Case C-88/03: Action brought on 27 February 2003 by Portuguese Republic against the Commission of the European Communities
Date: 2003-05-10
Institutions: Court of Justice
Subjects: Azores, European Commission, Portugal, State aid, action for annulment (EU), financial institution, tax on income, tax system

10.5.2003

EN

Official Journal of the European Union

C 112/11

Action brought on 27 February 2003 by Portuguese
Republic against the Commission of the European Com-
munities

selectiveness element with regard to State aid cannot
necessarily have as its frame of reference the whole
of the territory of the Member State.

(Case C-88/03)

(2003/C 112/20)

An action against the Commission of the European Communi-
ties was brought before the Court of Justice of the European
Communities on 27 February 2003 by the Portuguese Repub-
lic, represented by L. Fernandes, acting as Agent, and by J.L. da
Cruz Vilaça and L.M. Romão, lawyers, with an address for
service in Luxembourg.

The applicant claims that the Court should:

1.

find the present application admissible;

2.

3.

declare the present application well-founded and, accord-
ingly, annul the decision of
the Commission of the
European Communities C(2002) 4487 final (State Aid C
35/02 (ex NN 10/2000) — Portugal), of 11 December
2002 on the part of the scheme adapting the national tax
system to the specific characteristics of the autonomous
region of the Azores with regard to the tax reductions
insofar as it takes the view that the tax reductions for
natural and legal persons having their tax residence in the
Autonomous Region of the Azores constitute State aid;

in the alternative, declare the present application well-
founded and annul in part the contested decision insofar
as it finds incompatible with the common market the tax
reductions applicable to undertakings operating in the
financial sector and orders the applicant to recover the
amount concerned;

4.

order the defendant to pay the costs of the proceedings,
including those incurred by the applicant.

Pleas in law and main arguments

— Errors of law in the application of Article 87(1) EC:

— Erroneous description of the measures in question
as State aid by reference to the concept of territorial
selectiveness:

— Erroneous description of the measures in question
as State aid inasmuch as it disregards the fact that
they are justifiable by the nature and the scheme of
the tax system in general:

the scheme laid down in Decreto Legislativo
Regional (Regional Legislative Decree) No 2/99/A
on tax reductions for natural and legal persons does
not amount to an exception to the application of
the tax system but rather an adaptation which falls
within the founding and guiding principles of the
Portuguese tax system, which is applicable to all
economic operators having their tax residence in
the Autonomous Region of Azores. Moreover, it
constitutes the corollary to a tax system which
follows a redistributive approach based on the
special situation of the Autonomous Region of
Azores as an outermost region rendering it materi-
ally different from other parts of Portugal, as well
as on the constitutional principles of autonomy,
solidarity and equality among all Portuguese
nationals.

— Inadequate statement of reasons with regard to the effect
on intra-Community trade and significant restrictions on
competition:

The contested decision provides inadequate reasons inas-
much as it neither explains nor justifies the impact of
reductions in personal income tax (IRS) and in corpor-
ation tax (IRC), applicable to any person having their tax
residence in the Autonomous Region of Azores, on trade
between the Member States or the significant distortion
of competition which will arise from the abovementioned
measures. It merely states that, because some of the
undertakings pursue economic activities involving trade
between the Member States, it follows, by some obscure
fatalistic logic, that the condition regarding the effect on
trade is met.

The constitutional and legal circumstances of the
relationship between the Portuguese State and its
autonomous regions mean that analysis of the

— Manifest error of assessment of the facts for the purposes
the principles of
of Article 87(3)(a) EC, breach of
sound administration, equality and proportionality and
infringement of Article 299(2) EC:

C 112/12

EN

Official Journal of the European Union

10.5.2003

The additional costs of transport and related infrastruc-
ture, energy, health, education,
industry and services
resulting from the remoteness and insularity of the
Autonomous Region of the Azores also affect all under-
takings in the financial sector. Thus, the elevated cost of
transporting goods to and from mainland Portugal and
between the islands is also reflected in that type of
activity, since much of the equipment which banking and
insurance activities require is not available on the local
in certain cases,
market and must be imported and,
transported between various islands. Furthermore,
in
view of the dearth of specialists and qualified staff in the
Azores and the problems facing the educational system
there, certain specialised services which banks need are
not available in the region. They therefore have to
be provided by specialists from continental Portugal
(maintenance of equipment, auditing, consulting, trainers
for courses, etc.) In such cases, it is clear that anyone
employing such specialists ends up bearing air transport,
accommodation and subsistence costs. Likewise, short-
comings in the education system and the lack of special-
ists and qualified staff in the region results in a lack of
specific training being offered, the alternative being to
send staff to continental Portugal. However, undertakings
operating outside the financial sector are, in the main,
small- and medium-sized enterprises operating in or for
the local market, with establishments or installations on
only one island. Consequently, the additional costs arising
from ‘the effect of
the
Azores’ affect them much less than banking or insurance
institutions which have offices spread out across various
islands. Moreover, the region’s economic underdevelop-
ment and the lower income and purchasing power of its
population penalise, to a greater extent, that kind of
activity.

the special circumstances of

By failing to take account of studies previously submitted
in State aid cases relating to the Autonomous Region of
Madeira and the correlation with all the additional costs
quantified and set out and which arise directly from the
structural deficiencies of the Autonomous Region of the
Azores so far as concern also those undertakings which
operate in the financial sector, the defendant manifestly
infringed the principle of sound administration.

Furthermore, the defendant infringed the principle of
proportionality inasmuch as, in view of the elementary
finding that the situation was absolutely identical with
regard to the abovementioned structural costs for under-
takings in the region which operate in the financial sector,
it should have similarly considered compatible with
the common market the tax reductions applicable to
undertakings which operate in the financial sector, just as
it did in respect of undertakings not operating in the
financial sector and in the same terms.

Action brought on 28 February 2003 by the Commission
of the European Communities against the Portuguese
Republic

(Case C-92/03)

(2003/C 112/21)

An action against the Portuguese Republic was brought
before the Court of Justice of the European Communities on
28 February 2003 by the Commission of
the European
Communities, represented by A. Caeiros and M. Konstantinidis,
acting as Agents, with an address for service in Luxembourg.

The applicant claims that the Court should:

1. Declare that, by failing to adopt the provisions necessary
to attribute priority to the treatment of waste oils by
regeneration, irrespective of whether technical, economic
or administrative constraints make it possible, the Portu-
guese Republic has failed to fulfil its obligations under
Article 3(1) of Council Directive 75/439/EEC (1) of
16 June 1975 on the disposal of waste oils (as amended
by Directive 87/101/EEC), as amended by Directive 87/
101/EEC (2) of 22 December 1986;

2. Order the Portuguese Republic to pay the costs.

Pleas in law and main arguments

the contested decision further
By the same token,
infringes the principle of equality, since it
flagrantly
discriminates against undertakings operating in the finan-
cial sector, which are affected just as much as or more
than others by the ‘the effect of the special circumstances
of the Azores’.

None of the legislative or regulatory provisions referred to by
the Portuguese authorities as having been adopted in order to
implement Directive 75/439/EEC attributes priority to the
treatment of waste oils by regeneration. The Portuguese
authorities themselves confirm that, 12 years after the date set
by Directive 87/101/EEC, they have still not adopted the
necessary measures to attribute such priority.