2003/883/EC: Commission Decision of 11 December 2002 concerning State aid scheme C 46/2001 — Central corporate treasuries (Centrales de trésorerie) implemented by France (Text with EEA relevance) (notified under document number C(2002) 4827)
Date: 2003-12-11
Institutions: European Commission
Subjects: France, State aid, control of State aid, exchange of information, tax exemption, tax system

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 December 2002

concerning State aid scheme C 46/2001 — Central corporate treasuries (Centrales de trésorerie)
implemented by France

(notified under document number C(2002) 4827)

(Only the French text is authentic)

(Text with EEA relevance)

(2003/883/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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

Having called on interested parties to submit their comments
pursuant to the provision cited above (1),

Whereas:

I. PROCEDURE

(1)

(2)

In 1997 the Ecofin Council adopted a resolution on a
code of conduct for business taxation (2) with a view to
putting an end to harmful tax practices. In line with the
undertaking it gave in connection with that code, the
Commission published in 1998 a notice on the applica-
tion of the State aid rules to measures relating to direct
business taxation (3) (hereinafter ‘the notice’), restating its
determination to apply the rules strictly and in accord-
ance with the principle of equality of treatment. The
present procedure has to be viewed in this context.

By letter dated 4 August 1999 (D/63323), the Commis-
sion requested information on the French scheme for
central
information was
treasuries. The
provided by letter of the French Permanent Representa-
tion to the European Union dated 12 October 1999 (A/
37816).

corporate

(1) OJ C 302, 27.10.2001, p. 7.
(2) OJ C 2, 6.1.1998, p. 1.
(3) OJ C 384, 10.12.1998, p. 3.

the
By letter SG(2001) D/289747 of 11 July 2001,
Commission informed France that
it had decided to
initiate the formal investigation procedure laid down in
Article 88(2) of the EC Treaty in respect of the tax
scheme for central corporate treasuries. By letter dated
31 October 2001 (A/38577), France commented on this
decision.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (4).
their
comments on the aid. The Commission received no
comments from interested parties.

invited interested parties to submit

It

II. DESCRIPTION OF THE MEASURE

The status of central corporate treasury, which was
tax
approved on 3 November 1998, confers special
treatment laid down in the Instruction of 16 April 1999
issued by the Directorate-General for Taxation (herein-
after ‘the Instruction’). The Instruction, which took effect
on 1 January 1999,
lays down the arrangements for
applying Articles 39(1)(3) and 131c of the General Tax
Code (hereinafter ‘the CGI’), which concern the tax treat-
ment of interest paid by a company to its members on
sums of money they place at its disposal.

(4)

(5)

(4) See footnote 1.

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(6)

(7)

(8)

(9)

the CGI

the disposal of

imposes a limit on the
Article 39(1)(3) of
deductibility of interest paid to members on sums of
money they leave or place at
the
company, irrespective of its legal structure, in addition
to their share in the capital. The deductibility is limited
to interest calculated at a benchmark rate equal to the
annual average of the average effective rates applied by
credit
institutions in respect of variable-rate business
loans with an initial duration of more than two years.
According to the Instruction, the French tax authorities
may authorise derogations from this limit for operations
carried out within the context of central corporate
treasuries.

Article 131c of the CGI provides for exemption from
withholding tax for current-account operations carried
out by members established outside France provided that
these are third-party or associated companies. The
Instruction stipulates that current-account operations
carried out by members between a parent company and
its subsidiaries or sub-subsidiaries under a contractual
agreement between companies belonging to the same
group on the setting up of a central corporate treasury
that has been notified to the tax authorities are also
eligible for this measure.

In order to benefit, a central corporate treasury must be
established in France in the form of a subsidiary and
must be responsible within the group for centralising
treasury operations between the
the management of
companies belonging to that group. Its role consists in
receiving actual cash flows from companies in the group
that are linked to it by the contractual agreement and to
meet the cash requirements of those companies.

Only companies directly or indirectly controlled by the
same company and that company itself may be party to
the contractual agreement. In addition, only groups of
companies present in at least three countries are eligible
for the scheme.

be regarded as a specific advantage since the exemption
already applied to interest paid outside France by any
company to third or associated companies.

IV. COMMENTS FROM FRANCE

(12)

(13)

(14)

The French authorities note that, when opening the
procedure, the Commission did not classify as State aid
the exemption from withholding tax for interest paid
outside France by central corporate treasuries. France
thus regards as inconsistent the Commission's view of
the derogation from the limit on the deductibility of
interest for central corporate treasuries as an advantage
since the purpose and scope of the two measures are
identical.

France considers that the derogation from the limit on
the deductibility of interest for central corporate treasu-
ries is not such as to give rise to an advantage, having
been applied on very few occasions following its entry
into force in January 1999 since the ceiling rate, defined
as the average rate on variable-rate business loans
granted to businesses by credit institutions, has been
close to the market rate in most cases.

France also points out that the Statistical Investigation
Department of the Directorate-General for Taxation has
tracked down only eight contractual agreements that
have been lodged by companies meeting the conditions
for applying these two measures. This would indicate
that the scheme does not confer any practical advan-
tages.

III. REASONS FOR INITIATING THE PROCEDURE

(10)

In assessing the information provided by the French
authorities, the Commission took the view that the dero-
gation from the limit on the deductibility of interest,
which is reserved solely for central corporate treasuries,
seemed to be a selective advantage not justified by the
nature and general scheme of the system.

(11)

The Commission also took the view that the extension
of the exemption from withholding tax for interest paid
outside France by central corporate treasuries could not

interest

(15) According to the French authorities, the derogation from
for central
the limit on the deductibility of
corporate treasuries of groups established in at
least
three countries is not a selective measure since it does
not confer on them any comparative advantage relative
to non-eligible groups. Taking the tax base at group
level, the scheme simply shifts the point of taxation from
the central corporate treasury to the member:
interest
the central corporate
deductible from the results of
treasury is taxed symmetrically in the hands of
the
member as financial revenue whereas, if the deductibility
of interest is limited, the interest that is non-deductible
and thus taxed in the hands of the subsidiary is deducted
from the results of
the parent company after being
reclassified as distributed profit, which is exempt under
the exemption scheme for holdings between parent
companies and subsidiaries.

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is

interest

(16) According to the French authorities, the derogation from
the limit on the deductibility of
for central
corporate treasuries is justified by the nature and general
scheme of the system for deducting interest in respect of
current-account operations carried out by members. The
reason for limiting the deductibility of interest paid by a
company to its members
to introduce a legal
presumption that interest cannot normally be deducted
over and above a certain level fixed in relation to the
market rate, thereby avoiding any disputes as to the
standard rate to be applied. Such a presumption is irrele-
vant where the relationship between members and the
company is laid down in an agreement on the centra-
lised management of
since the
commercial relationship between lender and borrower
takes precedence over the member relationship between
parent company and subsidiary.
Interest is, therefore,
deductible only if
it is in line with the market rate
between independent third parties. This same reasoning
justifies the administrative approach followed in France
since 1984 whereby no limit is imposed on interest paid
by a subsidiary to a parent company classified as a credit
institution.

treasury operations,

V. ASSESSMENT OF THE MEASURE

Introduction

(17) After considering the observations made by France, the
Commission holds to the position spelt out in its letter
dated 11 July 2001 (5) initiating the procedure provided
for in Article 88(2) of the Treaty. It takes the view that
those observations have not removed the misgivings
expressed by it and considers therefore that
the tax
scheme under investigation constitutes operating aid that
is unlawful and incompatible with the common market
pursuant to Article 87(1) of the EC Treaty. However, in
its view, France and the beneficiary companies had good
reason in the case in point to entertain a legitimate
expectation that the aid would not be recovered.

(18)

In particular, the Commission cannot accept the French
authorities' observation that the exemption from with-
holding tax on interest paid outside France can be
likened to the derogation from the limit on the deduct-
ibility of interest for current-account operations carried
out by members. In the Commission's opinion, these
two measures differ in scope and must be dealt with
separately.

Exemption from withholding tax

(19) As regards the exemption from withholding tax for
interest paid outside France, Article 131c of the CGI
already provided for a generalised exemption from

(5) See footnote 1.

withholding tax (6). The Instruction simply stated that
interest paid outside France by central corporate treasu-
ries, which are subject to the conditions spelt out in
points 3 to 9 of the Instruction, qualifies for the existing
exemption.

(20)

(21)

In accordance with point 13 of the notice, tax measures
of a purely technical nature, such as the exemption from
withholding tax, are general measures and fall outside
the scope of Article 87(1) of the EC Treaty provided that
their benefits are accessible to all firms operating within
the territory concerned.

therefore, conclude that

the
The Commission may,
general scope of the exemption from withholding tax
for interest paid outside France, which was confirmed by
the Instruction as regards application of this exemption
to central corporate treasuries, does not allow this
measure to be regarded as State aid within the meaning
of Article 87(1).

Scheme for deducting interest paid to members

(22) As regards the derogation from the limit on the tax
deductibility of interest paid on sums of money made
available to a company by its members, the Commission
regards this tax measure as constituting aid within the
meaning of Article 87(1) of the EC Treaty since it satis-
fies all of the four criteria set out below.

Advantage

(23)

First, the measure confers an advantage which relieves
recipients of charges normally borne from their budgets.
The derogation from the limit on the deductibility of
interest for members' current-account operations carried
out by central corporate treasuries enables them to
reduce the tax base. As mentioned in point 9 of the
notice, an advantage may be provided through a reduc-
tion in the tax burden, and notably a reduction in a
company's tax base, following an additional deduction
granted as a derogation from the standard deduction
ceiling. Central corporate treasuries and the groups to
which they belong receive an advantage whenever the
the
treasuries can deduct
interest paid to those members, whereas other compa-
nies in France would,
in the same situation, have to
comply with a ceiling.

from their tax base all of

(6) Article 131c of

the CGI states that

‘the yield on borrowings
contracted outside France by French legal persons with the authori-
sation of the Minister of the Economy, Finance and Privatisation
(this authorisation is deemed to be generally granted by administra-
tive instruction of the Directorate-General for Taxation in France) is
exempt from the withholding tax provided for in paragraph III of
Article 125A’, while Article 125 A III, which concerns the with-
holding tax on the yield from fixed-income investments, stipulates
that ‘the withholding tax shall apply to the aforementioned revenue
received by persons not having their tax domicile in France; the
same provision shall apply to income paid outside France or
received by legal persons not having their registered office in
France’.

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(24) As regards the observation by France, referred to in
recital 13, that the measure would be applied on only a
very few occasions since the rate applied is,
in most
cases, close to the market rate, the Commission notes
that the existence of a few cases in which an advantage
is conferred or even the mere possibility that the scheme
confers advantages is sufficient for the scheme to be clas-
sified as an aid scheme, provided that the other condi-
tions of Article 87(1) of the EC Treaty are met.

(28)

(29)

(25)

The Commission notes France's argument, referred to in
recital 15, that the derogation from the limit on interest
deductibility would simply shift the point of taxation
from the central corporate treasury to the member and
would not confer any comparative advantage at the level
of the group concerned relative to non-eligible groups.
However, the comparison made by the French authori-
ties of
the level of effective taxation of a group,
depending on whether the sums paid by a central corpo-
rate treasury to its parent company are in the form of
deductible interest or distributed profits (dividends), does
not allow the existence of an advantage to be ruled out
in all cases since it is based on different situations that
vary according to external parameters. For instance, the
amount of dividends distributed depends on the
subsidiary generating distributable profits and on its
management choices, and their tax treatment depends
on the amount of capital held by the parent company
and on the tax rules — notably at international level —
that could be applicable. In this respect, the situation
described by France arises only very infrequently and
presupposes
the parent
company and the subsidiary are subject to the same level
of effective taxation. This line of reasoning is also based
on the assumption that
the subsidiary's profits are
distributed in full to the parent company. Lastly, France's
line of reasoning presupposes that the parent company
exempting holdings
qualifies
between parent company and subsidiary, something
which is not always the case.

an arrangement

among other

things

that

for

(26) What

is more,

the Commission points out

the
assessment as to whether a particular measure consti-
tutes an advantage must relate to the national arrange-
ments applicable in the Member State concerned and
not to a system ensuring hypothetical equality of treat-
ment between countries, as implicitly invoked by France.

that

(27) Accordingly, the Commission concludes that the deroga-
tion from the limit on the deductibility of interest paid
to members could confer an advantage on central corpo-
rate treasuries and on the groups to which they belong.

State resources

the

advantage

Second,
granted through State
is
resources. In the case at issue, the reduction in the tax
base of central corporate treasuries established in France
results
tax revenue constituting State
resources.

in a loss of

Effect on competition and trade between Member States

Third, the measure in question affects competition and
trade between Member States. This criterion is met since
the central corporate treasuries must operate in a multi-
national framework that encompasses,
intra-
Community trade. In view of the advantage conferred on
the
central corporate treasuries,
companies and all the groups to which they belong is
strengthened relative to that of other companies or
competing groups in different sectors, at least some of
which are characterised by the existence of Community
trade.

the position of all

inter alia,

(30) As underscored in point 11 of the notice, the relatively
small amount of aid (7) mentioned by France does not
alter this conclusion.

(31)

(32)

Selectivity

Lastly, the Commission considers that the provisions of
the Instruction are selective in that they favour certain
undertakings since,
in the case in point, they concern
only central corporate treasuries of groups established in
at least three countries. Consequently, they do not apply
in particular to companies belonging to groups estab-
lished only in France or only in two countries.

Justification by the nature or general scheme of the system

the special

itself. On account of

France argues that the arrangements whereby no limit is
placed on the deductibility of interest for central corpo-
rate treasuries are justified by the reasoning behind the
limit
relationship
between a member and its company, the limit would
introduce a legal presumption that
interest cannot
normally be deducted over and above a certain level
fixed in relation to the market rate, thereby avoiding
disputes as to the standard rate to be applied. Such a
presumption would be irrelevant in the case of an agree-
ment on the centralised management of treasury opera-
tions since the commercial relationship between lender
and borrower would take precedence over the member
relationship between the parent company and the
subsidiary. For this reason,
interest could be deducted
only if it conformed to the market rate between indepen-
dent third parties.

(7) See Joined Cases C-278/92, C-279/92 and C-280/92 Spain v

Commission [1994] ECR I-4103, paragraph 42.

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(33)

The Commission is not amenable to this argument since
France does not give the reasons why the commercial
relationship would take precedence over
the parent
company/subsidiary relationship only in the case of
central corporate treasuries, as compared with the func-
tions involved in the centralised management of treasury
operations and performed by subsidiaries not covered by
an agreement within the meaning of the Instruction. Nor
does France explain why the centralised management
activities carried out by a French company for a group
established only in France or in two countries would
differ from those carried out by central corporate treasu-
ries eligible for the scheme. Consequently, the Commis-
sion takes the view that the irrelevance of the general
rule imposing a limit on interest deductibility in the case
of central corporate treasuries eligible for the scheme is
not borne out by characteristics peculiar
to central
corporate treasuries alone, as opposed to the other
companies carrying out the same type of activity. The
interest paid by a subsidiary to its parent
fact
company which is classified as a credit institution quali-
fies for a similar exemption is unlikely to affect this
in itself
assessment since this derogation does not
provide justification for
the
scheme, which applies only to certain central corporate
treasuries. The derogation from the general
rule
imposing a limit on interest deductibility that is applic-
able only to central corporate treasuries of groups estab-
lished in at least three countries cannot, therefore, be
justified by the nature or general scheme of the system.

the specific nature of

that

(37)

(38)

(39)

The derogation in Article 87(3)(a) for aid to promote the
economic development of areas where the standard of
living is abnormally low or where there is serious under-
employment could not be invoked since the scheme
being investigated has unlimited territorial scope.

Similarly,
the scheme for central corporate treasuries
does not fall within the category of projects of common
European interest, which is eligible for the derogation in
Article 87(3)(b), and does not qualify, in so far as it is
not aimed at promoting culture and heritage conserva-
tion, for the derogation in Article 87(3)(d).

The tax advantages granted under the scheme for central
corporate treasuries are unlikely to qualify for the dero-
gation in Article 87(3)(c), which authorises aid to facili-
tate the development of certain economic activities or of
certain economic areas where
such aid does not
adversely affect trading conditions to an extent contrary
to the common interest. Such aid is operating aid which
relieves the beneficiary companies or groups to which
they belong of charges that should normally be borne by
them.

(40) Accordingly, the aid scheme is incompatible with the

common market.

(34)

The Commission concludes therefore that the scheme is
a State aid scheme within the meaning of Article 87(1)
of the EC Treaty.

Compatibility

(41)

(35) As emphasised in the decision initiating the formal
investigation procedure, the scheme in question does not
seem prima facie to qualify for any of the derogations in
Article 87(2) and (3) of the EC Treaty and the French
authorities have not challenged the Commission's assess-
ment
in the matter, which can be summed up as
follows.

(36)

The derogations in Article 87(2) for aid having a social
character that is granted to individual consumers, aid to
make good the damage caused by natural disasters or
exceptional occurrences and aid granted in certain areas
of the Federal Republic of Germany are not applicable in
the case in point.

Recovery

The measures in question cannot be regarded as existing
aid within the meaning of Article 88(1) of the EC Treaty
and Article 1(b) of Council Regulation (EC) No 659/
1999 of 22 March 1999 laying down detailed rules for
the application of Article 93 of the EC Treaty (8). They
were in fact implemented after the entry into force of
the Treaty, were never notified to the Commission in
accordance with Article 88(3), are not covered by the
period of limitation and constituted aid as soon as they
were implemented. They thus constitute new aid. Where
State aid granted unlawfully proves to be incompatible
with the common market, it naturally follows from such
a finding that the aid should be recovered from the
beneficiaries in accordance with Article 14 of Regulation
(EC) No 659/1999. Recovery of the aid is designed to
restore as far as possible the conditions of competitive-
ness that existed before the aid was granted. Neither the
absence of any precedent for applying State aid rules in
similar cases nor the alleged lack of clarity in the Com-
munity policy on State aid would justify a derogation
from this basic principle.

(8) OJ L 83, 27.3.1999, p. 1.

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(42) Nevertheless, Article 14(1) of Regulation (EC) No 659/
1999 stipulates that ‘The Commission shall not require
recovery of the aid if this would be contrary to a general
principle of Community law’. The case-law of the Court
of Justice of the European Communities and Commis-
sion practice have established that an order to recover
aid would infringe a general principle of Community
law where,
following action by the Commission, the
beneficiary of a measure has a legitimate expectation
that the aid was granted in accordance with Community
legislation.

(45) Under the circumstances, the Commission notes that its
decision on the Belgian scheme for coordination centres
was adopted before the French scheme was adopted.
Furthermore,
the French scheme was adopted before
publication of the notice. Accordingly, the Commission
concludes that the beneficiaries under the scheme and
the French administration had a legitimate expectation
that the aid would not be recovered and is not requiring
recovery.

(43)

In Van den Bergh en Jurgens (9),
follows:

the Court stated as

(46)

VI. CONCLUSIONS

The Commission finds that
the French scheme for
central corporate treasuries constitutes State aid within
the meaning of Article 87(1) of the EC Treaty and that
France has unlawfully implemented the aid in breach of
Article 88(3).

‘The Court has consistently held that any trader in
regard to whom an institution has given rise to justi-
fied hopes may rely on the principle of the protec-
tion of legitimate expectation. On the other hand, if
a prudent and discriminating trader could have fore-
seen the adoption of a Community measure likely to
affect his interests, he cannot plead that principle if
the measure is adopted.’

transpires from the Court's case-law (10)

France has not presented the Commission with any argu-
ment based on the existence of legitimate expectation on
the part of the beneficiaries under the scheme. However,
it
the
Commission is required to take into consideration on its
own initiative the exceptional circumstances that provide
justification, pursuant to Article 14(1) of Regulation (EC)
No 659/1999,
to refrain from ordering the
recovery of unlawfully granted aid where such recovery
is contrary to a general principle of Community law,
such as respect for the legitimate expectation of benefici-
aries.

that

for

it

(44)

the Commission notes that

the
In the present case,
French scheme for central corporate treasuries has
certain similarities with the
system introduced in
Belgium by Royal Decree No 187 of 30 December 1982
concerning the taxation of coordination centres. The
two schemes concern intra-group activities and lay down
specific rules for determining the tax base. In its decision
of 2 May 1984, the Commission took the view that the
scheme did not give rise to aid within the meaning of
Article 92(1) of the EC Treaty. Even though the decision
has not been published, the fact that the Commission
did not raise any objection to the Belgian scheme for
coordination centres was made public at the time in the
14th Report on Competition Policy and in an answer to
a Parliamentary question (11).

(9) Case 265/85 [1987] ECR 1155, paragraph 44.
(10) Case 223/85 RSV v Commission [1987] ECR 4617.
(11) See the decision on the Belgian scheme for coordination centres
(SG(84) D/6421, 16.5.1984) and the answer to Written Question
No 1735/90 (OJ C 63, 11.3.1991, p. 37).

(47) Nevertheless,

the position that

the Commission has
taken in the past with regard to certain tax measures for
multinationals created on the part of the French authori-
ties and of the beneficiaries under the scheme the legiti-
mate expectation that the scheme for central corporate
treasuries was compatible with the State aid rules. The
Commission finds that recovery of the aid would run
counter to the general principle of respect for legitimate
expectation and, accordingly, has decided not to require
recovery of the aid,

HAS ADOPTED THIS DECISION:

Article 1

The State aid implemented by France in the form of the deroga-
tion from the limit on interest deductibility for central corpo-
rate treasuries, that derogation being governed by the Instruc-
tion of 16 April 1999, which was issued by the Directorate-
General for Taxation in connection with the scheme for central
corporate treasuries and took effect on 1 January 1999,
is
incompatible with the common market.

Article 2

France is required to remove the selective aid elements referred
to in Article 1 of the scheme governed by the Instruction of 16
April 1999.

Article 3

France shall
inform the Commission, within two months of
notification of this decision, of the measures taken to comply
with it.

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This decision is addressed to the French Republic.

Article 4

Done at Brussels, 11 December 2002.

For the Commission

Mario MONTI

Member of the Commission