2002/347/ECSC: Commission Decision of 21 November 2001 on the tax-free provisions introduced by France for setting up establishments abroad (Text with EEA relevance) (Notified under document number C(2001) 3451)
Date: 2001-11-21
Institutions: European Commission
Subjects: France, foreign enterprise, tax relief, tax-free allowance

13.5.2002

EN

Official Journal of the European Communities

L 126/27

COMMISSION DECISION

of 21 November 2001

on the tax-free provisions introduced by France for setting up establishments abroad

(Notified under document number C(2001) 3451)

(Only the French text is authentic)

(Text with EEA relevance)

(2002/347/ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

Having regard to the Treaty establishing the European Coal
and Steel Community, and in particular Article 4(c) thereof,

The Commission decision to initiate the procedure was
published in the Official
the European
Communities (4). The Commission called on interested
parties
their comments on the case in
question.

to submit

Journal

of

Having regard to Commission Decision No 2496/96/ECSC of
18 December 1996 establishing Community rules for aid to
industry (hereinafter the steel aid code) (1), and in
the steel
particular Article 6(5) thereof,

(5)

The Commission received comments
authorities which it
comment.

from the UK
forwarded to France for further

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2) and having regard to
those comments,

2. DETAILED DESCRIPTION OF THE AID

Whereas:

(1)

(2)

(3)

1. PROCEDURE

In connection with the procedure initiated under Article
6(5) of Decision No 2496/96/ECSC with regard to
Article 34 of Spanish Law No 43/1995 (3),
an
intervening party drew the Commission’s attention to
the tax provisions on the setting-up by French firms of
establishments abroad contained in Articles 39gA and D
of the French General Tax Code (CGI).

By letters of 3 May and 14 June 2000 the Commission
invited France to inform it whether any ECSC firms had
benefited under the provisions and to send it all relevant
information enabling it to assess the measures under
Article 4(c) of the ECSC Treaty.

By letter of 28 November 2000 the Commission
informed France of its decision to initiate the procedure
of Decision No
6(5)
provided
2496/96/ECSC in respect of the aid.

in Article

for

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 160, 2.6.2001, p. 12.
(3) OJ C 329, 31.10.1997, p. 4.

(6)

(7)

(8)

(9)

the CGI enable a firm
Articles 39gA and D of
temporarily to deduct from its tax base either the losses
incurred by its subsidiaries or certain establishments
located abroad, which losses in the case of commercial
or service investments are restricted to the amount of
the investment and subject to a possible ceiling or, in
the case of industrial or agricultural investments, part of
the
and
establishments.

investments made by

subsidiaries

those

investments,

In the case of commercial
the foreign
operation’s business must be the marketing abroad of
goods produced principally by the French firm in
France;
case of
agricultural,
industrial or service investments, the firm
must obtain approval.

automatic.

eligibility

In the

is

All countries fall within the scope of the scheme except,
in the case of industrial or agricultural establishments,
Member States of the European Union.

For Article 39g to apply, the parent company merely
needs to hold 10 % of the subsidiary’s capital in the case
of an industrial or agricultural establishment, or one
third
service
a
in the
establishment.

commercial or

case of

(4) See footnote 2.

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Official Journal of the European Communities

13.5.2002

(10)

(11)

The losses or investments are expressed as provisions,
foreign
but have
subsidiary or establishment becomes profitable again or,
in any event, after 10 years.

reincorporated once

to be

the

(17)

The amount of the provision is equivalent to half the
capital injected by the parent into its subsidiary in the
case of an industrial or agricultural establishment, whilst
in the case of commercial or service establishments it
varies according to the losses incurred by the subsidiary
but must not exceed the capital injection. In addition, in
the case of service establishments, the amount of the
investment giving entitlement to the provision is limited
to FRF 20 million. Banking, financial, insurance and real
estate establishments are not eligible.

(12) When it initiated the procedure, the Commission took
the view that the scheme constituted State aid that was
not compatible with the ECSC Treaty.

3. COMMENTS FROM INTERESTED PARTIES

that of firms setting up a new establishment in France
losses are taken into
foreign firms whose total
or
account in order to calculate the tax.

that

Thirdly, all businesses in French territory are eligible for
this scheme since the setting-up of a subsidiary has a
direct impact on the parent’s volume of business. The
the financial and real estate sectors are
fact
excluded is due to the fact
their establishments
that
abroad are set up differently from the economic
structure of the scheme; an increase in the financial or
market value of a firm’s assets due to its location is not
regarded as a relevant criterion of economic impact. As
regards the approval needed for industrial or service
investments to qualify for the scheme, according to the
text does not give the
French authorities,
Ministry of Economic
any
and Financial Affairs
it allows it to carry out a prior
discretionary powers:
check, in the case of major projects, of the merits of
applying the measure, as the courts may be required to
check the legality of decisions relating to approval.

the legal

(13)

By letter of 26 June 2001 the United Kingdom
authorities stated that
they shared the Commission’s
reservations regarding the compatibility of the aid with
the steel aid code.

(18)

Furthermore, from a procedural standpoint, the French
authorities consider that the Commission should have
applied the procedure in force for existing aid since the
Commission has already decided on two occasions that
the scheme did not involve State aid.

(14)

(15)

4. COMMENTS FROM FRANCE

By letter of 25 January 2001 the French authorities
maintained that the scheme of provisions forming the
subject of the procedure did not appear to constitute
State aid for the following reasons:

(19)

Finally, the French authorities informed the Commission
that Articles 39gA and D of the CDI were not applied
to any ECSC steel undertakings.

unlike

financial

taxation,

authorities,

allowed the

concerned a

the provisioning system had not systematically
First,
firms
advantage
given the
the period concerned. According to the
throughout
French
the
deferred
provision in the present case that was deducted when it
was made
from an
advantage corresponding to the rate of corporation tax
applicable in the year in question. When, however, the
provision
paid
corresponding to the rate applicable in the year of
reintegration. The difference in the rates having reached
more than eight points in the period 1993-1998, the
from any
therefore benefit
firms concerned did not
financial advantage in the period in question.

firm to benefit

reincorporated,

tax must

be

is

5. ASSESSMENT OF THE AID

(20) Under Article 4(c) of the ECSC Treaty, subsidies or aids
granted by States are recognised as incompatible with
the common market and must accordingly be abolished
and prohibited. Decision No 2496/96/ECSC (the steel
aid code) lists the only cases which may be exempted,
under certain conditions, from this general prohibition.

(16)

Secondly, the scheme is a component of the system of
territoriality of corporation tax applicable under French
law. As losses incurred abroad during the start-up phase
of their establishments cannot be deducted from profits
taxable in France, the scheme simply places firms setting
up establishments abroad in a comparable position to

(21)

In line with the caselaw of the Court of Justice of the
European Communities (judgment of 23 February 1961
in Case 30/59 De Gezamenlijke Steenkolenmijnen in
Limburg v High Authority) (5) and the approach taken
by the Commission (see point 10 of the Commission

(5) [1961] ECR 3.

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notice on the application of
the State aid rules to
measures relating to direct business taxation (6)), under
Community law the concept of aid covers not only
positive assistance from the State but also any measure
that relieves an undertaking of a burden which it would
otherwise have to bear, regardless of whether or not it
companies.
is
by
loans
Accordingly, non-repayable grants, preferential
from the
or
corporation tax are all measures which must be
regarded as State aid.

recipient

income

directly

applied

against

credits

State

and

the

(22)

In the present case,
the firms entitled to defer tax
improve their cash flow as they are able for a certain
time (up to 10 years) to benefit from funds free of
charge which they would not have enjoyed had they
had to pay the appropriate tax immediately. The fact
that
the tax rate in force when the provision is
reincorporated may be higher than when the provision
was constituted (see recital 15) does not cancel out the
in cash flow. Furthermore, when the
improvement
provision was made, the recipient firms could not have
been certain of the rate in force when the provision was
element may
reincorporated.
the specific
constitute a factor in the calculation of
advantage enjoyed if the aid has to be recovered.

Nevertheless,

this

(23) As to the specificity of the measure, it is pointed out
that according to both the Commission’s approach (see
points 13, 16 and 18 of the notice referred to above in
recital 21 of this Decision) and the caselaw of the Court
of Justice (see the Judgments of 10 December 1969 in
Joined Cases 6 and 11/69 Commission v France (7) and
of
v
Commission (8)), a measure is specific and therefore
must be regarded as State aid instead of a general
measure where, although prima facie it might be seen as
general
in practice it supports a particular
group of companies.

57/86 Greece

in form,

1988

Case

June

in

7

(cid:151) firms with establishments

abroad whose main
business is not marketing goods produced in France,

(cid:151) firms producing in France

and exporting but

without any establishments abroad,

(cid:151) firms engaged solely in trading.

(25)

In its comments on the initiation of the procedure (see
rectical 17), France did not dispute this finding and even
confirmed it by acknowledging that, to qualify for the
scheme, an establishment must have a direct effect on
the volume of business of the parent company.

(26)

(27)

as

(or

regards

industrial

approval of

receiving the

Similarly,
agricultural)
investments or service establishments, the Commission
had found when it initiated the procedure that only
firms
the Ministry of
Economic and Financial Affairs (which is given after
obtaining the opinion of the Ministry of Industrial and
case of
Scientific Development
industrial
in the
the measure. The
investments) may benefit under
in
this
Commission
its
connection
practice (9)
law (10)
according to which
treating economic agents on a discretionary basis may
mean that the individual application of a measure takes
on the features of a selective measure.

referred
and case

to

In the present case,
the French authorities have not
notified any provision, apart from the submission of
administrative acts for a general review of legality by
the courts, which might limit the discretionary power of
the Minister for Economic and Financial Affairs. The
Commission must
the
therefore
administration has a margin of discretion.

conclude

that

(24)

the Commission had concluded
In the present case,
when it
initiated the procedure that, as regards the
commercial establishments, only certain firms producing
in France were eligible for the measure, which ruled out
the following in particular:

(cid:151) firms producing in France but not exporting,

(6) OJ C 384, 10.12.1998, p. 3.
(7) [1969] ERC 523.
(8) [1988] ERC 2855.

(28) As regards the argument that the scheme is part of the
system of territoriality of corporation tax (see recital
16), the Commission considers that the territoriality of
French corporation tax does not justify the fact that
some firms are automatically ineligible, in particular the
commercial establishments of traders. The same applies

(9) Points 21 and 22 of the abovementioned Commission notice (see

footnote 6).

(10) Case C-241/94 France v Commission [1996] ECR I-4551, points
23 and 24 and Case C-200/97 Ecotrade v Altiforni e Ferriere di
Serrola [1998] ECR I-7907, point 40.

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to the discretionary nature of
(or
for
non-commercial services to be eligible.

agricultural)

industrial

the approval needed
and

investments

(29) As regards the procedural aspects, the Commission must
point out that the ECSC Treaty, unlike the EC Treaty,
makes no provision for the concept of existing aid.
Article 4(c) of the ECSC Treaty provides that subsidies
or aids granted by Member States are recognised as
incompatible with the common market
for coal and
steel and will accordingly be abolished and prohibited
within the Community. The Commission is of course
in 1973 and 1992,
aware that on two occasions,
it
concluded that
in question did not
the measures
constitute aid under the EC Treaty.

(30)

(31)

Lastly, the fact that the French authorities state that no
ECSC steel undertaking qualified for the scheme (see
recital 19)
the
possibility that ECSC undertakings or their subsidiaries
benefited in the past or may benefit in the future.

in January 2001 does not rule out

6. CONCLUSION

The scheme in question is not generally applicable and
can lead to State aid being granted to certain firms. It
therefore constitutes State aid within the meaning of the
Community rules and,
it benefits
ECSC steel undertakings, it is contrary to Article 4(c) of
the ECSC Treaty. Furthermore, none of the exceptions
in the steel aid code are applicable in the case in point.

to the extent

that

(32) As to recovery of the aid, if the Commission finds that
State aid which is incompatible with the common
market has been granted,
the
Member State to recover it. However, it will not require
recovery of
this is contrary to a general
principle of Community law.

it generally requires

the aid if

tax provisions under

the
examination would be
classified as State aid contrary to Article 4 of the ECSC
Treaty and that
they could rightly claim legitimate
expectation. The Commission accordingly considers it
appropriate not
the aid in
question granted prior to the adoption of this Decision,

to order the recovery of

HAS ADOPTED THIS DECISION:

Article 1

All aid granted by France under Articles 39gA and D of the
General Tax Code (CGI) to ECSC steel firms taxable in France
is incompatible with the common market for coal and steel.

Article 2

France shall forthwith take the necessary steps to ensure that
ECSC steel firms taxable in France are not eligible for the aid
referred to in Article 1.

Article 3

France shall inform the Commission within two months of the
date of notification of this Decision of the measures it has
taken to comply herewith.

Article 4

This Decision is addressed to the French Republic.

Done at Brussels, 21 November 2001.

(33)

The Commission notes that on two occasions (11)
it
decided under the EC Treaty that the scheme did not
constitute State aid. Under
the
Commission considers that even the most cautious and
well informed steel firms could not have predicted that

the circumstances,

For the Commission

Mario MONTI

Member of the Commission

(11) Commission Decision 73/263/EEC of 25 July 1973 on the tax
concessions granted, pursuant to Article 34 of French Law No
65-566 of 12 July 1965 and to the circular of 24 March 1967, to
French undertakings setting up businesses abroad (OJ L 253,
10.9.1973) and Decision of 30 September 1992 (OJ C 3,
7.1.1993. See aid NN 96/92, p. 5).