2005/709/EC: Commission Decision of 2 August 2004 on the State aid implemented by France for France Télécom (notified under document number C(2004) 3061)   (Text with EEA relevance)
Date: 2004-08-02
Institutions: European Commission
Subjects: France, State aid, business tax, control of State aid, telecommunications industry

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COMMISSION

COMMISSION DECISION

of 2 August 2004

on the State aid implemented by France for France Télécom

(notified under document number C(2004) 3061)

(Only the French text is authentic)

(Text with EEA relevance)

(2005/709/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

The opening decision was notified to France on 31
January 2003. After a number of substantive errors had
been corrected, a corrigendum was notified to France on
7 March 2003.

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

(3)

France communicated additional
information to the
Commission by letters dated 4 April 2003, 15 May
2003 and 29 January 2004.

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

Whereas:

(4)

The Commission's decision to open the procedure was
published in the Official Journal of the European Union (3).
The Commission invited interested third parties
to
submit their comments on the aid measures in question.

I. PROCEDURE

(1)

By letter dated 31 January 2003,
the Commission
informed France of its decision to open the formal inves-
tigation procedure provided for in Article 88(2) of the
in
EC Treaty (hereinafter called the opening decision)
respect of financial measures introduced by the French
authorities for France Télécom (hereinafter called FT or
the company) and in respect of the business tax scheme
applicable to that operator. A description of the facts
which led to the procedure being opened is not
included in this Decision (2).

(5)

The Commission received the following comments on
the subject from interested third parties:

— 21 March 2003: comments from Cable and Wireless

plc and Cable and Wireless SA

— 11 April 2003: comments from Cegetel

— 10 April 2003: comments from AFORS Telecom

— 11 April 2003: comments from LDCOM

(1) OJ C 57, 12.3.2003, p. 5.
(2) See paragraphs 1 to 8 of the opening decision, which are to be

considered an integral part of this Decision.

(3) OJ C 57, 12.3.2003, p. 5, hereinafter called ‘decision to open the

procedure’ or ‘opening decision’.

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— 11 April 2003: comments from A (4)

— 22 June 2004: letter from FT

— 10 April 2003: comments from Tiscali

— 30 June 2004: fax from FT

— 11 April 2003: comments from WorldCom France

— 2 July 2004: fax from FT

— 11 April 2003: comments from B (4)

— 16 July 2004: fax from BT.

— 11 April 2003: comments from Bouygues SA and

Bouygues Telecom (BT) (5)

— 14 April 2003: comments from Telecom Italia

(9)

The Commission requested additional explanations from
the French authorities by letters dated as follows:

— 14 April 2003: comments from C (4)

— 29 April 2003: comments from B

— 30 April 2003: comments from LDCOM (6).

The Commission transmitted the comments to France on
16 May 2003, giving it the opportunity of commenting
on them.

The French authorities submitted their comments by
letters dated 30 June and 29 July 2003.

— 11 September 2003 (answer given by the French

authorities on 20 October 2003)

— 11 November 2003 (answer given by the French

authorities on 4 December 2003)

— 12 January 2004 (answer given by the French autho-

rities on 21 January 2004)

— 2 February 2004 (answer given by the French autho-

rities on 16 February 2004)

— 1 June 2004 (answer given by the French authorities

at the meeting on 16 June 2004)

The Commission received further
documents from the third parties listed below:

information and

(10)

The Commission forwarded the letters referred to in
paragraph 8 to the French authorities on 3 May and
14 June 2004.

(6)

(7)

(8)

— 23 June 2003: letter from LDCOM

— 25 June 2003: letter from D (4)

— 27 October 2003: letter from MCI

— 16 October 2003: letter from ECTA

— 25 June 2003: letter from E (4)

— 7 January 2004: letter from BT

— 16 January 2004: letter from LT

— 19 March 2004: letter from FT

— 5 April 2004: letter from Tiscali

— 17 May 2004: letter from LDCOM

— 26 May 2004: letter from BT

(11)

The Commission heard representatives of third parties at
various meetings during the course of the procedure.

(12)

The Commission met the French authorities and FT on
22 January and 16 and 23 June 2004.

(13)

to

the French authorities
By fax dated 5 July 2004,
submitted
new calculations
concerning the special business tax scheme. On 13, 15
and 16 July 2004, the French authorities submitted addi-
tional comments to the Commission.

the Commission

(4) Party wishing that its identity be kept confidential.
(5) To which a complaint
22.1.2003 was annexed.

lodged by the same companies dated

(6) LDCOM sent the Commission a corrigendum, which was forwarded

to the French authorities on 16.6.2003.

II. DESCRIPTION

(14) Only the special business tax scheme applicable to FT, as
referred to in the opening decision, is the subject of this
Decision.

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(15)

Inasmuch as the measure under scrutiny has already been
a
described in detail
description will be included in this Decision only as far
as is necessary.

in the opening decision (7),

followed by a ‘definitive’ scheme applicable indefinitely
with effect from 1 January 1994:

(16) Until 1990 inclusive,

FT's business

activities were
conducted by a Directorate in the Ministry of Posts and
Telecommunications. As an administrative public service
of the State, the former Directorate-General for Telecom-
munications was subject to none of the following taxes:
(i) business tax; (ii) property tax on buildings and unbuilt
land; and (iii) corporation tax (8). It was endowed with a
budget annexed to that of the State which was largely in
to the
surplus and which was subject
operating
general
surpluses as well as
financing
specific activities.

heading
to certain levies

to a payment

budget

of
for

under

the

(17)

‘public

called CGI),

Law No 90-568 of 2 July 1990 on the organisation of
the public postal and telecommunications service trans-
formed the former Directorate-General for Telecommu-
nications into two separate public-law entities (La Poste
and FT) endowed with financial autonomy and governed
by commercial law. The conferment of legal personality
on these two entities should have resulted in the ordinary
rules of taxation being applied to them. Under the terms
of Article 1654 of the General Tax Code (Code général des
establishments,
impôts, hereafter
industrial or commercial state concerns, and companies
in which the State or local authorities have shareholdings
shall pay under the conditions of ordinary law the duties
and taxes of all
to which private companies
carrying on the same operations are subject’. Conse-
quently, FT should have been subject to the ordinary
rules of taxation as from the date of its formation on
1 January 1991 (Article 1 of Law No 90-568 of 2 July
1990). However, contrary to this principle — which is
enshrined, moreover, in Law No 90-568 itself (9) — the
legislator introduced taxation rules derogating from the
ordinary rules for FT (Articles 18-21 of Law No 90-568)
two schemes: a ‘transitional’ scheme
in the form of
applicable from 1 January 1991 to 1 January 1994,

types

(7) See paragraphs 25 to 33 of the opening decision.
(8) It had been subject, on the other hand, since 1988 to VAT; see the
‘Report to Parliament on the normalisation of the local taxation of
France Télécom’, Directorate-General
for Taxes, November 2001,
p. 6.

(9) Although Article 18 of Law No 90-568 laid down the principle of
the subjection of La Poste and FT to ordinary duties and taxes, it
provided that
the ordinary rules had to be
effected ‘subject to the provisions of Articles 19, 20 and 21 of
this Law’.

this application of

— 1991 to 1993: Article 19 of Law No 90-568 laid
down the principle that, for a period lasting from 1
January 1991 until 1 January 1994, FT would be
subject only to the duties and taxes actually borne
by the State. Consequently, during that period, FT,
like the State, did not have to pay taxes such as
business
corporation tax.
During that same period, and under the terms of
the same article, FT had to make contributions to
the State budget (in particular the civil research and
development budget)
the levy for the
benefit of the general budget’. These contributions
were fixed annually by the Finance Acts up to a
certain amount (10).

tax, property tax or

‘by way of

for

and the

the basis

— 1994 to 2003: Pursuant to Law No 90-568 (Article
18) and Article 1654 CGI, FT was subject to the
from 1 January 1994,
ordinary tax system as
except
tax,
taxation (property
local direct
business
to which Law No
tax), with respect
90-568 laid down special conditions concerning the
taxation arrangements.
rate,
According to an initial estimate by the French autho-
rities, the advantage derived by FT from the special
business
to it
amounted to approximately EUR 198 million a
year (11). On the basis of
figures provided subse-
quently by the French authorities,
is
said to be lower (see recitals (54) et seq. below).
This special open-ended business tax scheme was
abolished by the 2003 Finance Act (12).

that was applicable

the amount

tax scheme

(10) Article 19 of Law No 90-568 provided as follows: ‘Until 1 January
1994, La Poste and France Télécom shall be subject only to such
duties and taxes as are actually borne by the State at the time of
publication of this Law by reason of the activities transferred to the
public operators. Until that same date, the contributions paid by
France Télécom into the civil research and development budget and
by way of the levy for the benefit of the general budget shall be
fixed each year by the Finance Acts up to an annual amount
calculated by applying to a basic amount, set for 1989 at 13 700
million francs, the consumer price index established by the National
Statistical Institute and economic studies’.

(11) The report submitted to Parliament by the Directorate-General for
Taxes in November 2001 on the normalisation of the taxation of
France Télécom states that ‘the immediate normalisation of the
conditions of taxation of France Télécom in relation to business
tax would involve, assuming that the rate remains unchanged [i.e.
independently of decisions taken by local authorities], an over-
taxation of almost 198 million euros for the company’; see the
‘Report to Parliament on the normalisation of the local taxation
of France Télécom’, Directorate-General for Taxes, November 2001,
p. 16.

(12) Article 29 of the 2003 Finance Act completely normalised the
arrangements for subjecting FT to business tax as from 1.1.2003.
See in this connection the report submitted by Mr Gilles Carrez on
behalf of the Committee on Finance, the General Economy and the
Plan on the draft Finance Act, 2003, distributed at the National
Assembly on 14.10.2002.

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III. COMMENTS FROM INTERESTED PARTIES

(18)

The comments sent by interested parties merely repeat
the arguments presented by the Commission in the
opening decision. Consequently,
they will not be
reproduced in this Decision.

(19)

IV. COMMENTS FROM THE FRENCH AUTHORITIES

The French authorities' arguments focus on a funda-
mental point, namely that the specific scheme established
by the State for FT did not confer any advantage on the
company. The French authorities acknowledge that FT
was subject to a special scheme in relation to business
tax from 1991 to 2002 inclusive, but they consider that
the scheme gave it no edge and in no way affected public
resources, resulting in an overtaxation of FT compared
with the ordinary-law situation. The French authorities
base this conclusion on the following three points:

— between 1991 and 1993 inclusive, FT was subject to
a levy for the benefit of the general budget which,
according to the French authorities, was equivalent to
payment of business tax and included (inter alia) the
amount of the business tax itself;

— the French authorities stress that Law No 90-568
established ‘once and for all’ a single tax scheme
applicable to FT from 1991 to 2003. They consider
that an overall calculation should be made of any
advantage conferred by the scheme on FT throughout
the period 1991 to 2003. In their opinion, an over-
‘offset’ an under-
taxation of FT one year might
taxation of FT another year;

taxing the company under

— according to the French authorities, the arrangements
for
the headings of
business tax and corporation tax are inseparable;
it is necessary to study together the
consequently,
various elements of taxation of FT throughout the
period 1991 to 2003. As business tax enters into
the calculation of the taxable result, the correction
of any undertaxation under the heading of business
downward
tax
correction of the amount of corporation tax.

accompanied by

should be

a

the validity of the calculations which they themselves
had previously submitted to the Commission concerning
the difference between the business tax paid by FT and
that which it would have had to pay had it been subject
to the rules of ordinary law. According to the French
authorities,
it was impossible to calculate for certain
the undertaxation of FT under the heading of business
tax from 1994 onwards. Consequently,
in the French
authorities' opinion,
the Commission should not rule
on this issue. By letter dated 5 July 2004, the French
authorities submitted to the Commission new calcu-
lations (prepared by FT itself), which they by no means
claimed to be more accurate or more precise than those
submitted previously but which were intended simply to
illustrate the impossibility of estimating with any degree
of accuracy the advantage enjoyed by FT under the
special business tax scheme from 1994 onwards.

V. ASSESSMENT OF THE AID

(21) Article 87(1) of the EC Treaty provides that any aid
granted by a Member State or through State resources
in any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall,
in so far as it
affects trade between Member States, be incompatible
with the common market. In the opening decision, the
Commission noted that all the constituent elements of
State aid within the meaning of Article 87(1) of the EC
Treaty were prima facie present. Only the main findings of
that analysis are reproduced in this Decision (13):

— FT received special treatment in relation to business
tax (introduced by Articles 18-21 of Law No
90-568);

— this special treatment conferred on it an advantage
(according to the estimates of the French authorities
themselves);

— the special provisions on business tax applicable to
FT were introduced by Parliament by means of a law
promulgated by the President of the French Republic,
which leaves no doubt as to the imputability of this
measure to the State;

(20)

the French authorities maintain that

Secondly,
the
measure in question should be considered existing.
Lastly, at
the meetings with the Commission on 16
and 23 June 2004, the French authorities questioned

— in so far as FT paid fewer taxes than companies
subject to the rules of ordinary law, there is a use
of public resources;

(13) For more details see Chapter III of the opening decision.

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— since FT operates in a very competitive sector, that of
telecommunications, the advantages from which FT
benefits distort or threaten to distort competition;

(25)

— since FT operates in markets which were gradually
opened to competition from the end of the 1980s,
any advantage granted to FT by the State is likely to
affect trade between Member States.

(22)

1. The years 1991 to 1993

To analyse the business tax scheme for the period 1991
to 1993, it is necessary to examine the first argument
advanced by the French authorities, according to which
the levy for the benefit of the general budget paid by FT
from 1991 to 1993 was in the nature of a tax and can
to payment of business tax
be considered equivalent
according to specific procedures. On this point,
the
Commission would observe that, according to case law,
the existence of aid cannot be denied by reason of the
fact that a company benefiting from an advantageous tax
arrangement is subject under a different head to heavier
taxation (14). Each tax follows a different logic and is
based on different presuppositions.

(23) As for

the levy being in the nature of a tax,

the
Commission would first of all observe that the levy is
not expressly linked by law to the business tax. There is
nothing in law that says that the levy was payable in lieu
of business tax. Nor was the amount of the levy defined
according to the parameters which determine the amount
of the business tax.

(24) Moreover,

in the opening decision,

the Commission
pointed out that the amount of the lump sum paid by
FT to the State by way of contribution to the general
budget was equivalent to the profit which the PTT paid
to the State in 1989 and 1990. It considered, therefore,
that the payment of this sum was akin more to a levy on
FT's operating results than to individual taxation by way
of business tax.

could not be

(14) The Court of Justice has held that a reduction in social charges
‘made good’
pertaining to family allowances
through an additional charge under unemployment insurance. See
judgment of the Court of Justice of 2 July 1974, Case 173-73,
Italian Republic v Commission of the European Communities, [1974]
‘The argument that the contested reduction
ECR 709, point 34:
is not a “state aid”, because the loss of revenue resulting from it
is made good through funds accruing from contributions paid to
the unemployment insurance fund, cannot be accepted’. See also
the Commission Decision 2002/581/EC of 11 December 2001 on
the tax measures for banks and banking foundations implemented
by Italy, according to which ‘A selective measure might be justified
by the specificity of the activity covered by it, but not by the
presence of other
(OJ L 184, 13.7.2002,
p. 27, recital (35)).

selective measures.’

Before 1990, when FT's business activities were still
being conducted by a Directorate in the Ministry of
Posts and Telecommunications, the budget of that Direc-
torate was in surplus. To make up the deficits in the
general budget of the State, this annexed budget was
subject to a levy for the benefit of the general budget
under the heading of ‘operating surpluses’, to which were
subsequently added other
intended to finance
specific activities. In 1988, the Government committed
itself to stabilising until 1992 the contribution from the
budget annexed to the general budget at FRF 13,7 billion
for 1989 and FRF 14 billion for 1990. It is this amount
that was taken as a basis by Law No 90-568 when it
fixed the levy imposed on FT for the benefit of the
general budget for the years 1991, 1992 and 1993 (15).

levies

(26) More generally, the characteristics of the levy (lump-sum
payment, amount fixed in the light of the company's past
operating surpluses) are not those of traditional taxation.

(27)

In view of its origins and how it is defined, the levy
therefore
a participation in the
operating results.

resembles more

(28) However, even if the levy is not expressly linked by law
to the business tax, it is linked to the specific tax scheme
applicable to FT. Law No 90-568 provided, in the same
chapter entitled ‘Taxation’ and in the same article, that FT
did not have to pay any taxes (other than those paid by
the State) and that it had to pay a levy for the benefit of
the general budget, these two provisions being applicable
during the same period (from 1 January 1991 to 1
January 1994).

(29) Additionally,

the levy possesses

features which are
typically those of a tax, namely a pecuniary payment
collected definitively, without
and
through authority by the State or another public entity.
Lastly, it procures resources for the State.

any counterpart

(15) FT had to pay into the general budget an amount fixed each year by
the Finance Acts ‘up to an annual amount calculated by applying to
a base, fixed for 1989 at 13 700 million francs, the consumer price
index established by the National
Institute for Statistics and
Economic Studies’ (Article 19 of Law No 90-568).

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(30)

(31)

(32)

(33)

It would seem, therefore, that the objective of Article 19
of
the Law was to establish a three-year transitional
period during which FT would continue to pay to the
State the same amounts as in the past by way of parti-
cipation in the operating results and at the same time
would be exempted from payment of all taxes (other
than those paid by the State). The immediate subjection
of FT to the ordinary rules of
taxation would have
involved, inter alia, the payment of local taxes (benefiting
local authorities and not the general budget of the State,
such as, for example, business tax) — which might have
led to a reduction in FT's contribution to the national
budget (in so far as a new form of participation in the
operating results was not immediately introduced).

it would appear that

In conclusion,
the levy for the
benefit of the general budget to which FT was subject
from 1991 to 1993 inclusive was of a mixed nature,
being partly in the nature of a tax and partly in the
form of participation in the operating results, in so far
as it was intended to ensure that, during a three-year
transitional period, the company paid to the State an
amount equivalent
to that which it would have paid
had it paid tax under the conditions of ordinary law,
plus an additional amount corresponding to a levy on
the operating results.
levy
which FT paid to the State between 1991 and 1993
inclusive performed a dual function: it was tantamount
in part to the payment of various taxes and — for the
remainder — to participation by the State as owner of
the company in the latter's results.

In other words, the special

In the light of the above (and in particular of the partly
tax-like nature of the levy and of the link between the
levy and the specific tax scheme applicable to the
company), even in the absence of explicit textual
indi-
cations to the effect that the levy has to be considered a
specific method of payment of business
the
Commission concludes that during the years 1991 to
1993 inclusive the levy in question was tantamount in
part to the payment of taxes, including the payment of
business tax, and – for the remainder — to participation
by the State as owner of the company in the latter's
operating results.

tax,

In this connection it should be added that, according to
the information submitted by the French authorities for
the years 1991 to 1993 inclusive, the levy in question
was larger than the taxes FT would have had to pay had
it been subject
tax and
corporation tax arrangements. It follows from this that,
during that period, FT gained no advantage from the
the Commission
business

to the ordinary business

tax exemption. However,

would point out that, during the years 1991 to 1993
inclusive, FT was subject only to the duties and taxes
actually borne by the State (in particular it did not pay
any property tax). Consequently, to make sure that the
exemption from business tax and its replacement by the
levy in question had not conferred any tax advantage on
FT, the Commission asked the French authorities whether
the levy was higher than all the other taxes FT would
have paid had it been taxed under conditions of ordinary
law (and not just higher than the sum of business tax
and corporation tax) (16). At
the meetings with the
Commission on 16 and 23 June 2004, the French autho-
rities confirmed that the levy was indeed higher than the
sum of
the
Commission considers that FT did not benefit from any
advantage during the period between 1991 and 1993
inclusive in so far as it was subject to a special levy of
a mixed nature, being tantamount in part to the payment
of various taxes and - for the remainder – to a levy on
the operating results, which special levy was higher than
the sum of the duties and taxes from which FT was
exempted.

taxes. Consequently,

other

the

all

2. The years 1994 to 2003

(34)

In order to analyse the business tax scheme for the
period 1994 to 2003,
it is necessary to examine the
second and third arguments advanced by the French
authorities.

(35)

The French authorities stress that Law No 90-568 estab-
lished ‘once and for all’ a single tax scheme applicable to
FT from 1991 to 2002 inclusive. In their view, an overall
calculation should be made of any advantage the scheme
may have conferred on FT throughout the period 1991
to 2002. In their opinion, an overtaxation of FT one year
might ‘offset’ an undertaxation of FT another year. More
precisely, the French authorities maintain that the under-
taxation of FT for the ‘definitive’ period (1 January 1994
to 1 January 2003) is offset by an overtaxation (due to
the payment of the levy) during the ‘transitional’ period
(1 January 1991 to 31 December 1993). This is claimed
to be because the amount paid by FT to the State by way
of the levy for the years 1991, 1992 and 1993 was so
much higher than under the ordinary rules of taxation
that it exceeded any advantage derived by FT from the
specific arrangements for fixing the business tax during
the ‘definitive’ period.

(16) In view of the fact that the procedure was initiated in respect only
of business tax and not of property tax and corporation tax, this
In any event, for the period
Decision covers only business tax.
concerned, any other exemption from other taxes by the French
State for FT's benefit would be time-barred on the date of this
Decision within the meaning of Article 15 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 (OJ L 83,
27.3.1999, p. 1).

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(36)

This argument cannot be accepted. Law No 90-568
established two clearly distinct taxation schemes:

— a ‘transitional’ scheme lasting from 1991 to 1994,
during which time FT was exempted from all taxes
other than those paid by the State and had to pay to
the State a lump sum by way of a ‘levy for the benefit
of the general budget’;

— as from 1994, a scheme intended to be definitive (the
Law did not lay down any end date for this scheme
and in 2003 a new law was needed to abolish it);
under this scheme, FT was subject under ordinary-law
taxes except property taxes and
conditions to all
business tax, for which special conditions were laid
down.

(40)

(37) According to case law, aid given to a company cannot be
offset by a specific charge imposed on the same
Justice has
company on another score. The Court of
thus held that a reduction in social security contributions
pertaining to family allowances which benefits certain
companies cannot be ‘made good’ through an additional
charge imposed on those same companies under the
heading of unemployment insurance (17).

(38)

(39)

In the light of this case law, the Commission cannot
agree that the ‘undertaxation’ of FT under the heading
of business tax from 1994 onwards could be offset by
the special levy paid by the company between 1991 and
1994, a levy which was not specifically connected with
business tax. As the Commission has already observed,
Law No 90-568 does not provide that the special levy
was due instead of business tax. Moreover, the amount of
this levy was defined, not according to the parameters
which determine the amount of business tax, but by
reference to the profit which the PTT paid to the State
in 1989 and 1990. In view of its origins and the way it
is defined, the levy is akin more to a levy on operating
results than to individual taxation under the heading of
tax. This ought normally to have led the
business
Commission to rule out any set-off and to consider
that the non-payment of business tax during the ‘transi-
tional’ period also constituted a specific advantage
conferred on the company.

is by way of exception that

the Commission has
It
accepted that the levy paid by the company between
1991 and 1993 inclusive was also tantamount
to
the ambiguous
payment of business tax.

In view of

(17) Case 173-73, already cited.

scheme

character of

nature of the levy, which seems to be connected with the
specific tax scheme applicable to FT (18), the fact that the
levy exceeded the amount which would have resulted
the ordinary-law tax system
from the application of
in
the
and the
transitional
question,
the Commission has decided to give the
company the benefit of the doubt and has agreed to
recognise the partly tax-like nature of the levy and the
fact that it was tantamount also to payment of taxes.
Nevertheless, any part of the levy which exceeded the
normally applicable tax burden under the ordinary law
could be understood only as a remuneration on capital,
which rules out any legal basis
for an offsetting
mechanism. Any offsetting between the amounts paid
by FT by way of levies on operating surpluses and the
undertaxation of FT under the heading of business tax
would involve a confusing of levies of different types (tax
credits with pecuniary gains), which is not admissible.

(tax credit)

Lastly, the Commission notes that Law No 90-568 did
not provide for any offsetting of the undertaxation of FT
from 1994 onwards by an overtaxation for the years
1991 to 1994. An overall calculation, such as that
proposed by the French authorities, would involve,
however, reclassifying ex post the surplus tax allegedly
paid by FT during the ‘transitional’ period as a tax
advance payment
to be deducted from
future years, which was not at all the aim of Law No
90-568 when it established the two schemes.
the
French authorities now propose to offset different types
of levy (the special levy of a mixed type – being in the
nature both of a tax and of a dividend – and the under-
taxation of FT on the score of business tax) applicable to
two separate periods, this is not at all due to the appli-
cation of the normal taxation rules of French law, but
involves an a posteriori rationalisation aimed at avoiding
the recovery of the aid from which FT benefited.

If

(41)

In conclusion, the Commission cannot accept the French
authorities' second argument according to which an
the advantage
overall calculation should be made of
conferred by the scheme on FT throughout the period
1991 to 2002.

(42)

This means that the difference between the business tax
actually paid by FT and that which should have been due
under the ordinary law from 1 January 1994 to 1
January 2003 constitutes State aid inasmuch as
it
represents
through
resources which would otherwise have been incorporated
in the budget of the State.

an advantage

FT granted

for

(18) Law No 90-568 provided, in the same chapter entitled ‘Taxation’
and in the same article, that FT did not have to pay any taxes other
than those paid by the State and that it had to pay a levy for the
benefit of the general budget, these two provisions being applicable
during the same period.

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(43) Nor can the Commission accept the argument according
to which business tax enters into the calculation of the
taxable result and that
the correction of any under-
taxation under the heading of business tax should be
accompanied by a downward correction of the amount
of corporation tax since the arrangements for taxing the
company under
tax and
corporation tax are inseparable.

the headings of business

90-568 constitutes an existing scheme of aid which
cannot be recovered. They note that the scheme was
introduced by Law No 90-568 of 2 July 1990 and
consider that it was on 2 July 1990 (i.e. the day on
which the law was adopted) that the aid was granted
to the recipient. The opening of the procedure having
been decided on 30 January 2003,
i.e. more than 10
years after the aid was granted, the French authorities
maintain that,
in accordance with Article 15 of Regu-
lation (EC) No 659/1999, the alleged aid for FT was
‘covered’ by the Community rules on the time-barring
of State aid.

(44)

(45)

clearly

This argument has been rejected by the Court of First
‘… the
stated
Instance, which has
that
Commission is not obliged,
in its decisions ordering
the recovery of State aid, to determine the incidence of
tax on the amount of aid to be recovered, since that
law;
calculation falls within the scope of national
it is
sum to be
merely required to indicate the gross
recovered. That does not prevent the national authorities,
when recovering the amount in question, from deducting
certain sums, where appropriate, from the amount to be
recovered pursuant to their internal rules, provided that
those rules does not make such
the application of
recovery impossible
in
in practice or discriminate
relation to comparable cases governed by national
law’ (19).

VI. NEW AID

the aid,

the Treaty) precisely to prevent

its preliminary conclusion set out

the Commission
Regarding the nature of
in the
confirms
opening decision that
the aid in question has to be
considered new. The exceptional business tax scheme
was introduced by a law of 1990 (i.e. after the entry
into force of
the
creation of FT as a public operator from implying its
subjection to the ordinary rules of taxation. Moreover,
since 1988 the telecommunications sector has been
gradually liberalised. Because FT benefited as
from
1994 from aid connected with the specific business tax
scheme and because at that time the markets in which FT
operated were, at
the
the measure in
Commission has
question is new aid.

least partially, competitive (20),
to conclude that

(47)

It will be recalled in this connection that Article 15
provides as follows:

The powers of the Commission to recover aid shall

‘1.
be subject to a limitation period of 10 years.

2.
The limitation period shall begin on the day on
which the unlawful aid is awarded to the beneficiary
either as individual aid or as aid under an aid scheme.
Any action taken by the Commission or by a Member
State, acting at
the Commission, with
regard to the unlawful aid shall interrupt the limitation
period. Each interruption shall start time running afresh.
The limitation period shall be suspended for as long as
the decision of
the subject of
the Commission is
proceedings pending before the Court of Justice of the
European Communities.

the request of

Any aid with regard to which the limitation period

3.
has expired, shall be deemed to be existing aid’.

VII. PRESCRIPTION

(46)

The French authorities consider that in any event the
alleged aid scheme for FT introduced by Law No

(48)

(19) Judgment of the Court of First Instance of 8 June 1995, Case T-
the European Communities

459/93, Siemens SA v Commission of
[1995] ECR II-1675.

(20) Judgment of the Court of First Instance of 15 June 2000, Joined
Cases T-298/97, T-312/97, T-313/97, T-315/97, T-600/97 to
607/97, T-1/97, T-3/98 to T-6/98 and T-23/98 Alzetta Mauro
and Others v Commission of the European Communities [2000] ECR
II-2319, paragraphs 141 et seq.; Judgment of the Court of 9 August
1994, Case C-44/93, Namur-Les Assurances du Crédit SA v Office
National du Ducroire and the Belgian State [1994] ECR I-3829.

that

the 10-year limitation
It should be pointed out
period provided for in Article 15 of Regulation (EC)
No 659/1999 ‘does not in any way express a general
principle whereby new aid is transformed into existing
aid but merely precludes recovery of aid established more
first
then
10
intervened’ (21).
to

follows from this that, pursuant

Commission

years
It

before

the

(21) Judgment of the Court of First Instance of 30 April 2002, Joined
Cases T-195/01 and T-207/01, Government of Gibraltar v Commission
of the European Communities [2002] ECR II-2309, paragraph 130.

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14.10.2005

the

that

terms

under

the fact

Article 15 of the Regulation, the aid which benefited FT
under the specific business tax scheme would not lose its
character as new aid by reason of
the
scheme was set up more than 10 years ago. Quite
the
simply,
Commission would be able to order recovery only in
respect of aid which had benefited the company during
the 10 years preceding its action. In so far as the aid
benefited FT as from the 1994 financial year and the
the
opening decision dates
Commission must order
the aid in
question in its entirety.

from 30 January 2003,
the recovery of

provision,

the

of

(49)

the Commission to order

It should also be pointed out that, according to Article
15 of Regulation (EC) No 659/1999, ‘The powers of the
Commission to recover aid shall be subject
to a
limitation period of 10 years’ and that
this period
starts to run ‘on the day on which the unlawful aid is
awarded to the beneficiary … under an aid scheme’.
What matters, therefore, under the terms of the Regu-
lation,
is the date on which the individual aid was
granted to the recipient under an aid scheme and not
the date on which the scheme itself was introduced. In
other words, what Article 15 of the Regulation time-bars
is the possibility for
the
recovery of aid granted illegally to the recipient more
than 10 years previously and in no way, contrary to
what the French authorities claim, the aid schemes them-
follows from this that,
selves.
in the case of aid
It
the limitation period for recovery starts to
schemes,
run, not on the day on which the
scheme was
introduced, but on the day on which the aid was
actually granted to the recipient. Law No 90-568
introduced an aid scheme for FT (22). Consequently, the
limitation period in respect of the aid granted to FT
under this specific tax scheme starts to run, not on the
day on which Law No 90-568 was adopted, but on the
day on which the aid was actually granted to FT, that is
to say annually at the time when the business tax was
due.

(50)

Regarding the interruption of
the limitation period,
contrary to what the French authorities maintain there
does not have to be a formal Commission decision for
the period to be interrupted. According to Article 15 of
Regulation (EC) No 659/1999, ‘Any action taken by the
Commission … with regard to the unlawful aid shall

(22) Pursuant to Article 1, point (d), of Regulation (EC) No 659/99, ‘aid
scheme’ means any act on the basis of which, without further
implementing measures being required, individual aid awards may
be made to undertakings defined within the act in a general and
abstract manner and any act on the basis of which aid which is not
linked to a specific project may be awarded to one or several
undertakings for an indefinite period of time and/or for an inde-
finite amount.

the limitation period’. The Court of First
interrupt
Instance has already held that a simple request for infor-
mation can interrupt the limitation period provided for
in Article 15 of Regulation (EC) No 659/1999 (23). In the
present case, the first information request sent by the
Commission to the French authorities concerning the
special business tax scheme applicable to FT was dated
28 June 2001.
the
limitation period within the meaning of Article 15 of
Regulation (EC) No 659/1999 was interrupted (24).

is therefore on that date that

It

(51)

Consequently, only aid granted to FT more than 10 years
before the first information request (i.e. before 28 June
1991) is no longer recoverable. However, in so far as aid
was granted to FT as from the 1994 financial year under
the business tax scheme applicable for the period 1994
to 2003, the Commission must order the recovery of the
aid in question in its entirety.

VIII. COMPATIBILITY OF THE AID

(52)

the compatibility of

forward no specific
The French authorities have put
argument
the aid.
in support of
The Commission would stress that, for the reasons set
out in paragraphs 122 and 123 of the opening decision,
the aid is not compatible with the
it considers that
common market within the meaning of Article 87(2)
(with reference to the economic devel-
or (3)(a),
(c)
opment of certain areas),
In addition, the
aid in question is connected with no restructuring
project of the company but constitutes rather operating
considered
aid. Consequently,
compatible on the basis of Article 87(3)(c)
(with
reference
certain economic
to the development of
activities).

aid cannot be

(d) and (e).

the

IX. CONCLUSION

(53)

In the light of the above, the Commission finds that:

— The business tax scheme applicable during the period

1991 to 1993 does not constitute State aid.

for

information to a Member State,

(23) Judgment of the Court of First Instance of 10 April 2003, Case
the European

T-369/00 Département du Loiret v Commission of
Communities [2003] ECR II-1789, paragraphs 81 et seq.
Instance has already observed,

‘When it
(24) As the Court of First
addresses a request
the
Commission is informing that State that it has in its possession
information concerning aid alleged to be unlawful and, if necessary,
that that aid will have to be repaid … Accordingly, the simplicity of
the request for information does not have the consequence of
depriving it of legal effect as a measure capable of interrupting
the limitation period provided for in Article 15 of Regulation
(EC) No 659/1999’; see Case T-369/00, already cited, paragraphs
79 and 82.

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— The difference between the business tax actually paid
by FT and that which would have been payable under
the ordinary law from 1 January 1994 to 31
December 2002 constitutes State aid. This aid is
new aid which was implemented illegally by France
in infringement of Article 88(3) of the EC Treaty.
This aid is incompatible with the common market
and, consequently, must be recovered.

‘the immediate normalisation of the
November 2001,
conditions of taxation of FT in relation to business tax
would involve, at an unchanged rate (i.e. independently
of decisions taken by local authorities), an overtaxation
of almost 198 million euros for the company’. However,
by letter dated 15 May 2003 the French authorities
submitted to the Commission more precise information
concerning the undertaxation of FT under the specific
business tax scheme (see the table below):

(54) According to the estimates in the report submitted to
in

Parliament by the Directorate-General

for Taxes

Financial year

1994

1995

1996

1997

1998

1999

2000

2001

2002

Cumulation

Ordinary-law taxation
simulation

Actual taxation of FT

Undertaxation

674

560

114

786

667

119

830

694

136

923

1 012

1 092

1 035

1 039

971

8 362

785

138

855

157

914

178

940

913

894

7 222

95

126

77

1 140

Source: French authorities’ answer of 15 May 2003.

in EUR million

— The French authorities made a precise calculation of
the business tax FT would have paid in 2000, 2001
and 2002 had it been subject to the ordinary-law
arrangements on the basis of a breakdown at local
level of equipment and movable property, immovable
property and wages after application of the local tax
rates.

— They estimated the business tax for the years 1994 to
1999 by reference to the amount of business tax FT
would have paid in 2000 had it been subject to the
ordinary-law arrangements, corrected by the trend in
the taxable base and in tax rates since 1991, given
that the data available did not make it possible to
carry out a precise calculation for the years prior to
2000 in view of the difficulty of reconstituting the
local bases and rates.

— It follows from these estimates that the amount of aid

to be recovered is EUR 1 140 million.

(56)

(57)

(55)

By letter dated 29 January 2004, the French authorities
informed the Commission that the business tax payable
by the company in 2003 (the first year of application of
the ordinary-law arrangements) amounted to EUR 773
million, a figure appreciably lower than the EUR 971
million simulated for 2002 at a time when the amount
of business tax actually due was not yet known. They
this figure over
stressed that

the back-calculation of

years

previous
their
position as it would show the overtaxation of FT in
relation to the ordinary-law position.

strengthened

confirmed

and

Lastly, at the meetings with the Commission on 16 and
23 June 2004, the French authorities maintained that the
calculations previously submitted to the Commission
were imprecise and that it was impossible to estimate
for certain the amount of aid from which FT had
benefited during the period 1994 to 2003. Accordingly,
they called on the Commission not to rule on the aid
allegedly granted to FT under the special business tax
scheme.

submitted

estimates on 15 May 2003,

Concerning this last argument, the Commission notes
first of all that it is a new argument which contradicts
the previous position of the French authorities, which
had
as
confirmed and supplemented on 29 January 2004.
Moreover, the French authorities did not question the
these estimates at any time during the
accuracy of
course of
the June
2004 meetings, when it became clear that the Commis-
the
sion's investigation was coming to an end,
French authorities
estimates provided
previously. In these circumstances, the argument as to
the impossibility of calculating with any accuracy the
amount of aid from which FT benefited cannot not be
accepted.

It was not until

the procedure.

queried

that

the

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(58) On 5 July 2004, the French authorities submitted to the
Commission new estimates as to the business tax which
would have been payable by FT had it been subject to the
ordinary law between 1991 and 2002 inclusive. By fax
dated 13 July 2004, the French authorities stated that
‘these estimates are based only on the actual amount,
now known, of business tax paid by FT for the year
2003 in accordance with the ordinary-law arrangements’.
By fax dated 16 July 2004,
the French authorities
outlined the method it had used in making these new
estimates:

having regard to its declarations
amount came to EUR 696 million;

for 2003;

this

— the French authorities

then noted that

the new
provisions in force (application of the ordinary-law
arrangements using the actual rates and real bases)
would have had the effect of
increasing for the
2003 financial
year by EUR 77 million, or
11,06 %, the contribution which would have been
due under the previous rules;

— the French authorities

established that FT's net
business tax contribution for 2003 amounted to
EUR 773 million;

— this percentage increase was then applied to the
contributions actually paid by FT between 1991
and 2002;

— they then calculated the business tax contribution FT
would have paid under the terms of Law No 90-568

— it follows from these estimates that the undertaxation
the period between 1994 and 2002

of FT for
amounted to EUR 798 million.

in EUR million

Financial year

1994

1995

1996

1997

1998

1999

2000

2001

2002

Total

Ordinary-law taxation
simulation

Actual taxation of FT

Undertaxation

622

560

62

741

667

74

771

694

77

872

785

87

949

1 015

1 044

1 014

992

8 020

855

94

914

101

940

104

913

894

7 222

101

98

798

Source: French authorities’ letter of 5 July 2004.

(59)

In view of the discrepant information submitted by the
French authorities, the Commission cannot at this stage
say exactly how much aid is to be recovered, but what it
can say is that FT benefited from State aid the indicative
amount of which is somewhere between EUR 798
to which
million and EUR 1 140 million in capital,
must be added interest from the date on which the aid
was at the disposal of the recipient until the date of its
recovery (25). The exact amount of aid to be recovered
will be determined by the Commission, in collaboration
with the French authorities, within the framework of the
recovery procedure, at the latest by 1 November 2004.

(60)

In conclusion, the Commission considers that the specific
business tax scheme applicable to FT between 1994 and
2003 procured it an advantage amounting to State aid in
that it was undertaxed compared with the ordinary-law
situation. This State aid, which was granted by the French
authorities in violation of their prior notification obli-
is incompatible with the common market and
gation,

(25) This is without prejudice to the possibility enjoyed by the French
authorities in accordance with case law of, at the time of recovery,
‘deducting certain sums, where appropriate, from the amount to be
recovered pursuant to their internal rules, provided that the appli-
cation of those rules does not make such recovery impossible in
practice or discriminate in relation to comparable cases governed by
national law’ (Case T-459/93, already cited).

must be recovered. The Commission calls on the
French authorities,
in accordance with their duty of
honest cooperation, to collaborate with it in determining
the exact amount of aid to be recovered,

HAS ADOPTED THIS DECISION:

Article 1

The State aid granted illegally by France in infringement of
Article 88(3) of the EC Treaty to France Télécom under the
business tax scheme applicable to that company during the
period 1 January 1994 to 31 December 2002 (provided for
is
by Law No 90-568 (Article 18) and Article 1654 CGI)
incompatible with the common market.

Article 2

France shall take all necessary measures to recover from

1.
France Télécom the aid referred to in Article 1.

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Recovery

shall be

and in
2.
accordance with the procedures of national law provided that
they allow the immediate and effective execution of
this
Decision.

effected without delay

Article 3

France shall
inform the Commission, within two months of
notification of this Decision, of the measures that it proposes
to take and that it has already taken to comply with it. For that
purpose, France shall use the questionnaire annexed to this
Decision.

The aid to be recovered shall

3.
include interest from the
date on which it was at the disposal of the recipient until the
date of its recovery.

Article 4

This Decision is addressed to the French Republic.

4.
The interest shall be calculated in conformity with the
provisions laid down in Chapter V of Commission Regulation
(EC) No 794/2004 of 21 April 2004 implementing Council
Regulation (EC) No 659/1999 laying down detailed rules for
the application of Article 93 of the EC Treaty (26).

For the Commission

Frederik BOLKESTEIN
Member of the Commission

Done at Brussels, 2 August 2004.

(26) OJ L 140, 30.4.2004, p. 1.