2004/343/EC: Commission Decision of 16 December 2003 on the aid scheme implemented by France for the takeover of firms in difficulty (Text with EEA relevance) (notified under document number C(2003) 4636)
Date: 2003-12-16
Institutions: European Commission
Subjects: France, State aid, aid system, aid to undertakings, control of State aid

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 16 December 2003

on the aid scheme implemented by France for the takeover of firms in difficulty

(notified under document number C(2003) 4636)

(Only the French text is authentic)

(Text with EEA relevance)

(2004/343/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity, 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,

(3)

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

Whereas:

I. PROCEDURE

(1) Within the framework of the notice on the application
of the state aid rules to measures relating to direct busi-
the
ness
Commission examines and reviews tax aid schemes in
force in the Member States (3). The present proceeding is
to be viewed in this context.

called the notice)

(hereinafter

taxation (2)

(2)

By letter dated 12 September 2001 (D/53716),
the
Commission sent a request for information to France
concerning the tax exemption provided for in Article 44
septies of the General Tax Code. This tax exemption was
not notified prior to its implementation as required by
Article 88(3) of the Treaty. By letter dated 19 September
2001 (VB/myg No 2540),
French authorities
requested an additional period of one month in which to
supply the information, which was granted by the
Commission on 1 October 2001 (D/54025). On 29
November 2001, the Commission sent a reminder (D/
54953) with a view to obtaining the requested informa-
tion. On 21 December 2001 (VB/myg No 3640), the
French authorities provided part of
the information
requested by the Commission. By letter dated 15 March

the

(4)

(5)

2002 (D/51147), the Commission requested the missing
information, which was furnished on 15 April 2002
(VB/myg 1116).

the Commission
By letter dated 19 August 2002,
initiated the formal investigation procedure. The decision
to initiate the procedure was published in the Official
Journal of the European Communities (4). The Commission
invited interested parties to submit their comments on
the measure.

The Commission received no comments from interested
parties. By letter dated 10 September 2002, the French
authorities asked for a 20-day extension of
time to
submit
their comments, which was granted by the
Commission. The comments by the French Government
were finally received on 16 December 2002.

Detailed description of the scheme

Article 44 septies of the General Tax Code was intro-
duced by Article 14A of the Budget Law for 1989 (5).
The article provides for exemption from corporation tax
for a period of two years for companies created to take
over the activities of industrial firms in difficulty. Article
44 septies has been amended five times: in 1990, 1991,
1992, 1994 and 2000. Various amendments clarified
the conditions of application of
the tax exemption
(1991) and extended its scope to complete and autono-

(1) OJ C 284, 21.11.2002, p. 5.
(2) OJ C 384, 10.12.1998, p. 3.
(3) See point 37 of the notice.

(4) See footnote 1.
(5) Law No 88-1149 of 23.12.1988, Official
Republic, 28 December 1988, p. 16320.

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mous branches of industrial activity forming the subject
of a transfer (1990) and to firms in difficulty not
forming the subject of a transfer ordered by a court
(1992). The amendment introduced in 1994 concerns
only the conditions of application of Law No 85-98 of
25 January 1985 on the restructuring and judicial liqui-
dation of the firms to which Article 44 septies originally
referred. The amendment made in 2000 replaced the
reference to Law No 85-98 with a reference to the arti-
cles of the Commercial Code codifying that law.

(6)

Exemption is granted automatically where the takeover
concerns a firm in difficulty forming the subject of a
insolvency
transfer ordered by a court, as part of
proceedings, pursuant to Articles L 621-83 et seq. of the
Commercial Code.

(7)

Exemption may also be granted with the consent of the
Minister for Budgets in the following three cases:

(e) in the event of the takeover of one or more indus-
trial establishments in difficulty of an industrial firm,
the newly created company must be legally and
economically independent of the transferor firm.

(10)

(11)

Finally, in accordance with Articles 1383 A, 1464 B and
1464 C of the General Tax Code, firms benefiting from
exemption under Article 44 septies may also benefit,
with the agreement of the competent local authorities,
from exemption from business tax and property tax for
a period of two years.

The French authorities have provided information on the
size of some beneficiaries under the measures (Table 1)
and on the amount of aid granted between 1997 and
1999 (Table 2). The data relate only to cases in which
consent was given by the Minister or the tax administra-
tion and do not therefore concern cases in which the
benefit of the scheme was granted automatically.

(a) where the restructuring procedure has not been

Table 1

implemented;

(b) where the takeover, carried out as part of a transfer
ordered by a court pursuant
to Law No 85-98,
concerns, not an entire enterprise, but complete
branches of industrial activity;

(c) where the takeover affects one or more industrial
establishments in difficulty of an industrial firm that
is not in difficulty.

(8)

The Minister's decision is necessary only in cases invol-
ving an industrial programme worth over FF 50 million
(approximately EUR 7,6 million) before tax or firms
turnover in excess of FF 1 billion
with an annual
(approximately EUR 150 million) and whose capital is
held more than 50 % by a firm whose consolidated turn-
over exceeds FF 1 billion. In all other cases, the decision
is taken by the head of the tax office in the département
where the firm has its registered office.

(9)

Consent is given only if all of the following conditions
are met:

(a) the takeover must have as its object an industrial
firm, one or more complete and autonomous
branches of industrial activity or an establishment
which performs an industrial activity;

(b) the status of ‘firm in difficulty’ must be a confirmed
one, consisting of a financial situation that renders
the cessation of business imminent;

(c) the new company must have been created for the
sole purpose of taking over the industrial activity in
difficulty;

(d) the capital of the new company may not be directly
or indirectly held by partners/associates, managers or
indirect holders of more than 50 % of the capital of
the firm in difficulty during the year preceding the
takeover;

Number of employees

Number of firms

1991 to 1996

After 1.1.1997

Fewer than 10 employees

70

Between 11 and 50 employees

106

Between
employees

51

and

250

22

More than 250 employees

Firms for which the informa-
tion is not available

2

25

Total

225

Table 2

2

10

12

11

11

38

1997

1998

1999

Number of beneficiary
firms

151

182

Cost (EUR million)

64

80

60

55

Reasons for the initiation of the procedure

(12)

In its decision to initiate the formal procedure,
the
Commission considered that the exemption from taxes
granted to companies taking over firms in difficulty
could amount to aid falling under Article 87(1) of the

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it took the preliminary view
EC Treaty. In particular,
that the scheme conferred an advantage on beneficiaries
because it relieved them of charges normally borne by
French firms, namely corporation tax, property tax and
business tax, which entailed a forgoing of tax revenue.
The Commission expressed doubts about the compat-
ibility of the measure with the guidelines on aid to firms
in difficulty and the regional aid guidelines.

Comments from France

French authorities put forward a number of arguments.
First of all, they emphasise that the granting of the
exemptions has always been conditional on the existence
of a restructuring programme. The viability of
the
programme has to be examined either by the judge
hearing the insolvency matter or by the tax authorities
authorising the exemptions. The restructuring plan must
also ensure that the agreed exemptions do not exceed
the minimum necessary to sustain the firm during the
restructuring period. Secondly,
the French authorities
point out that the two-year time limit on exemption
renders the measure insufficient to cover all the financial
needs of the new firm.

(13)

By letter dated 13 December 2002, the French authori-
submitted their comments to the Commission.
ties
Those authorities consider that the provisions do not
constitute State aid within the meaning of Article 87 of
the Treaty. Alternatively,
the scheme were to be
if
considered State aid, they deem the scheme to be justi-
fied under the Community guidelines on aid for rescuing
and restructuring of firms in difficulty.

Assessment of the aid

(18)

This Decision concerns the scheme as such and does not
case.
examine
However,
the Commission has
decided to examine certain categories of individual case
which may merit separate assessment.

the aid granted in each individual
in some instances,

(14) According to the French authorities,

the exemption
provided for in Article 44 septies of the General Tax
Code cannot be considered State aid because it benefits
all new firms resulting from a transfer of assets, indepen-
dently of their sector of activity. The French authorities
provided some information about the sectors to which
the beneficiaries of the exemption belong: these include,
among others, shipbuilding, the motor industry, holding
companies, the printing industry, the leather industry,
industry and the
the paper
the chemical
production of
In the
French authorities' opinion,
the exemption does not
constitute a derogation from the general tax regime.

telecommunications equipment.

industry,

the Commission maintains

(19) Having considered the observations of the French autho-
rities,
as
expressed in its letter of 19 August 2002 initiating the
formal procedure, that the scheme under examination
constitutes State aid within the meaning of Article 87(1)
of the Treaty.

its position,

(20)

The Commission considers that the measure contained
in Article 44 septies of the French General Tax Code
fulfil all the criteria laid down in Article 87(1) of the
Treaty.

(15) As regards the exemptions from business tax and prop-
erty tax, the French authorities consider that they are
not reserved for certain firms. They justify the need for a
decision of
the local authorities by reference to the
financial autonomy of those authorities, which are said
not to have any discretion in applying the exemptions.
The exemptions are applicable to all firms established in
their territory.

(21)

(16)

The French Government argues that these exemptions
can be considered neutral from the point of view of
intra-Community trade for
their
temporary nature, and the low level of the aid compared
with the cost of purchasing a firm in difficulty.

two main reasons:

Advantage

First of all, the measure must confer an advantage. The
Commission, relying on the established case law of the
Court of Justice, considers in its decision-making practice
that the concept of aid embraces not only positive bene-
fits, but also measures which, in various forms, mitigate
the charges which are normally included in the budget
of an undertaking (1). Article 44 septies grants exemption
from corporation tax on the profits earned, during the
two years following its creation, by a new company
taking over a firm in difficulty. The measure is, contrary
to what the French authorities maintain, a derogation
from the general French tax system, which provides for
payment of the tax by ‘all legal persons carrying on a
business or a lucrative economic activity’ (2). Therefore,
corporation tax is a charge normally borne by French

(17)

In case the Commission might wish to examine the
the guidelines on aid for
measures in the light of
the
firms in difficulty,
rescuing and restructuring of

(1) Judgment in Case C-143/99 Adria-Wien Pipeline [2001] ECR 8365,

paragraph 38.

(2) Article 206.1, last paragraph, of the General Tax Code.

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companies. The exemption relieves companies newly
created to take over the assets of a firm in difficulty of a
cost borne by their competitors (1), thereby conferring
on them an advantage. As stated in point 9 of the
Commission notice, an exemption from tax is considered
a form of advantage.

Second, aid given to newly created companies is still aid
that affects intra-Community trade even if it is authori-
sable in certain cases. For these reasons, the Commission
considers that the measures at issue, especially when
applied to certain highly competitive sectors as is the
case here (4), affect intra-Community trade and distort or
threaten to distort competition.

(22) Additionally, Articles 1383A, 1464B and 1464C of the
General Tax Code provide that firms benefiting from
exemption from corporation tax under Article 44 septies
may also benefit, with the agreement of the competent
local authorities, from exemption from business tax and
property tax for a period of two years. These exemptions
also constitute an advantage in so far as such charges
are normally borne by firms in France.

Selectivity of the aid

(23)

(24)

(25)

State resources

Secondly, the measure must be financed through State
resources. Point 10 of the notice states that a loss of tax
revenue is equivalent to consumption of State resources
in the form of fiscal expenditure. By exempting these
new companies from corporation tax on their profits
and from property and business tax, the French authori-
ties, both central and local, are forgoing revenue that
constitutes State resources. The French authorities have
thus estimated that, for the years 1997 to 1999, exemp-
tion from corporation tax alone resulted in a cost of
almost EUR 200 million. The measure is
therefore
granted through State resources.

Effect on intra-Community trade

threaten to distort,

Thirdly, the measure must affect intra-Community trade
and distort, or
competition.
According to the information provided by the French
authorities, the firms benefiting from the measures at
issue belong to very different sectors of activity, among
them several exposed to strong competition within the
Community, such as shipbuilding, the motor industry,
chemicals, paper and textiles. Contrary to what
the
French authorities assert,
the Commission does not
believe that the measures are neutral from the point of
view of
their
temporary nature and small amount compared with the
cost of taking over a firm in difficulty. Two arguments
support this view. First, as pointed out in the notice and
confirmed by established case law (2), the fact that aid is
relatively small in amount does not alter its nature (3).

intra-Community trade on account of

that

In its decision to initiate the procedure,
the benefit of

Lastly, the measure must be selective. The measures at
issue are applicable only to companies newly created to
take over the industrial activity of firms in difficulty. The
conditions that must be met in order to benefit from the
exemptions are very strict: only new companies taking
over a failing firm as part of an insolvency procedure or
obtaining the consent of the Ministry of Finance and/or
local authorities can benefit
from them. The French
the measure is open to all
authorities maintain that
the
sectors.
Commission noted, however,
the
measure was expressly limited to the industrial sector,
thereby excluding the service sector, which, as the
Commission observed in its decision, accounts for 70 %
jobs in France. This in itself
of GDP and 65 % of all
the measure is selective (5).
suggests that
Information
supplied subsequently by the French authorities shows
that at least one holding company and two firms of
consultants have also benefited from the corporation tax
exemption, despite not belonging to the industrial
sector. However, the existence of such cases does not
show that
the measures were open under the same
conditions to firms not involved in industrial activities.
At all events, even if all sectors of activity can benefit
from the provisions of Article 44 septies, those provi-
sions do not cover all firms, despite the fact that the
general rule in France is that all
firms have to pay
corporation tax, business tax and property tax. As
confirmed by the Court of First Instance (6), the mere
fact
that an advantage is limited to newly created
companies excludes all other companies and the advan-
tage must therefore be considered selective. This is all
the more true where such newly created companies also
have to fulfil other requirements in order to qualify for
exemption, such as the taking over of the industrial
activity of a firm in difficulty and independence from
previous partners/associates, managers or majority share-
holders or, where appropriate, from the transferor firm.

(1) Case 30/59 Steenkolenmijnen [1961] ECR 1.
(2) See, most recently, the judgment in Case C-280/00 Altmark Trans,

not yet reported, paragraph 81.

(3) Point 11 of the notice.

(4) See paragraph 14 of this Decision.
(5) Case C-143/99 Adria-Wien Pipeline, cited above, paragraphs 39 et

seq.

(6) Joined Cases T-92/00 and T-103/00 Territorio Histórico de Álava

[2002] ECR II-1385, paragraphs 48 and 49.

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The selective character of the measure is borne out,
moreover, by the relatively small number of firms that
have benefited from the measure upon the granting of
consent — only 263 between 1991 and 2002 —
compared with the number of firms liable to the taxes in
firms
question, not
newly created in France during that period.

to mention with the number of

(26)

The French authorities have not put forward any argu-
ment to justify the measure based on the nature or
general scheme of the French tax system. The Commis-
sion considers that such a justification cannot be relied
on in the present case.

(27) On the other hand, the Commission considers that local
authorities do not exercise any discretionary power
when they grant exemptions from business and property
tax to new companies taking over activities in difficulty.
From the information furnished by the French authori-
ties, it is clear that the granting of exemption by local
authorities holds good for any company newly created
to take over a firm in difficulty established in their terri-
tory. Nevertheless, this fact does not alter the conclusion
as to the selective character of the exemptions. Even if
these exemptions from business and property tax are
not granted on a case-by-case basis, as indicated above
they still apply to a particular group of undertakings,
namely those fulfilling the strict conditions set out in
Article 44 septies of the General Tax Code.

(28)

To conclude, inasmuch as all the elements inherent in
the concept of State aid are present, the measures in
question constitute a State aid scheme within the
meaning of Article 87(1) of the Treaty.

De minimis

(29)

(30)

limited in their
The advantages in question are not
amount and the scheme does not therefore come under
the de minimis provisions.
It cannot be ruled out,
however, that in certain individual cases the advantages
may have been granted in accordance with the condi-
tions laid down in the Community rules on de minimis
aid.

It was in the Community guidelines on State aid for
small and medium-sized enterprises adopted by the
Commission on 20 May 1992 (1) (hereinafter called the
SME guidelines) that a definition was given for the first
time of what is meant by de minimis aid. Point 3.2 sets
the scope of the de minimis rule at an aid amount of
EUR 50 000 per firm over a period of three years for
certain broad types of expenditure (e.g.
investment,
training). As a result, one-off payments of aid of up to

(1) OJ C 213, 19.8.1992, p. 2.

EUR 50 000 in respect of a given type of expenditure
and aid schemes under which the amount of aid paid to
firms for a given type of expenditure over a three-year
period was limited to that figure were no longer subject
to prior notification under Article 88(3) (former Article
93(3)) of the Treaty. There was, however, a proviso,
namely that the individual notification or the aid scheme
had to include an express condition that any further aid
the same firm might receive in respect of the same type
of expenditure from other
sources or under other
schemes must not take the total aid the firm receives
above the EUR 50 000 limit. Point 3.2 states that the de
minimis rule does not apply to the sensitive sectors (steel,
shipbuilding, synthetic fibres, the motor industry, agri-
culture, fisheries, transport and the coal industry).

(31)

The Commission's 1996 notice on de minimis aid (2)
modified the de minimis rule as set out in the SME guide-
lines. The total maximum amount of de minimis aid was
increased to EUR 100 000 over a three-year period
beginning when the first de minimis aid is granted. This
ceiling applied to the total of all public assistance consid-
ered to be de minimis aid and did not affect the possibi-
lity of the recipient obtaining other aid under schemes
approved by the Commission. The rule did not apply to
the industries covered by the ECSC Treaty,
to ship-
building, to transport or to aid towards expenditure in
connection with agriculture or fisheries.

(32) Article 1 of Commission Regulation (EC) No 69/2001 of
12 January 2001 on the application of Articles 87 and
88 of the EC Treaty to de minimis aid (3) extends the
scope of the de minimis rule to all sectors with the excep-
tion of the transport sector and activities linked to the
production, processing or marketing of products listed
in Annex I to the Treaty, aid to export-related activities,
namely aid directly linked to the quantities exported, to
establishment and operation of a distribution
the
network or to other current expenditure linked to the
export activity, and aid contingent upon the use of
domestic over imported goods. Under Article 2 of the
Regulation, the total de minimis aid granted to any one
enterprise must not exceed EUR 100 000 over any
period of three years. This ceiling applies irrespective of
the form of the aid or the objective pursued.

(33)

In line with the interpretation adopted by the Commis-
sion (4),
the scrutiny of non-notified measures, even
where they predate the entry into force of Regulation
(EC) No 69/2001, must be carried out in the light of
that regulation, whereas the rules in force when the aid
measure was implemented must be applied where the
aid is not exempted under the regulation.

(2) OJ C 68, 6.3.1996, p. 9.
(3) OJ L 10, 13.1.2001, p. 30.
(4) See, inter alia, Commission Decision 2003/626/EC of 27 November
2002 on the aid scheme implemented by Germany — Thuringia
loan programme for small and medium-sized enterprises (OJ L 223,
5.9.2003, p. 32).

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(34)

(35)

(36)

(37)

instances of

implementation of

the
Consequently,
measures in question do not constitute State aid where
they comply with the conditions laid down in Regu-
lation (EC) No 69/2001 or, alternatively, with the de
minimis rules in force when the advantages were granted.

Compatibility

G e ne r a l r e ma r ks

Inasmuch as the measure constitutes an aid scheme
within the meaning of Article 87(1),
its compatibility
must be assessed in the light of the exceptions laid down
in paragraphs 2 and 3 of that Article.

The exceptions laid down in Article 87(2) and Article
87(3), points (b), (d) and (e), are clearly not applicable
and have not been invoked by the French authorities.
On the other hand, the exceptions relating to the devel-
opment of certain areas or of certain sectors, laid down
in Article 87(3), points (a) and (c), must be examined. As
regards aid to promote the development of certain
sectors, in view of the nature of the measures at issue
the only relevant criteria are those concerning aid for
rescuing and restructuring firms in difficulty and those
concerning aid for small and medium-sized enterprises.

those on regional aid.

Consequently, as announced in the decision initiating
the formal investigation procedure, the Commission will
analyse the measure in the light of
the Community
guidelines on State aid for rescuing and restructuring of
In
firms in difficulty and of
accordance with the Commission notice on the
determination of the applicable rules for the assessment
of unlawful state aid (1), the measure must be examined
in the light of the guidelines in force at the time when
the aid was granted. The Commission must also examine
the aid in question in the light of the rules applicable to
aid for small and medium-sized enterprises.
In this
connection, the rules applicable are first and foremost
those of the exemption regulation in force today, and it
is only in the alternative that the notices in force at the
time when the aid was granted will be applied (2).

(39)

(40)

(41)

is still in force
measure, which was enacted in 1989,
today. These are: points 227, 228 and 177 of
the
Commission's Eighth Report on Competition Policy
(1979);
the Community guidelines on State aid for
rescuing and restructuring firms in difficulty published
in 1994 (3); and the new guidelines published in
1999 (4).

In this respect, the French authorities put forward a
‘subsidiary’ argument to justify the measures under the
guidelines: they stress that the application of the exemp-
tion is always dependent on the existence of an appro-
priate restructuring programme, approved by a judge, in
cases where a judicial procedure is open, or by the tax
authorities, where judicial intervention is not necessary.

First of all, it should be pointed out that firms which do
not correspond to the Community concept of firm in
difficulty might benefit from the measures in question.
Even in the absence of an express definition, the guide-
lines of 1994 (5) and 1999 (6) list typical symptoms and
signs of such firms which correspond basically to the
criteria applied previously. Now, the very mechanism of
the aid in the form of exemption from corporation tax
presupposes that the beneficiary can make profits within
two years of its being taken over. It is doubtful whether
a firm generating profits so quickly can be deemed to be
a firm in difficulty.

Secondly, with regard to the period before 1994,
it
should be pointed out that the national measures cannot
be authorised as rescue aid. Such aid must, according to
the Commission's Eighth Report on Competition Policy,
consist of cash aid in the form of loan guarantees or
rates, be
loans bearing normal commercial
restricted to the amount needed to keep the firm in busi-
ness, be paid only for the time needed (generally six
months) to draw up the recovery measures and not have
any adverse effects on the industrial situation in other
Member States. These conditions are clearly not met by
the measures in question.

interest

Aid for rescuing and restructuring firms in difficulty

(38) With regard to the rules on aid for rescuing and restruc-
turing firms in difficulty, three sets of provisions are
applicable in the present case owing to the fact that the

(1) OJ C 119, 22.5.2002, p. 22.
(2) These criteria, which result from the interpretation of Commission
Regulation (EC) No 70/2001 of 12 January 2001 on the application
of Articles 87 and 88 of the EC Treaty to State aid to small and
medium-sized enterprises (OJ L 10, 13.1.2001, p. 33) and from the
abovementioned notice, are henceforth set out expressly in para-
graph 1a of Article 10, inserted by the regulation adopted in prin-
ciple by the Commission on 10 December 2003.

(42)

In the case of restructuring aid, the report requires the
submission of a sound restructuring programme capable
of restoring the viability of the activity concerned. The
intensity and amount of the aid must not exceed the

(3) OJ C 368, 23.12.1994, p. 12.
(4) OJ C 288, 9.10.1999, p. 2.
(5) Point 2.1.
(6) Point 2.1.

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minimum needed to support the firm during the restruc-
turing period and must be limited in time and gradually
reduced. The report also stresses the need to reduce to a
minimum the distortions of competition that might
result from this type of aid, particularly in the most
sensitive sectors.

rules concerning the sensitive sectors, rules which are
not complied with in this case as is clear from paragraph
43 above.

(43)

These conditions are not met either by the measures in
question. As far as the restructuring programme is
concerned, within the judicial procedure, Article L 621-
the French Commercial Code sets forth the
85 of
requirements that all offers to purchase the firm (or
branch of activity) in difficulty must satisfy if they are to
be approved by the judge. Such offers must include
operational and financing forecasts, the transfer price
and the method of payment, the level and prospects of
employment that the business activity will create, the
guarantees obtained in order to ensure the execution of
the offer, and forecasts of asset sales during the first two
years following the transfer. According to the Code, the
determining criteria are the maintenance of employment
and the guarantees as to the payment of creditors. Thus,
contrary to what is required by the rules on State aid for
restructuring firms
in the
Commission's Eighth Report on Competition Policy, no
account is taken of the effect of the aid on competition.
Neither the market situation nor the impact on competi-
tors nor the existence of other aid is taken into account
as part of the judicial procedure. Similarly, where the
appraisal of the restructuring programme is to be carried
out by the tax authorities, the only factor taken into
account is the capacity of the restructuring programme
to ensure a lasting maintenance of business activity;
competition considerations are entirely absent. In addi-
tion, the intensity of the aid is neither limited to what is
strictly necessary nor gradually reduced, as is required by
the abovementioned rules. Consequently, the amount of
the aid will depend solely on the capacity of the firm to
generate profits. The larger the profits, the larger the
amount of aid.

in difficulty as

set out

(44)

Regarding the period between 1994 and 1999, the 1994
Community guidelines contain essentially the same rules
on rescue aid as the Eighth Report on Competition
Policy. Consequently, the measure at issue cannot be
declared compatible under these rules for the reasons
already given in paragraph 41.

(45)

In relation to restructuring aid,
the 1994 guidelines
contain the same principle of avoidance of undue distor-
tions of competition as the rules set out in the Eighth
Report on Competition Policy. Those guidelines require,
moreover, the limitation of aid to the strict minimum
needed and compliance with the specific implementing

(46) A scheme of aid to firms in difficulty might, under
certain conditions, be justified on the basis of the 1994
guidelines if the measure were to benefit only SMEs.
Point 3.2.4 of the guidelines defines SMEs as enterprises
which have no more than 250 employees and an annual
turnover not exceeding ECU 20 million (or a balance
sheet total not exceeding ECU 10 million) and are not
more than 25 % owned by companies which are not
SMEs. According to the information provided by the
French authorities, there is no restriction on large firms
benefiting and at least five such firms have benefited
from the measure as part of the consent procedure.
Similarly, all consents granted by the Finance Ministry
must relate to firms whose turnover is higher than
EUR 150 million. On the basis of the criteria in the
1994 guidelines, such firms could never have come
under an aid scheme and the aid they received should
have been individually notified (point 4.2).

(47) With respect to SMEs, the Commission states in point
3.2.4 of the 1994 guidelines that, in view of the limited
negative impact such aid has on competition, it does not
require restructuring aid to SMEs to meet the same strict
conditions as aid for restructuring large firms, particu-
larly as regards capacity reductions and employment
obligations. However, point 4.1 of the same guidelines
stipulates that, to be approved, SME aid schemes must
clearly identify the firms eligible,
the circumstances
under which aid may be granted and the maximum
amount available. Point 3.2.2 requires the submission of
a plan which can restore viability within a reasonable
time scale and which is based on internal factors. The
plan should take into account in particular the possible
adverse effects on competitors and provide for aid in
proportion to the restructuring costs and benefits. The
French measure, for its part, does not set a ceiling on
the aid amount. The identification of eligible firms is
only relative as it is for the judge or the tax authorities
to give their agreement to the new entities taking over
the activities in difficulty benefiting from exemption. As
has already been pointed out, neither the judge nor the
tax administration considers questions of competition.
Restructuring programmes are approved on the basis of
their stability and viability, and their impact on competi-
tion is not evaluated. Consequently, the scheme under
which aid was granted between 1994 and 1999 to SMEs
newly created on the basis of Article 44 septies does not
satisfy the requirements of the 1994 guidelines on State
aid for rescuing and restructuring firms in difficulty.

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(48)

Lastly, with regard to the period from 1999 to the
present day, point 3.1 of the 1999 guidelines limits the
form, duration and amount of rescue aid and requires
that
in other
Member States. For the reasons given in recital 41, the
French scheme clearly does not fulfil these conditions.

there be no serious overspill effects

(49)

In relation to restructuring aid, point 3.2.2 of the 1999
guidelines requires that measures be taken to mitigate as
far as possible any adverse effects of the aid on competi-
tors and that the aid be limited to the strict minimum
needed to enable restructuring to be undertaken in the
light of the existing financial resources of the company,
its shareholders or the business group to which it
belongs. A scheme which, like the one at issue, takes no
account of the effects of the aid and which determines
its amount solely by reference to the taxes which would
otherwise be due cannot, therefore, as has already been
shown in recitals 43 and 47, be approved on this basis.

(50) As to the possibility of approving aid schemes for
restructuring small and medium-sized enterprises, as
provided for in Part 4 of the 1999 guidelines, suffice it
to say that the French scheme is not reserved for such
enterprises and that, even in the case of SMEs, it does
not ensure that the aid amount is limited to the strict
minimum as required by point 4.4(c) of the said guide-
lines.

(51)

In addition, point 7 of the 1999 guidelines expressly
provides that a newly created company is not eligible for
rescue and restructuring aid where it emerges from the
liquidation of a previous firm or merely takes over such
firm's assets. The position is different only in the event
of the creation by a company of a subsidiary merely as a
vehicle for receiving some of its assets and, possibly, its
liabilities. According to the information provided by the
French authorities, the tax benefit is granted exclusively
to firms whose sole purpose is to restart a failing busi-
ness, being newly created just for that reason, without
being limited to the case where a subsidiary is created as
a takeover vehicle. Furthermore, persons who previously
the failing firm's capital
held, directly or indirectly,
cannot hold more than 50 % of the new entity, which
has to be legally and economically independent of the
transferor entity. Therefore, tax exemptions granted after
1999 under Article 44 septies of the General Tax Code
cannot be justified under the terms of the 1999 guide-
lines on rescue and restructuring aid.

(52)

(53)

(54)

(55)

(56)

(57)

Regional aid

Secondly, the measure must be examined in the light of
the provisions on regional aid. The instruments relevant
the 1979 Commission
first,
to this examination are,
communication on regional aid systems (1)
the
period from 1991 to 1998, then the 1998 guidelines on
national regional aid (2), for the period from 1998 to the
present.

for

The 1979 communication provides in point 18(i) of its
annex that initial investment may include ‘investment in
fixed assets by way of
takeover of an establishment
which has closed or which would have closed had such
takeover not taken place’.

It follows from the same communication that aid for
initial investment could be authorised within the limits
laid down in point 2 of the communication. Thus, in the
case of France, a ceiling of 75 % net grant equivalent of
initial investment applied to the overseas departments.
In that part of France which receives the regional devel-
opment premium (3), the communication authorised aid
of an intensity differentiated according to the regions.

Subsequently, while the ceiling applicable to the overseas
departments remained at 75 %, the eligible regions and
the ceilings applicable in mainland France were set by
the regional planning grant map approved by Commis-
sion Decision 85/18/EEC of 10 October 1984 demar-
cating the areas that could benefit under the regional
planning grant scheme in France (4) and by the subse-
quent amendments thereto (5).

In the present case, in those instances where the exemp-
tion from corporation tax is directly applicable because
the transfer of the establishment takes place as part of
an insolvency procedure, it can be considered that the
establishment would have closed had it not been taken
over. The same holds true where the exemption is
granted by the tax administration inasmuch as one of
the conditions that must be met in order to obtain its
consent is that the firm's financial situation renders the
cessation of business imminent. The provisions of the
1979 communication are therefore applicable in the
present case.

that

the Commission considers

Consequently,
is
possible to declare compatible with the Treaty aid
granted before the entry into force of the 1998 commu-
nication up to the amount of the ceilings of intensity
applicable in the region concerned and at the time it
was granted, increased, where appropriate, by the bonus
provided for in the case of aid to SMEs (6).

it

(1) OJ C 31, 3.2.1979, p. 9.
(2) OJ C 74, 10.3.1998, p. 9.
(3) As listed in Annex 1 to Decree No 76/325 of 14 April 1976 —
Official Journal of the French Republic No 90 of 14 April 1976.

(4) OJ L 11, 12.1.1985, p. 28.
(5) See inter alia the Commission decisions in Cases N 515/94, N 699/

94 and N 45/2000.

(6) See point 4.1 of the 1992 Community guidelines on State aid for
small and medium-sized enterprises and point 4.2.1 of the 1996
Community guidelines on State aid for small and medium-sized
enterprises (OJ C 213, 23.7.1996, p. 4).

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(58) As far as the 1998 guidelines are concerned, point 4.4
thereof states that
the purchase of an establishment
which has closed or which would have closed had it not
been purchased may be regarded as initial investment,
unless the establishment concerned belongs to a firm in
difficulty. This last exception was abolished by point 7.1
of the 1999 Community guidelines on State aid for
rescuing and restructuring firms in difficulty. For the
reasons already given above, the Commission considers
that what is involved in the present case is in fact the
takeover of an establishment which ‘has closed or which
would have closed had such takeover not taken place’.
Even during the period between March 1998 and
October 1998 when the abovementioned exception was
the measure constitutes a tax exemption
applicable,
which benefits solely the new company taking over the
activity, and it cannot be deduced that it would confer
an advantage on a firm in difficulty transferring the
activity.

(59)

(60)

(61)

The 1998 guidelines provide, in point 4.10, that aid for
investment must be made conditional on the
initial
in question for a
maintenance of
minimum period of five years.

the investment

In the present case, it cannot be ruled out, in certain
instances, that exemptions covering part of
individual
the price paid for an establishment or for certain assets
(such as land, buildings, plant or machinery) may be
considered compatible aid if it is conditional on the
maintenance of the investment for a minimum period of
five years. This last condition, which is not expressly laid
down by Article 44 septies, might nevertheless have
been fulfilled in certain specific situations.

the guidelines,

Lastly, according to point 4.8 of
the
intensity of aid must be adapted to take account of the
nature of the aided regions. For the period 2000-2006,
the eligible regions and the ceilings of intensity applic-
able in France result from the regional aid map approved
by the Commission's decision of 13 March 2000 in Case
N 45/2000. The scheme forming the subject-matter of
the present Decision provides for no limit to the inten-
sity of aid in the form of a tax advantage. However,
there are grounds for considering that the aid granted
under this scheme is compatible with the common
market in so far as it has been granted to firms situated
in eligible regions up to the intensity authorised in those
regions, and on condition that the investment in ques-
tion has been maintained for a minimum period of five
years.

Aid to SMEs

(62)

Thirdly, with regard to the rules applicable to aid to
SMEs, it should be pointed out straight away that the
French measures are not limited to SMEs and that, there-
fore, the scheme cannot be declared compatible on that
basis.

(63) However, in certain individual instances, aid might be in
keeping with the conditions laid down by Regulation
(EC) No 70/2001 or, alternatively, with the earlier provi-
sions on aid to SMEs (1).

(64) Article 4 of Regulation (EC) No 70/2001 declares
compatible and exempt from the notification require-
ment aid for investment in tangible assets carried out by
small enterprises, up to an intensity of 15 %, or by
medium-sized enterprises, up to an intensity of 7.5 %,
subject
lays down.
Pursuant to Article 2, point (c), of the Regulation, an
investment in fixed assets undertaken in the form of the
takeover of an establishment which would have closed
had it not been purchased is to be regarded as invest-
ment in tangible assets.

to fulfilment of the conditions it

(65)

For the reasons given in recital 56 the Commission
considers that the French scheme applies to instances of
the takeover of an establishment which has closed or
which would have closed had it not been purchased.
This being so, aid granted to SMEs under the scheme is
compatible with the common market in so far as it
fulfils the other conditions laid down in Regulation (EC)
No 70/2001.

(66)

Inasmuch as the conditions laid down by the 1992 and
1996 frameworks are not more favourable than those of
Regulation (EC) No 70/2001,
is not necessary to
analyse them in greater detail.

it

Conclusion as to compatibility

(67)

Viewed as a whole, the scheme is incompatible with the
common market. However, aid granted under
the
scheme which fulfils the criteria of the 1979 communi-
cation on regional aid systems and of the 1998 guide-
lines on national regional aid and aid granted in accord-
ance with Regulation (EC) No 70/2001 can be declared
compatible with the common market.

Recovery and monitoring of repayment

(68)

The measures at issue were introduced in 1989. The
Commission requested information on them for the first
time in September 2001, thereby interrupting the 10-
year limitation period provided for in Council Regu-
lation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of
the EC Treaty (2). Inasmuch as the tax exemptions consti-
tute unlawful aid because they were not notified to the
Commission, any aid granted after September 1991
must therefore be recovered.

(1) See the Sixth Report on Competition Policy (1976), points 253 to

255, and the 1992 and 1996 Community frameworks.

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

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(69) Having never been notified, the aid scheme is unlawful.
Aid outside the scope of Regulation (EC) No 69/2001,
the previously applicable de minimis rules and Regulation
(EC) No 70/2001 is likewise unlawful.

the
France has implemented in breach of Article 88(3) of
Treaty is incompatible with the common market, without
prejudice to Articles 2 and 3.

(70)

(71)

(72)

(73)

By virtue of
the Commission's established decision-
making practice, any aid which has been granted unlaw-
fully and which is incompatible in the light of Article 87
of the Treaty must be recovered from the beneficiaries.
This practice has been confirmed by Article 14 of Regu-
lation (EC) No 659/1999.

Pursuant to that Article, the Member State concerned
must take all necessary measures to recover the aid from
the beneficiary. In order to establish the number of cases
in which recovery must be effected, and in keeping with
the duty of loyal cooperation between Member States
and the Commission, the latter considers that France
must draw up a list of enterprises which fall outside the
scope of Regulation (EC) No 69/2001,
the other de
minimis rules and Regulation (EC) No 70/2001 and
which do not fulfil the criteria of the 1979 communica-
tion on regional aid systems and of the 1998 guidelines
on national regional aid.

Conclusions

The Commission finds that France has unlawfully imple-
mented an aid scheme by granting a tax exemption to
companies taking over the activities of firms in difficulty
in breach of Article 88(3) of the Treaty. It considers that
the scheme cannot be justified either on the basis of the
guidelines applicable to aid for rescuing and restruc-
turing firms in difficulty or on the basis of the rules
applicable to regional aid and that it is therefore incom-
patible with the common market.

(42) The Commission considers that France must take all
necessary measures to recover the aid from the benefici-
aries of the scheme, without prejudice to cases coming
under Regulation (EC) No 69/2001 or the other de
minimis rules and without prejudice to individual cases
in which the amounts of aid granted have been found to
be wholly or partly compatible in accordance with the
1979 communication on regional aid systems, the 1998
guidelines on national regional aid or Regulation (EC)
No 70/2001.

(74)

The Commission would ask France to return to it the
attached questionnaire concerning the current status of
the recovery procedure and to draw up a list of benefici-
aries to which the recovery relates,

HAS ADOPTED THIS DECISION:

Article 1

Article 2

The exemptions granted under the scheme referred to in
Article 1 does not constitute State aid if they fulfil the condi-
tions laid down by Regulation (EC) No 69/2001 or by the de
minimis rules applicable at the time of grant.

Article 3

Aid granted under the scheme referred to in Article 1 which
fulfils the conditions laid down by the 1979 communication
on regional aid systems or by the 1998 guidelines on national
regional aid or by Regulation (EC) No 70/2001 is compatible
with the common market to the amount of the admissible
intensities.

Article 4

France shall abolish the aid scheme referred to in Article 1.

Article 5

France shall take all necessary measures to recover from its
beneficiaries aid granted under the scheme referred to in
Article 1, other than that referred to in Articles 2 and 3, and
unlawfully made available to those beneficiaries.

Recovery shall be effected without delay and in accordance
with the procedures of national law provided that they allow
the immediate and effective execution of this Decision. The aid
to be recovered shall include interest from the date on which it
was at the disposal of the beneficiaries until the date of its
recovery. Interest shall be calculated on the basis of the refer-
ence rate used for calculating the grant-equivalent of regional
aid, on a compound basis in accordance with the Commission
communication on the interest rates to be applied when aid
granted unlawfully is being recovered.

Article 6

France shall
inform the Commission, within two months of
notification of this Decision, of the measures taken and to be
taken in order to comply with it.

Article 7

The State aid scheme provided for in Article 44 septies of the
General Tax Code in the form of a scheme of tax exemptions
for companies taking over the assets of firms in difficulty that

furnish this information on the basis of

France shall
the
attached questionnaire and shall draw up an exhaustive list of
companies granted exemption under the scheme referred to in
Article 1 and of the amounts paid in each case.

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France shall draw up a list of companies in receipt of aid under the scheme referred to in Article 1 which
does not fulfil the conditions laid down by Regulation (EC) No 69/2001, by the de minimis rules applicable
at the time of grant of the aid, by Regulation (EC) No 70/2001, by the 1979 communication on regional
aid systems or by the 1998 guidelines on national regional aid. The list shall also specify the amount of aid
each company has received.

This Decision is addressed to the French Republic.

Article 8

Done at Brussels, 16 December 2003.

For the Commission

Mario MONTI

Member of the Commission

ANNEX

Information sheet on the recovery of unlawfully granted aid

1. What is the total number of aid recipients?

2. What is the total amount of aid granted?

3. What is the total amount of aid to be recovered?

4. How will your authorities calculate the amount of aid to be recovered?

— principal

— interest (1)

5. What measures are to be taken to secure the immediate and effective repayment of the aid in accordance with Article

14 of Council Regulation (EC) No 659/1999? Please specify the legal basis for those measures.

6. What measures have already been taken to secure the immediate and effective repayment of the aid in accordance

with Article 14 of Council Regulation (EC) No 659/1999? Please specify the legal basis for those measures.

7. By what date should all the aid have been recovered?

8. Other comments.

(1) In accordance with the Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered
(OJ C 110, 8.5.2003, p. 21), the reference rate will be applied on a compound basis. The calculation of compound interest on an
annual basis uses the formula Interest = [Capital (1 + Interest rate) Number of years] – Capital.