariat-General on 14 August
1996, Germany notified the Commission pursuant to
Article 88(3) of the EC Treaty of the draft of Section
7(g), paragraph 7, of
the German Income Tax Act
(Einkommensteuergesetz — EStG), which provides for a
tax-free depreciation reserve for business start-ups. By
letter dated 10 September 1996 the Commission asked
for further information, which Germany provided by
letter dated 10 March 1997. Further requests by the
Commission dated 11 April 1997 and 8 August 1997
were answered by letters dated 24 June and 11
September 1997. Questions put by letter dated 11
November 1997 were discussed at a meeting between
the German authorities and the Commission's depart-
ments held on 16 January 1998 in Bonn and answered
by the German authorities in a letter dated 4 March
information obtained at that
1998. On the basis of

(1) OJ C 334, 31.10.1998, p. 6.

meeting, the Commission subsequently registered the
case as non-notified aid. Germany sent further informa-
tion on the question of the entry into force of the
provision and the treatment of sensitive sectors by letter
dated 22 June 1998, comprehensive annexes to that
communication being received by the Commission on
29 June and 1 July 1998.

(2)

The Commission informed Germany by letter dated 17
August 1998 of its decision to declare the aid compat-
ible with the common market to the extent that the
scheme fell within the scope of the Community guide-
lines on State aid for small and medium-sized enter-
prises (2) (SME guidelines), and to initiate the procedure
laid down in Article 88(2) of the EC Treaty as far as
sensitive sectors were concerned.

(3)

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (3). The Commission invited other interested parties
to submit their comments on the scheme.

(4)

No such comments were received.

(5)

By letter dated 25 August 1998 Germany asked the
Commission to confirm the accuracy of a list of sensitive
sectors with a view to its being forwarded to the
German tax authorities. The Commission acceded to this
request by letter dated 7 December 1998. By letter dated
17 January 2000 Germany communicated the text of
the Tax Provisions (Revision) Act (Gesetz zur Bereinigung
von steuerlichen Vorschriften) of 22 December 1999 (4).

(2) OJ C 213, 23.7.1996, p. 4.
(3) See footnote 1.
(4) Federal Law Gazette, Part I, 29 December 1999, p. 2601.

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(6)

(7)

(8)

II. DETAILED DESCRIPTION OF THE MEASURE

1. Description of Section 7(g), paragraph 7, of the

EstG

The notified measure seeks to help company founders
finance future investment in order to meet their particu-
larly high investment needs.

It extends an existing measure authorised by the
Commission on 14 July 1993 allowing enterprises under
certain circumstances
future
to deduct
investment from their taxable profits.

reserves

for

Investment must be in new moveable assets (bewegliche
Wirtschaftsgüter des Anlagevermögens). The investment
must be carried out before the end of the second year
after the reserve is formed and the reserve must not
the investment or DEM 300 000
exceed 50 % of
(EUR 150 000). In the year the reserve is established the
taxable profit of the enterprise will be reduced. When
the investment expenditure is incurred, the reserve is
added back to taxable profits, which are reduced by the
usual accelerated depreciation allowance. If the planned
investment is not undertaken within the two-year time
limit, the reserve is cancelled and, with the addition of
two years' interest at market rates, added back to taxable
profits.

(9)

Section 7(g), paragraph 7, EStG extends this possibility
for company founders within the meaning of the provi-
sion in several respects:

(a) the period within which the reserve may be kept is

extended from two to four years;

(b) the maximum reserve is doubled to DEM 600 000

(EUR 300 000); and

(c) if the planned investment is not undertaken, there
will be no interest added to the dissolved reserve.

(10)

(11)

2. The Commission's decision of 17 August 1998

By its decision of 17 August 1998 the Commission
declared the notified scheme compatible with the
common market to the extent that it fell under the SME
guidelines.

Section 7(g), paragraph 7, EStG is worded in such a way
that only small and medium-sized enterprises as defined
in the Community guidelines may benefit under the
scheme. Germany had argued that the provisions of
Section 7(g), paragraph 7, EStG concerning the object of

(12)

(13)

assistance, the aid intensity, the eligible costs and the
combination of aid were in keeping with the SME guide-
lines.

For the remaining part of the scheme, i.e. that applicable
to sensitive sectors, the Commission decided to initiate
the procedure laid down in Article 88(2) of the EC
Treaty.

The Commission had serious doubts about the compati-
bility of the proposed aid with the common market
under Article 87(3) of the EC Treaty in so far as the
provision exceeded the scope of the SME guidelines, that
is to say, to the extent that it applied to sensitive sectors.
These doubts related to the question whether the proce-
dure chosen by Germany could indeed ensure that the
special rules governing the sensitive sectors were actually
applied and hence whether the provision was compat-
ible with the common market.

(14)

The Commission's reasoning was basically as follows:

Firstly, in its opinion, the so-called ‘tax office solution’
(Finanzamtlösung) procedure involved considerable legal
uncertainties which would not have arisen had the scope
of the notified measure been limited under the Act, and
this despite the fact that the German authorities had
argued (5) that the tax office solution ensured that all
German tax offices in the country would be instructed to
proceed accordingly, which, of course, could not exclude
individual errors of application.

The Commission referred secondly to the limited scope
of
the undertakings given by the Member States
concerning the application of Acts of Parliament directly
conferring a right. In the State aid field the Commission
relied on principle on Member States' assurances that
they would comply with the obligations stemming from
the Community State aid rules. However, where a
national law directly granted a right to aid without the
Member State concerned retaining any discretionary
power, the Commission took the view that the applic-
able rules of national

law had to be amended.

Lastly, the Commission considered that the invoking of
the principle of the primacy of Community law, which
underlay the German line of argument, was no suitable
means of releasing Member States from their obligation
to frame their national provisions in accordance with
Community law. The Commission argued thus:
in its
it was not certain that the tax office solution
view,
would be accepted by a German court. An enterprise
bringing an action to obtain tax exemption in one of the
sensitive sectors excluded by Community law was not
certain to fail. If that enterprise invoked its statutory
it was only by transposing higher-ranking
right,
Community law that
the administrative instruction
contradicting the Act could prevail and hence exclude
the enterprise from the benefit of the right conferred by
the Act. It was questionable, however, whether the State
could successfully rely on this principle before the courts
in this way with a view to derogating from Acts of
Parliament by means of administrative instructions.

(5) On Germany's statement regarding the application of the provision

in the sensitive sectors, see footnote 1, point 2.6.

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laws. This principle

The principle of the primacy of Community law was
intended to make it possible to rely directly on
Community law when applying it, despite the existence
of opposing national
could,
however, scarcely serve as justification for the Member
State itself to refrain from framing its laws in accordance
with Community law. The manner of proceeding chosen
by the Federal Government was therefore fraught with
considerable
enterprises
concerned, the outcome was neither clear nor predict-
able.

legal uncertainty;

the

for

(15) Unlike Germany, the Commission therefore took the
view that a higher degree of legal certainty could be
achieved by a statutory provision which was more
restrictive as
i.e. expressly
to the rights conferred,
excluding the sensitive sectors, than by the ‘tax office
solution’.

III. COMMENTS FROM GERMANY

(16)

By letter dated 25 August 1998 Germany asked the
Commission to confirm the accuracy of a list of sensitive
sectors with a view to its being forwarded to the tax
authorities. The Commission acceded to this request by
letter dated 7 December 1998. Germany transmitted the
Commission's reply to the highest tax authorities in the
Länder
sensitive sectors,
informing them that ‘applications for the formation of
the reserve under Section 7(g), paragraph 7, EStG [may]
be processed only if no sensitive sector is involved’.

together with the list of

(17)

By letter dated 17 January 2000 Germany transmitted
the text of the Tax Provisions (Revision) Act of 22
December 1999 (6). Under Article 1 point 6 of that Act
the following paragraph 8 is added to Section 7 (g)
EStG:

‘8.
Paragraph 7 shall be applicable only in so far as,
in sensitive sectors, eligibility for aid is not excluded.
Sensitive sectors are:

1. The iron and steel industry (Commission Decision No
2496/96/ECSC of 18 December 1996 establishing
Community rules for State aid to the steel industry,
OJ L 338, 28.12.1996, p. 42, and Framework for
certain steel sectors not covered by the ECSC Treaty,
OJ C 320, 13.12.1988, p. 3);

2. Shipbuilding (Council Directive 90/684/EEC of 21
December 1990 on aid to shipbuilding, OJ L 380,
31.12.1990, p. 27, and Council Regulation (EC) No
1540/98 of 29 June 1998 establishing new rules on
aid to shipbuilding, OJ L 202, 18. 7.1998, p. 1);

3. The motor vehicle industry (Framework for State aid
in the motor vehicle sector, OJ C 279, 15.9.1997,
p. 1);

4. Synthetic fibres (Code on aid to the synthetic fibres
industry, OJ C 94, 30.3.1996, p. 11, and OJ C 24,
29.1.1999, p. 18);

5. Agriculture (processing and marketing of agricultural
products) (Guidelines for State aid in connection with
investments in the processing and marketing of agri-
cultural products, OJ C 29, 2.2.1996, p. 4, Commis-
sion Decision 94/173/EEC of 22 March 1994 on the
selection criteria to be adopted for investments for
improving the processing and marketing conditions
for agricultural and forestry products and repealing
Decision 90/342/EEC, OJ L 79, 23.3.1994, p. 29, and
Council Regulation (EC) No 950/97 of 20 May 1997
on improving the efficiency of agricultural structures,
OJ L 142, 2.6.1997, p. 1);

6. Fisheries and aquaculture (Guidelines for the exam-
ination of State aid to fisheries and aquaculture, OJ C
100, 27.3.1997, p. 12);

7. Transport (Council Regulation (EEC) No 1107/70 of
4 June 1970 on the granting of aid for transport by
rail, road and inland waterway, OJ L 130, 15.6.1970,
p. 1, as amended by Regulation (EC) No 543/97 of
17 March 1997, OJ L 84, 26.3.1997, p. 6;
Community guidelines on State aid to maritime
transport, OJ C 205, 5.7.1997, p. 5; and application
of Articles 92 and 93 of the EC Treaty and Article 61
of the EEA Agreement to State aids in the aviation
sector, OJ C 350, 10.12.1994, p. 5); and

8. Coal (Commission Decision No 3632/93 ECSC of 28
December 1993 establishing Community rules for
State aid to the coal industry, OJ L 329, 30.12.1993,
p. 12).

The extent of eligibility for aid is laid down in the legal
instruments referred to in the second sentence.’

(18)

The provision entered into force on 1 January 2000.

IV. ASSESSMENT OF THE AID

(19)

The Commission has assessed the provisions of Section
7, paragraph 8, EStG and has come to the conclusion
that the list of sensitive sectors is in keeping with its
letter and is accurate.

(20) With regard to agriculture,

it would draw Germany's
attention to the fact that the above-mentioned instru-
ments have been replaced with effect from 1 January
2000 by Council Regulation (EC) No 1257/1999 of 17
May 1999 on support for rural development from the
European Agricultural Guidance and Guarantee Fund
(EAGGF) and amending and repealing certain Regula-
tions (7) and by the Community guidelines for State aid
in the agriculture sector (8).

(6) See footnote 4.

(7) OJ L 160, 26.6.1999, p. 80.
(8) OJ C 28, 1.2.2000, p. 2.

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of the recovery of unlawfully paid aid therefore does not
arise in respect of this period either.

V. CONCLUSION

(23)

By inserting Section 7(g), paragraph 8, into the Income
Tax Act and thereby excluding the sensitive sectors by
law from the scope of the aid scheme provided for in
Section 7(g), paragraph 7, of
the Federal
Republic of Germany has allayed the concerns which
induced the Commission to initiate the formal invest-
igation procedure in respect of the tax-free depreciation
reserve for business start-ups provided for in the said
Section 7(g), paragraph 7. The formal
investigation
procedure ought therefore to be closed,

that Act,

HAS ADOPTED THIS DECISION:

Article 1

Proceeding C 56/98 concerning the scheme of aid contained in
Section 7(g), paragraph 7, of the German Income Tax Act in
favour of company founders is hereby closed.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 16 May 2000.

For the Commission

Mario MONTI

Member of the Commission

the compatibility of

(21) With the adoption of the above statutory provision, the
Commission's doubts about
the
notified aid scheme with the common market — doubts
which led to its decision of 17 August 1998 to initiate
the formal examination procedure to the extent that the
scheme affected the sensitive sectors — have been
removed. The enterprises concerned can now see from
the Act
entitled under
Community law to the tax exemption provided for in
Section 7(g), paragraph 7, EStG. The Commission's
concerns regarding the lesser degree of legal certainty
afforded by the ‘tax office solution’ are thus allayed.

itself whether

they

are

(22)

This holds true at least as of the date of entry into force
of Section 7(g), paragraph 8, EStG, namely 1 January
2000. Nevertheless, even for the period between the
entry into force of the scheme provided for in Section
7(g), paragraph 7, EStG and the entry into force of the
amendment introduced by Section 7(g), paragraph 8,
EStG, no other decision needed to be taken in this
matter. The Commission did admittedly decide to
register the case as non-notified aid because, in view of
the nature of the scheme as a directly applicable tax
it regarded publication in the Federal Law
provision,
Gazette without any proviso as a failure by the Member
State to fulfil its obligations under Article 88 of the EC
Treaty (9). There is no evidence to suggest, however, that,
during the period between the entry into force of the
scheme provided for in Section 7(g), paragraph 7, EStG
and the entry into force of the amendment introduced
by Section 7(g), paragraph 8, EStG, any enterprise doing
business in one of the sensitive sectors actually benefited
from the tax break. The question of an investigation into
aid paid unlawfully under Section 7(g), paragraph 7, and

(9) See footnote 4, points 2.7 and 3.