2007/256/EC: Commission Decision of 20 December 2006 on the aid scheme implemented by France under Article 39 CA of the General Tax Code — State aid C 46/2004 (ex NN 65/2004) (notified under document number C(2006) 6629) (Text with EEA relevance )
Date: 2006-12-20
Institutions: European Commission
Subjects: Economic Interest Grouping, France, State aid, aid system, control of State aid, corporation tax, tax relief

30.4.2007

EN

Official Journal of the European Union

L 112/41

COMMISSION DECISION

of 20 December 2006

on the aid scheme implemented by France under Article 39 CA of the General Tax Code — State aid
C 46/2004 (ex NN 65/2004)

(notified under document number C(2006) 6629)

(Only the French version is authentic)

(Text with EEA relevance)

(2007/256/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, 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,

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

Whereas:

(3)

(4)

(5)

By letters dated 6 January 2005 (A/30266) and 4 February
2005, the French authorities requested an extension of the
time limit, which was granted by letters dated 11 January
2005 (D/50220) and 16 February 2005 (D/51190).

The Commission received the French authorities’ comments
on 15 March 2005 (A/32251). It also received, within the
deadline, comments from 16 interested parties, which were
forwarded to the French authorities on 9 June 2005
(D/54454).

the French
By letter dated 7 July 2005 (A/35587),
authorities asked the Commission to extend the time limit
granted to it for commenting on the interested parties’
comments. The Commission granted the request and the
French authorities finally submitted their comments by
letter dated 20 July 2005 (A/35981).

I.

PROCEDURE

(6)

By e-mail dated 2 March 2006 (A/31655), the French
authorities sent the Commission further comments on the
scheme at issue.

(1)

By letter dated 9 February 2004 (D/51178), the Commis-
sion sent a request for information to the French authorities
concerning the tax-oriented leasing provisions in favour of
certain undertakings approved by the Minister for the
Budget introduced by Article 77 of Law No 98-546 of
2 July 1998 on various economic and financial mea-
sures (2). By letter dated 18 March 2004,
the French
authorities requested an extension of the period they had
been allowed for furnishing the information requested. The
Commission received the said information from the French
authorities by letter dated 3 May 2004 (A/33117). By letter
dated 6 July 2004 (D/54933), the Commission asked the
French authorities to produce further information, which it
received on 2 August 2004 (A/36007).

(2)

the
By letter dated 14 December 2004 (D/205909),
Commission notified the French authorities of its decision
to initiate the formal investigation procedure laid down in
Article 88(2) of the EC Treaty. The decision was published
in the Official Journal of the European Union (3). In it, the
Commission invited France and interested parties to submit
their comments within a certain time limit.

(1) OJ C 89, 13.4.2005, p. 15.
(2) Official Journal of the French Republic No 152 of 3 July 1998, p. 10127.
(3) OJ C 89, 13.4.2005, p. 15.

II.

DETAILED DESCRIPTION OF THE SCHEME

(7)

Pursuant to the first paragraph of Article 39 C of the
General Tax Code, the depreciation of assets leased out or
otherwise made available is spread over the normal period
of use.

(8) Article 77 of Law No 98-546 introduces two provisions
into the General Tax Code aimed at combating tax
avoidance by partnerships and economic interest groupings
(EIGs) (4) when they carry out movable asset financing
operations.

(4) See Articles L 251-1 to L 251-23 of the Commercial Code and
Article 239 quater of the General Tax Code. Pursuant to these articles,
an EIG is a grouping, endowed with legal personality, of two or more
natural or legal persons. Its object is to facilitate or develop the
economic activity of its members, and to improve or increase the
earnings from that activity. Its activities must be related to the
economic activity of its members and may be only ancillary thereto.
An EIG is in principle not subject to corporation tax. Each member
of the grouping is, however, personally liable to income tax or
corporation tax for that part of the profits which accrues to it.
Conversely, the EIG's members are jointly and severally liable from
their own assets for the grouping's debts.

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Official Journal of the European Union

30.4.2007

(9)

The second paragraph of Article 39 C of the General Tax
Code provides that the tax-deductible depreciation of an
asset leased out by an EIG may not exceed the amount of
any leasing charges collected by it, less any other charges
relating to the asset.

(10) Since the declining depreciation and the financial charges
are, by definition, concentrated on the first few years of the
asset’s use, the EIG’s results show an exceptional loss during
that period and become positive only during a later period
when the amount of the leasing charges collected exceeds
total costs (depreciation and financial charges included).
Because EIGs are governed by the law on partnerships, they
can deduct the losses thus posted during the first few years
of the operation from the taxable profits earned by their
members from their current activities. The ceiling on
depreciation provided for in the second paragraph of
Article 39 C of the General Tax Code is intended, therefore,
to combat abusive recourse to this type of financing for the
purpose of tax avoidance.

(11) An exception to this limitation, introducing a depreciation
system favourable to certain undertakings, has nevertheless
been inserted in the General Tax Code. Article 39 CA of the
General Tax Code thus stipulates that the ceiling laid down
in the second paragraph of Article 39 C of the Code shall
not be applicable to the financing by EIGs of depreciable
movable assets according to the declining balance method
over a period of at least eight years (5) provided that the
operation has been approved in advance by the Minister for
the Budget.

(12) Such approval is subject to a number of criteria. These are

essentially as follows:

charges paid by the user and the price of the end-of-
contract purchase option enable the EIG to cover its own
financing costs, including capital and interest.

(14) Apart from the removal of the depreciation ceiling (6), the
grant of ministerial approval makes it possible to increase
by one point
the declining depreciation coefficient
normally applicable to the asset concerned. Moreover, the
resale of the asset by the EIG to its user once two thirds of
the normal period of use of the asset has elapsed is exempt
from transfer capital gains tax.

(15) As to the criterion relating to the existence of a significant
economic and social interest (7), the French authorities have
indicated that there are no guidelines for assessing such an
interest and that the examination is carried out in the light,
firstly, of the indirect fallout from the investment in the
labour market area, the conditions of competition and the
area
development of
concerned,
including the contribution to the growth or
establishment of a production, management or decision-
making centre, and, secondly, of the investment’s contribu-
tion to improving safety and protection of the environ-
ment.

activity in the

economic

the

(16) Article 39 CA of the General Tax Code provides that the
passing-on to the user of the asset of two thirds at least of
the tax advantage which the EIG derives from the grant of
approval (8) must take the form of a reduction in the
amount of the leasing charge or of the purchase option.
Moreover, the exact amount of the advantage to be passed
on by the EIG to the user must be determined at the time of
grant of the approval.

(17) At

the Commission’s

the French authorities
request,
furnished a breakdown by area of activity of all applicants
for approval and of the actual beneficiaries of the scheme at
issue:

— the acquisition price of the asset must correspond to

the market price

Area of activity

Applications
for approval
submitted

Approval deci-
sions granted

— the investment must be of significant economic and
social interest, particularly in relation to employment

— the user of the asset must show that the asset is
necessary to his business and that
the financing
arrangements adopted are not of a purely tax-related
nature

— two thirds at least of the tax advantage accruing from
the approval must be passed on to the user of the
asset.

(13) As a rule, the EIG — which is generally made up of
financial institutions — acquires the asset to be financed at
the market price and leases it out to its user. The leasing

(5) The eligible assets must be acquired new, with the exception of ships,

which may be acquired second hand.

Maritime investment

Aeronautical investment

Railway investment

Industrial investment

Space investment

142

32

5

7

3

110

18

2

3

0

(18) The French authorities pointed out in this connection that,
of the 56 applications which did not form the subject
matter of an approval decision, 21 were withdrawn, 13 led
to no further action being taken and 22 were rejected.

(6) Pursuant to Article 39 CA of the General Tax Code, losses from
groupings’
financial years the results of which are affected by
depreciation charges entered in the accounts on the score of the first
12 months of the asset's depreciation are deductible to the tune of
no more than one quarter of the profits taxable at the normal rate of
corporation tax which each member of the EIG earns from the rest
of its activities.
(7) See recital 12.
(8) See recital 12.

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Official Journal of the European Union

L 112/43

According to the French authorities, of the 22 applications
that were rejected 15 concerned the financing of an asset in
the maritime transport sector and the remaining 7 the
financing of an asset in the air transport sector.

(19) The French authorities also pointed out

that approval
procedures under Article 39 CA of the General Tax Code
have been suspended since 14 December 2004, the date on
investigation
which the decision to initiate the formal
procedure was notified to them.

III.

REASONS FOR INITIATING THE FORMAL

INVESTIGATION PROCEDURE

(20)

In its decision of 14 December 2004 the Commission
found that an advantage seemed to granted under Article 39
CA of the General Tax Code to investors belonging to tax
EIGs and to the users of assets financed by EIGs. As far as
the selectivity of the measure in question was concerned,
the Commission noted, firstly, that the Minister for the
Budget seemed to enjoy a discretionary power when it
came to assessing the approval grant criteria and that this
enabled him to select the beneficiaries of the scheme at
it
issue according to subjective standards. Secondly,
appeared that
in
the tax arrangements provided for
Article 39 CA of the General Tax Code constituted an aid
measure for the benefit mainly of the transport sector. The
Commission thus took the view that the measure at issue
did not appear to be justified by the nature or general
scheme of
the
advantages in question also involved the use of state
resources, distorted competition and affected intra-Com-
munity trade.

the French tax system.

In its opinion,

(21) As to the compatibility of the scheme at issue with the
common market, the Commission considered at that stage
that none of the exceptions provided for in Article 87(2)
and (3) of the Treaty were applicable in the present context.
Nor did the scheme appear to satisfy the conditions of the
Community guidelines and frameworks in the field of state
aid. It was therefore prima facie incompatible with the
common market.

(22) The Commission accordingly decided to initiate the formal
investigation procedure in order to allay its doubts both as
to the state aid nature of the scheme at issue and as to the
scheme’s compatibility with the common market.

IV.

COMMENTS FROM THE FRENCH AUTHORITIES

their

It was

comments,

firstly that

the scheme provided for

the French authorities
(23) As part of
maintained,
in
Article 39 CA of the General Tax Code did not constitute
for
state aid.
implementing the ordinary law which made it possible to
place the method of
the
supervision of the authorities, and not a departure from
the ordinary law. The ceiling on deductible depreciation
provided for in the second paragraph of Article 39 C of the
General Tax Code sought, by introducing a presumption of

simply a technical procedure

financing concerned under

to prevent

recourse to that

financing
tax avoidance,
mechanism for tax optimisation purposes. The scheme
provided for in Article 39 CA of the General Tax Code was
also designed to combat tax avoidance. However, the heavy
capital goods concerned by that provision were charac-
terised by a relatively long return on investment, and in
those circumstances recourse to leasing was motivated not
only by a desire for tax optimisation but also by economic
necessity.

(24) The French authorities stated that, viewed as a whole, the
approval grant criteria made it possible to carry out prior
monitoring of capital goods financing operations involving
leasing with a purchase option and to deny the benefit of
the tax scheme at issue to all financing operations primarily
motivated by tax optimisation considerations.

(25) This was especially the case with the criterion that the
investment be of significant economic and social interest,
particularly in relation to employment, the satisfaction of
which required that the approval application be backed up
by commitments to hire staff. The jobs created had to be
maintained for the minimum period of use of the asset, i.e.,
the duration of the leasing contract or of the ‘making
available’, namely at least eight years. They also had to lead
to a net increase in the number of employees of
the
company seeking approval and be directly related to the
investment.

(26) The French authorities pointed out that some applications
for approval had been rejected on the ground that the
financing proposal submitted lacked significant economic
interest. Two types of situation were charac-
and social
terised by such lack of
the lack or
interest. Firstly,
insufficiency, both quantitative and qualitative, of new
hirings capable of strengthening or making possible the
establishment of a management or decision-making centre.
And, secondly, the state of affairs whereby the applicant’s
financial position enabled him to have recourse to other
means of financing which were not in the nature of an
incentive.

(27) The criterion relating to the passing-on to the user of most
of the tax advantage accruing to the EIG's members under
Article 39 CA of
the General Tax Code also made it
possible, according to the French authorities, to combat tax
optimisation by excluding from the benefit of
that
provision operations which were designed only to generate
increased cash flow.

(28) The French authorities pointed out,

that

further,

the
monitoring arrangement thus introduced was not discre-
tionary in character. They referred in this connection to the
decision by the French Constitutional Council to the effect
that an approval such as that provided for in Article 39 CA
of the General Tax Code was not so much a discretionary
measure as one which conferred on the Minister for the
Budget sole power to ensure that the operation in question
satisfied the conditions laid down by law (9).

(9) Constitutional Council Decision No 87-237 DC of 30 December

1987.

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Official Journal of the European Union

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(29) At all events, so the French authorities claimed, the tax
advantage attaching to the deduction of the amount of
depreciation did not lead to any loss of tax revenue, being
more akin to a different breakdown, over time, of the
taxable base. Moreover, the determination of the exact share
of the advantage retained by the investors belonging to the
EIG was in the nature of an exercise in remuneration the
amount of which was a function of market conditions and
the outcome of a classic commercial negotiation.

(30)

In answer to the Commission’s allegation of selectivity of
the tax scheme at issue, the French authorities put forward
several arguments.

(31) First of all, they contended, the scheme was a general
measure potentially applicable both to the industrial sector
and to the transport sector. Examples of its application
were: pulping machinery, hydrocarbon storage tanks,
printing presses and refrigerating units, all of which were
industrial assets which could be depreciated according to
the declining balance method over a period of at least eight
years. The French authorities pointed out, moreover, that
certain means of transport, such as lorries and buses, were
excluded from the measure’s scope owing to their shorter
depreciation period. The depreciation period in question
applied, therefore, to all assets whose return on investment
required a fairly long time.

(32) Secondly, the concentration of the benefit of the scheme at
issue on transport equipment was due, in reality, to matters
outside the French public authorities’ control, namely,
changes in industrial companies’ financial circumstances
and the attractiveness of transport equipment to investors.
Such equipment comprised assets highly attractive in the
eyes of investors who, in order to limit their risks, opted for
assets which were easily negotiable should the operator
encounter difficulties.

(33) Thirdly,

issue did not

the scheme at

favour French
companies in so far as nationality was not a factor in
becoming a member of an EIG. A foreign investor,
in
particular a financial institution, could thus benefit from
the scheme and from the resulting increased cash flow
irrespective of its tax domicile.

(34) At all events, even supposing that the scheme provided for
in Article 39 CA of the General Tax Code were a departure
it was of unlimited scope and
from the ordinary law,
duration and was based on objective, horizontal
tax
avoidance combating criteria. Just like the aid scheme in
Commission Decision 96/369/EC of 13 March 1996
concerning fiscal aid given to German airlines in the form
of a depreciation facility (10),
it could not, therefore, be
classified as state aid.

(10) OJ L 146, 20.6.1996, p. 42.

(35) With regard to the exemption from capital gains tax on the
transfer of title in an asset, the French authorities stated that
the advantage which the members of an EIG derived from
such exemption also had to be passed on to the tune of at
least two thirds to the user of the asset. They maintained
that this exemption, which was conditional, was justified by
the nature and overall structure of the French tax system. It
was necessary, in the event of an early transfer of title, in
order to ensure the maintenance of the tax advantage
resulting from the deduction of the depreciation under
conditions of ordinary law. The French authorities pointed
out, moreover, that the exemption would be included in the
ordinary law as from 1 January 2007. From that date
onwards, any capital gains on the transfer of equity interests
held for more than two years would be exempted, apart
from a share of the costs and charges equal to 5 % of the
net total of the transfer capital gains taken into account in
determining the taxable amount. In view of the date of
conclusion of the contracts for the making available of
assets between EIGs and users, the date on which the early
transfer of title in those assets would be possible would be
after 1 January 2007 inasmuch as such transfer could not
take place until after the contracts had been two-thirds
implemented. EIG members would benefit, therefore, from
the exemption under the ordinary law.

(36) The French authorities pointed out that the exemption from
transfer capital gains tax was not automatic. One of the
conditions for such exemption was that the actual user of
the asset had to show that, in view of the asset’s cost, he
was unable to purchase it directly without endangering his
financial equilibrium. According to the report of 25 March
1998 by the rapporteur of the National Assembly’s Finance
Committee, that condition was to be viewed in the context
of the implementation of alternatives to the tax deduction
for subscription of co-ownership shares in ships (quirats)
(hereinafter called ‘the co-ownership shares scheme’), which
was abolished by the 1998 Finance Act.

(37) With regard to the compatibility of the tax scheme at issue
with the common market, the French authorities main-
tained that, even if the scheme were to constitute state aid,
it was in keeping with Article 87(3) of the Treaty as it
facilitated the development of certain activities without
adversely affecting trading conditions to an extent contrary
to the common interest. Article 39 CA of the General Tax
Code did not place domestic economic operators at an
advantage over operators from other Member States and
was no more advantageous than schemes in force in other
Member States.

(38) The French authorities drew attention to the specific
situation of maritime transport services, the operators of
which were the main users of the scheme at issue. They
pointed out that the scheme was a measure having an effect
equivalent to the co-ownership shares scheme — a scheme
for financing vessels registered in France — which had
previously been notified to and approved by the Commis-

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Official Journal of the European Union

L 112/45

the Treaty (11). The co-
sion under Article 87(3) of
ownership shares scheme had, they said, been abolished
in 1998 owing to its excessive budgetary cost. They pointed
out that it was against a background both of stagnating
numbers of commercial vessels registered in France and of
the desire to reduce tax expenditure that the legislature had
decided to adapt the tax-oriented leasing arrangements. The
entry into force of Article 39 CA of the General Tax Code
had led, not to an expansion of the French shipping sector,
but to a consolidation and rejuvenation of the fleet under
the French flag. During the same period, other Member
States’ fleets had grown in terms both of numbers of units
and of tonnage. The scheme’s entry into force had therefore
not affected the development of other Member States’
shipping sectors.

(39)

for maritime transport,

In addition, the scheme provided for in Article 39 CA of the
General Tax Code fitted in perfectly with the Community
guidelines on State aid to maritime transport (hereinafter
called ‘the 1997 Community guidelines’)
and with
Commission communication C(2004) 43 — Community
guidelines on State aid to maritime transport (hereinafter
called ‘the 2004 Community guidelines’) (12). In particular,
it helped to enhance the competitiveness of the Community
fleets in the world market
to
safeguard Community employment both on board and on
shore, to maintain maritime know-how in the Community
and to develop maritime skills (point 2.2. of the above-
mentioned Community guidelines). Furthermore, it made
an effective contribution to improving safety and protecting
the environment by enabling the renewal of the fleet. As
regards, more particularly, the safeguarding of the employ-
ment of seafarers and of high-quality jobs on shore, the
French authorities pointed out that the quid pro quos
required for purposes of the grant of approval included the
need to possess, in the territory of the Union, a strategic
decision-making centre for managing maritime activities
and ships. Not only jobs related to the direct management
of maritime transport, but also those related to ancillary
activities such as insurance, brokerage and finance thus
benefited indirectly from the tax scheme at issue.

(40) The French authorities pointed out, however, that neither
the 1997 Community guidelines (13) nor those of 2004 (14)
established a strict relationship between the aid needed to
maintain and develop maritime transport and the level of
employment created. It was stated, moreover, in the 2004
Community guidelines (point 3.1) that ‘at this stage, there is
no evidence of schemes distorting competition in trade
between Member States to an extent contrary to the
common interest’ and that ‘such measures have been shown
to safeguard high quality employment …’.

(41) Lastly, as regards the application in the present case of the
principle of legitimate expectation, the French authorities
referred to Commission Decision 2002/15/EC of 8 May
2001 concerning State aid implemented by France in

(11) Commission Decision of 3 May 1996, state aid No N 85/96 —
France — tax measure relating to the maritime transport sector, SG
(96) D/4527.

(12) OJ C 205, 5.7.1997, p. 5, and OJ C 13, 17.1.2004, p. 3, respectively.
(13) See footnote 12.
(14) See footnote 12.

favour of the Bretagne Angleterre Irlande company (here-
inafter called ‘BAI’ or ‘Brittany Ferries’) (15), in which the
scheme at issue was examined.

(42) The French authorities also referred to their letter to the
Commission dated 17 March 1998 (A/32232) mentioning
the introduction of the second paragraph of Article 39 C
and Article 39 CA of
the General Tax Code. They
considered that, notwithstanding that letter and the various
cases examined by the Commission (16) in which mention
was made of Article 39 of the General Tax Code, no
proceedings had been initiated in respect of that scheme in
the six years following its entry into force.

(43)

In these circumstances, the Commission’s silence had — so
the French authorities maintained — created a legitimate
expectation in the compatibility of Article 39 CA of the
General Tax Code with the common market, and this
precluded any request for recovery from the undertakings
concerned.

V.

COMMENTS FROM INTERESTED THIRD PARTIES

(44) Sixteen interested parties sent

their comments to the
Commission pursuant to Article 88(2) of the Treaty within
the time limit allowed. A list of these interested parties is
attached to this Decision.

(45) As regards, firstly, the question whether the scheme at issue
could be classified as aid, most of the interested parties were
opposed to the Commission’s position on this score.

(46) Thus, according to, among others, Caisse Nationale des
Caisses d’Epargne et de Prévoyance (hereinafter called
‘CNCE’), Calyon Corporate and Investment Bank (herein-
after called ‘Calyon’) and BNP Paribas (hereinafter called
‘BNP’), the arrangements provided for in Article 39 CA of
the General Tax Code did not constitute state aid but
created a means of monitoring the application of
the
ordinary law as it related to the depreciation of certain
assets. The combination of
the second paragraph of
Article 39 C and Article 39 CA of the General Tax Code
was aimed at combating excessive tax revenue losses, as
witnessed the parliamentary work prior to the adoption of
Law No 98-546 (report by the Finance Committee to the
National Assembly of 25 March 1998).

(47) Société Générale (hereinafter called ‘SG’), BNP and Brittany
Ferries argued, for their part, that Article 39 CA of the
General Tax Code did not provide for any ring-fencing
derogating from the ordinary law, but instead represented a

(15) OJ L 12, 15.1.2002, p. 33.
(16) Letter from the Commission D/7119, dated 18 May 2000, to the
French authorities concerning possible aid measures in favour of the
ferry company Sea France, and those authorities’ reply to the
Commission dated 10 July 2000. Letter from the Commission D
(2003) 288, dated 15 January 2003, to the French authorities
concerning possible aid measures in favour of the ferry company
BAI, and those authorities’ reply to the Commission dated 2 April
2003.

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return to the ordinary law on depreciation. The scheme was
thus a general one. According to SG,
the economic
advantage resulting from the tax deferment under Article 39
CA of the General Tax Code had to be compared to the
ordinary law on depreciation and not to the derogatory
restrictive regime provided for in the second paragraph of
Article 39 C of
the General Tax Code. Moreover, the
scheme at issue was open to all economic operators in
France, and Article 39 CA of the General Tax Code referred
to no asset or economic sector in particular. The granting of
the advantages resulting from the application of that article
was thus reserved neither for the French commercial sea
fleet nor for French financial institutions.

(48) The identity of the members of an EIG was not, it was
contended, a criterion for the grant of approval and the
scheme at issue contained no restriction as to an EIG’s
members, who were a source of revenue raising. According
to these interested parties it could not therefore reasonably
be supposed that the combined provisions of Articles 39 C
and 39 CA of the General Tax Code conferred a selective
tax advantage on the members of EIGs.

(49) The approval provided for in Article 39 CA of the General
Tax Code was not, it was further contended, granted in a
discretionary manner. On the contrary, argued Gaz de
France and BNP, the grant of ministerial approval was
subject to objective, non-discriminatory conditions. BNP
pointed out in this connection that, according to the case
law of the Court of Justice (17), it was for the Commission
to demonstrate the discretionary character of the treatment
of economic operators in the case of individual measures,
inasmuch as the existence of a margin of discretion granted
to the authorities could lead to a finding of the selectiveness
of a measure only where what was involved was an
individual measure and not the general scheme on which
that measure was based. It pointed out further that the tax
authorities could not impose conditions which were not
provided for by law. In the present case, the law stated
explicitly what were the applicable criteria for assessing the
existence of a ‘significant economic and social
interest’.
BNP, CNCE and Calyon referred in this context to the
Constitutional Council decision (18) mentioned by the
French authorities. At all events, any decision not to grant
approval could be appealed against on grounds of ultra vires
before
courts, which would give
judgment in the light of the grounds for such refusal.

the administrative

(50)

the scheme at

In the opinion of, among others, Calyon and BNP, the
issue was due to market
selectivity of
practices and the specificities of transport assets (certain
guarantees of long-term value added and liquidity) and not
to the wording of Article 39 CA of the General Tax Code.
Transport assets, so they maintained, had special features

(17) Judgments of the Court of Justice in Cases C-241/94 France v
Commission [1996] ECR I-4551 and C-200/97 Ecotrade v Altiforni e
Ferriere di Servola [1998] ECR I-7907, and judgment of the Court of
First Instance in Joined Cases T-92/00 and T-103/00 Diputación Foral
de Álava v Commission [2002] ECR II-1385.

(18) See footnote 9.

which made them suitable for long-term financing. More-
over, even had it been the case that Article 39 CA of the
General Tax Code did not require prior approval by the
Minister for the Budget, the beneficiaries under the scheme
would have been the same as they were then.

(51) Furthermore, in BNP’s opinion, the criteria governing the
application of Article 39 CA of the General Tax Code were
justified by the nature and overall structure of the French
tax system, certain business sectors being in need of
considerable investment.

(52) CNCE maintained, further, that financial advantages similar
to those resulting from the application of Article 39 CA of
the General Tax Code could be obtained by applying the
provisions of the ordinary law. The specificities of Article 39
CA of the General Tax Code did not give rise to any real
differentiation as compared with the ordinary law on
depreciation from the point of view of the quantum of the
tax consequences. In CNCE’s view, those specificities were,
firstly, the benefit of the one-point increase in the declining
depreciation coefficient and, secondly, the possibility of
benefiting from exemption from transfer capital gains tax.
BNP acknowledged, however, that the State calculated the
budgetary cost of applying Article 39 CA by taking as point
of reference the second paragraph of Article 39 C of the
General Tax Code.

increase in the depreciation
(53) As far as the one-point
coefficient was concerned,
it was
the advantage was,
claimed, offset by the fact that any losses posted were
deductible, under Article 39 CA of the General Tax Code,
only to the tune of one quarter of the profits subject to
ordinary corporation tax which each member of the EIG
earned from its activities. That tax advantage was intended,
moreover, to offset the specific constraints or restrictions
imposed for purposes of the grant of approval. BNP pointed
out in this connection that the benefit derived by an EIG
from the one-point increase in the depreciation coefficient
was hedged with conditions and relatively modest. It could
not, at all events, confer any competitive advantage. Air
France pointed out for its part that a financing operation
performed under the scheme at issue generated, compared
with a financing operation involving a direct loan, a saving
of between 6 and 10 % of an aircraft’s price. It added that
the saving to the lessee was altogether comparable to the
potential financial gain to be had by having recourse to
other tax schemes.

that

(54) As far as the exemption from transfer capital gains tax was
concerned, CNCE pointed out
the possibility of
requesting it resulted from the overall structure of the
French tax system and could not therefore be classified as
state aid. Its economic rationality rendered it necessary or
functional
in relation to the system’s effectiveness. The
exemption from transfer capital gains tax was justified by
the need to maintain the cash flow advantage resulting
from the first component of Article 39 CA of the General
Tax Code. According to Calyon, in the specific case of ships,
the exemption made it possible to place the shipowner in a
situation comparable to that which he would have been in
had he purchased the ship directly and had he had sufficient
tax
financial capacity to deduct
purposes. According to BNP, the exemption from capital

the depreciation for

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gains tax was designed so as not to negate the advantage
linked to the tax deferment in the event of early exercise of
the purchase option by the user. SG indicated, for its part,
that the exemption from transfer capital gains tax was
intended only to offset specific constraints related to the tax
arrangements at issue such as, for example, the prohibition
on transferring the lessor’s shares unless there was an
explicit request to that effect made originally by the user.
The increased operating charges for the user compensated
for that exemption.

(55) According to Brittany Ferries, the exemption from capital
gains tax provided for by Article 39 CA of the General Tax
Code was no more favourable than that resulting from the
ordinary law provisions (subject to a 5 % share of the costs
and charges) applicable from 2007 onwards.

(56) Air France pointed out that the savings resulting from the
tax arrangements at
issue were comparable to those
achieved using other means of financing with tax levers
existing in the world. Moreover, the operations financed
under Article 39 CA of the General Tax Code were subject
to quid pro quos
that provision’s
advantages. Air France pointed out, furthermore, that, in
some cases, the EIG could contractually pass on the tax-
related risks and ancillary costs to the lessee, which had the
effect of reducing appreciably the potential saving to the
user.

liable to temper

(57) Lastly, a number of interested parties, including Compagnie
Méridionale de Navigation, maintained that the scheme at
issue introduced, for shipowners, numerous constraints in
the form of quid pro quos demanded by the State for
approval grant purposes. The advantages flowing from the
tax scheme thus offset the extra cost of managing vessels
under the French flag, which was basically due to the cost
of French crewing, one of the highest in Europe. Fouquet
Sacop pointed out in this connection that the scheme had
induced it to opt for rapid growth under the French flag,
the constraints and extra costs related to that flag being
offset by the tax scheme at issue. CMA CGM, Broström
Tankers, Pétro Marine and Louis Dreyfus Armateurs stated
that, without the benefit of the scheme, they would have
been unable to invest in French-flagged vessels and, in so
doing, to take part in the development of the Community
fleet. Bourbon Maritime indicated for its part that the
arrangements provided for in Article 39 CA of the General
Tax Code made it possible to maintain high-quality jobs
linked to the direct management of maritime transport and
its ancillary activities and that they contributed effectively
to the improvement of safety and the protection of the
environment.

(58) As regards, secondly, the requirement in Article 87(1) of the
Treaty as to an effect on trade between Member States,
several interested parties pointed out that the members of
an EIG and the users of the assets concerned could be
foreign operators or their French subsidiaries. Moreover, the

scheme at issue was no more favourable than those existing
in other Member States. SG stated in this connection that
those of its clients concerned by the approvals who were
French were in a minority.

(59) As regards, thirdly, the compatibility of the scheme at issue
with the common market, CNCE stated that the approvals
granted to maritime operators were in keeping with the
spirit of the 1997 and 2004 Community guidelines (19).
The measure at
issue was thus compatible with the
common market pursuant to Article 87(3)(c) of the Treaty,
as interpreted in the light of the principles set out in the
said Community guidelines.

(60) Brittany Ferries maintained that the scheme provided for in
Article 39 CA of the General Tax Code was compatible with
the common market pursuant to Article 87(3)(c) of the
Treaty inasmuch as the measure sought only to compensate
for
in relation to the financing of
investments in heavy capital goods. It was also stressed
by the majority of interested parties that the other Member
States had reacted accordingly by introducing similar
measures.

failures’

‘market

(61) As regards, fourthly, the application in the present case of
the principle of
legitimate expectation, the majority of
interested parties — being beneficiaries under the scheme
— maintained that they had always been convinced that the
measure at issue did not constitute state aid within the
meaning of Article 87(1) of the Treaty. The application in
the present case of the above-mentioned principle therefore
precluded any recovery.

(62) SG pointed out in this respect that, under the scheme
preceding the one at issue, any partnership losses generated
by depreciation could be fully offset against the tax liability
of the partnership members. The Commission had never
considered that ordinary law scheme to be state aid.

(63)

It was also maintained that the Commission had refrained
from acting for six years. According to Calyon,
the
Commission appeared to have learned of several asset
financing operations under Article 39 CA of the General
Tax Code without ever having raised the question of their
validity in the light of Article 87 of the Treaty (20). CNCE
maintained in this connection that the period which had
elapsed between the date on which the Commission learned
of the aid and the date on which the formal investigation
procedure was initiated was excessively long, and Calyon
described that period as unreasonable. What is more, the
Commission had already exceptionally established the

(19) See footnote 12.
(20) Article 39 CA of the General Tax Code had, it was asserted, been
mentioned by the French authorities in their letters of 10 July 2000
and 2 April 2003 (referred to above in footnote 16) in reply to
letters D/7719 of 18 May 2000 and D (2003) 288 of 15 January
2003 from the Commission. The Commission had, it was further
asserted, also had occasion to analyse the scheme at issue in Cases C
03/03 (ex NN 42/02) — Aid to rescue and restructure the Air Lib
company (OJ C 88, 11.4.2003, p. 2) and C 58/03 (ex NN 70/03) —
Aid in favour of Alstom (OJ C 269, 8.11.2003, p. 2).

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existence of a legitimate expectation on the part of
beneficiaries which precluded any reimbursement of aid
once a period of about three years had elapsed between the
Commission’s learning of the measure and its adopting its
final decision (21).

the scheme at

(64) Some interested parties also stressed that the Commission
had previously approved the co-ownership shares scheme
— a scheme which was more favourable from a tax point of
issue here — and that that
view than the scheme at
circumstance had given rise to their legitimate expectation
in the lawfulness of
issue. Moreover,
according to CNCE, the creation of a legitimate expectation
on the part of beneficiaries did not require the Commission
to have ruled on an identical scheme. The acceptance of a
merely similar scheme could, it argued, give rise to such an
expectation. And the Commission had in fact accepted a
similar scheme in its Decision of 8 May 2001 (22). CNCE
and SG also referred to several similar schemes approved by
the Commission (23) and to the judgment of the Court of
Justice in RSV v Commission (24).

(65) More specifically, Brittany Ferries considered that

the
Commission Decision of 8 May 2001 (25) had given rise
to a legitimate expectation on its part that the scheme at
issue did not comprise any state aid.

(66) CNCE stressed also that France had adopted Law No 98-
546 some three months after informing the Commission
about it in accordance with Article 88(3) of the Treaty. The
Commission had not replied within two months of that
notification, and so the measure in question was covered by
the existing aid arrangements within the meaning of the
Lorenz case law (26).

(67) Two interested parties who asked not

to be named
submitted comments to the Commission as part of the
formal investigation procedure.

(68)

In the comments which it transmitted to the Commission
within the period allowed,
these parties
maintained that the scheme at issue was unlawful. It asked
the Commission to extend the scope of
the present
administrative procedure to include the co-ownership
shares scheme. It considered, like the Commission in its

the first of

(21) See Commission Decision 92/329/EEC of 25 July 1990 on aid
granted by the Italian Government to a manufacturer of ophthalmic
products (Industrie ottiche riunite — IOR) (OJ L 183, 3.7.1992,
p. 30).

(22) See recital 41 and footnote 15 above.
(23) See Commission Decision 2001/168/ECSC of 31 October 2000 on
Spain's corporation tax laws (OJ L 60, 1.3.2001, p. 57, end of
paragraph 25). See also Commission Decision 2004/76/EC of
13 May 2003 on the aid scheme implemented by France for
headquarters and logistics centres (OJ L 23, 28.1.2004, p. 1);
Commission Decision 2003/515/EC of 17 February 2003 on the
State aid implemented by the Netherlands for international financing
activities (OJ L 180, 18.7.2003, p. 52, in particular paragraphs 39 et
seq.); Commission Decision 2003/601/EC of 17 February 2003 on
aid scheme Ireland — Foreign Income (OJ L 204, 13.8.2003, p. 51,
in particular paragraphs 59 et seq.).

(24) Judgment of the Court of Justice in Case 223/85 [1987] ECR 4617.
(25) See footnote 15.
(26) Judgment of the Court of Justice in Case 120/73 Gebrüder Lorenz
GmbH v Federal Republic of Germany and Others [1973] ECR 1471.

investigation procedure,
decision initiating the formal
firstly, that the scheme at issue was selective in that it
favoured French shipowners, and, secondly, that it affected
trade between Member States inter alia in the cross-Channel
market. It pointed out in this connection that, as was clear
from the Finance Committee report of 25 March 1998, the
scheme at issue in this case, replacing as it did the co-
ownership shares scheme, had been introduced to keep the
French shipping industry happy.

(69) Moreover, by favouring French operators, the tax arrange-
ments at issue helped to increase overcapacity in the cross-
Channel market by enabling cash-strapped companies to
acquire new ships. The distortion of competition resulting
from the scheme’s application was illustrated by the
through this tax mechanism, by
acquisitions of ships,
Seafrance and Brittany Ferries. The latter had,
it was
claimed, seen their capacity increase considerably following
these new ship acquisitions.

(70) The second interested party who requested that its identity
be withheld referred in its comments to the preferential
competitive position enjoyed by French operators —
foremost among which was Brittany Ferries — owing to
their ships being financed through the scheme at issue. It
mentioned in this connection the continued presence of
Brittany Ferries on the cross-Channel routes and on the
France/Ireland route despite the unfavourable competitive
conditions prevailing there — conditions which had led,
moreover, to the withdrawal of P&O from the market.

VI.
COMMENTS FROM THE FRENCH AUTHORITIES
ON THE COMMENTS FROM INTERESTED THIRD PARTIES

(71) According to the French authorities, the comments from
most of the interested third parties confirmed their position
regarding the assessment of the scheme at issue, which was
that:

— Article 39 CA of the General Tax Code was a general
measure which was used particularly but not
exclusively for the financing of commercial ships

— the scheme at

issue produced effects comparable
either to domestic law measures or to provisions
existing in other Member States

— approval was not discretionary and its grant depended

on the fulfilment of objective criteria

— the tax scheme at issue was of major importance to
the Community economy, particularly in terms of the
localisation and maintenance of jobs

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Official Journal of the European Union

L 112/49

— lastly, the majority of interested third parties referred
to their legitimate expectation as to the compatibility
of the arrangements in question with the Community
rules.

whatsoever which distorts or threatens to distort competi-
tion 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’.

(72) The comments submitted by the two interested parties
whose identity had been kept confidential were,
in the
French authorities’ opinion, based on inaccurate or
imprecise data.

(73) As to the argument that Brittany Ferries’ eligibility under
the tax EIG scheme had led indirectly to the withdrawal of
P&O from the western and central English Channel, the
French authorities replied that only two vessels operated by
Brittany Ferries had qualified under the scheme and that the
financing of its Mont St Michel ferry by the mechanism had
been approved by the Commission’s decision of 8 May
2001 (27).

(74) According to the French authorities, an in-depth investiga-
tion was carried out by the British competition authorities
when the above-mentioned operator withdrew from the
market. No distortion of competition was found to be at
the root of the operator’s withdrawal. Moreover, the falling
turnover of some operators was due to the steadily
increasing competition from low-cost airlines and not to
the commissioning of new vessels by other shipowners.

(75) As for the call by one of those interested parties for the
Commission to extend the scope of its investigation to
the French
include the co-ownership shares
authorities pointed out that that scheme had been declared
compatible with the Treaty rules in the Commission’s
decision of 3 May 1996.

scheme,

(76) Lastly, in the French authorities’ opinion, the increase in
cross-Channel capacity was not attributable to companies
which had benefited under the tax EIG scheme. Account
should be taken instead of new entrants on the routes on
which the incumbent operators had previously operated.
The French authorities also pointed out that Eurotunnel had
doubled its freight-handling capacity between 2000 et
2003 and that P&O had bought out Stena Line’s share of
their joint venture and had modernised its fleet.

VII.

ASSESSMENT OF THE AID

(77) Following the

the

formal

initiation of

investigation
procedure under Article 88(2) of the Treaty and bearing
in mind the arguments put forward in that context by the
French authorities and by interested parties, the Commis-
sion takes the view that the tax scheme provided for in
Article 39 CA of the General Tax Code constitutes state aid
within the meaning of Article 87(1) of the Treaty.

1.

Existence of state aid

(78) Pursuant to Article 87(1) of the Treaty, ‘any aid granted by a
Member State or through State resources in any form

(27) See footnote 15.

(79) The classification of a national measure as state aid
presupposes that the following cumulative conditions are
met: (1) the measure confers an advantage through state
resources; (2) the advantage is selective; and (3) the measure
distorts or threatens to distort competition and is capable
of affecting trade between Member States (28).

(80) The reasons why it is considered that the scheme provided
for in Article 39 CA of the General Tax Code, as described
above, satisfies these cumulative conditions need to be
explained.

The existence of an advantage conferred through state resources

(81) Pursuant to the first paragraph of Article 39 C of the
General Tax Code, the depreciation of assets leased out or
otherwise made available is spread over the normal period
of use.

(82) The second paragraph of Article 39 C and Article 39 CA of
the General Tax Code concern the depreciation rules
applicable to the financing, notably by EIGs, of assets leased
out or otherwise made available. According to the French
authorities, these two provisions were introduced with a
view to combating abusive recourse to this method of
financing.

(83) The French authorities and a number of interested parties
claim that the scheme provided for in Article 39 CA of the
General Tax Code corresponds to a return to the ordinary
law in relation to the deduction of depreciation, that is to
say, to the provisions of the second paragraph of Article 39
(1) and the first paragraph of Article 39 C of the said Code,
and therefore does not constitute state aid. The second
paragraph of Article 39 C of
the General Tax Code
constitutes, in their view, an exception to the provisions
contained in those articles.

(84) According to settled case law, the application of Article 87
(1) of the Treaty only requires it to be determined whether
under a particular statutory scheme a state measure is such
as to favour ‘certain undertakings or the production of
certain goods’ over others which are in a legal and factual
situation that is comparable in the light of the objective
pursued by that scheme (29).

(85) Consequently,

in order to identify what constitutes an
advantage as contemplated in the case law on state aid, it is
imperative to determine the reference point or the common
system applicable, under a particular statutory scheme,
against which that advantage is to be compared (30). In this
respect, the Court of Justice has ruled, moreover, that the

(28) See, for example, the judgment of the Court of Justice in Case C-222/
04 Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze
[2006] ECR I-289, paragraph 129.

(29) Judgment of the Court of First Instance in Case T-308/00 Salzgitter v
Commission [2004] ECR II-1933, paragraph 79, and the case law
cited therein.

(30) Salzgitter v Commission, cited above in footnote 29, paragraph 81. See
also the Commission Notice on the application of the State aid rules
to measures relating to direct business taxation (OJ C 384,
10.12.1998, p. 3, paragraph 16).

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30.4.2007

determination of the reference framework is of particular
importance in the case of tax measures since the very
existence of an advantage may be established only when
compared with ‘normal’ taxation, i.e. the rate of taxation in
force in the geographical area constituting the reference
framework (31).

(89)

It should be pointed out that only members of EIGs (33)
which finance movable assets the depreciation period of
which is at least eight years qualify for the tax advantages
resulting from the application of Article 39 CA of the
General Tax Code, namely, (1) exemption from the ceiling
in principle on deductible depreciation, (2) the one-point
increase in the depreciation coefficient, and (3) possible
exemption from transfer capital gains tax.

(86)

In the present case, in order to determine the reference
point under the scheme of depreciation of assets leased out
or otherwise made available, account need be taken only of
the provisions on the financing of such assets by partner-
ships such as EIGs. Otherwise,
the factual and legal
situations taken into consideration for the purpose of
determining the advantage would not be comparable, either
from the point of view of the members of the EIG or from
that of the users of the assets in question.

(90) As regards, firstly, the removal of the ceiling on deductible
depreciation pursuant to Article 39 CA of the General Tax
Code, it should be noted that each member of an EIG is
able, during the period of depreciation of the asset when
the EIG is posting a loss, to deduct the EIG’s losses, in
proportion to its rights, from its own taxable profits. No
account
the ceiling on
depreciation laid down in the second paragraph of
Article 39 C of the General Tax Code.

in this context, of

is taken,

several

(87) Hence the reference point applicable in the present case for
determining the deductible depreciation is the limitation in
principle of such depreciation to assets financed by EIGs, as
provided for in the second paragraph of Article 39 C of the
General Tax Code (32). The criterion cannot be the first
paragraph of Article 39 C of
the General Tax Code
inasmuch as that provision is not applicable to financing
operations by EIGs, that is to say, by structures grouping
together
legal entities — as a rule financial
institutions — which thus share between them the risks
inherent
in an operation, as opposed to a financing
institution
operation carried out by a single financial
bearing on its own the risks involved. It should be pointed
out
in this connection that, unlike financing
methods which do not entail recourse to an EIG, a
financing operation using as an intermediary such a tax-
transparent structure makes it possible to achieve tax
optimisation, any losses posted by an EIG during the first
few years of its activity being deductible from the taxable
profits earned by its members from their current activities.

further

(88) The Commission considers,

that

therefore,

the French
authorities and certain interested parties are not justified in
maintaining that the scheme provided for in Article 39 CA
of the General Tax Code constitutes a return to the ordinary
law on depreciation, and that the second paragraph of
Article 39 C of the said Code constitutes the reference point
against which the tax advantage resulting from the
application of Article 39 CA is to be assessed. It is relevant
to note, moreover, that Article 39 CA of the General Tax
Code provides expressly that the tax advantage in question
is to be calculated from the balance of the positive or
negative discounted values relating respectively to the tax
reductions or additional tax contributions, compared with
those which would result
the
provisions of the second paragraph of that article.

from the application of

(31) Judgment of 6 September 2006 in Case C-88/03 Portugal v

Commission, not yet reported, paragraph 56.

(32) Pursuant to this article, the tax-deductible depreciation of an asset
may not exceed, for one and the same financial year, the amount of
any leasing charges collected, less any other charges relating to the
asset.

that

(91) Consequently, the application of the exception provided for
in Article 39 CA of the General Tax Code makes possible,
during the loss-making period, a reduction, by each of the
EIG’s members, of the base which would normally be
taxable under the second paragraph of Article 39 C of the
General Tax Code. The fact
the
depreciation is not limited to the amount of the leasing
less any other charges relating to the
charges collected,
leased asset, makes it possible to increase the amount of the
depreciation during the first
few loss-making financial
years. The fact that, pursuant to Article 39 CA of the
General Tax Code, such losses are only deductible to the
tune of one quarter of the profits taxable at the normal rate
of corporation tax which each member of the EIG earns
from the rest of its activities may limit that advantage, but it
cannot call into question its existence.

the amount of

(92) The French authorities maintain in this respect that the tax
savings thus obtained during the first few years of the
financing operation are neutralised by the additional tax
payable once the EIG starts to make a profit, the leasing
charges payable being greater than the annual depreciation
expense. The Commission considers, however, that the
advantage gained lies in the delayed payment of tax and
corresponds to the balance of the discounted values of the
taxes paid throughout the depreciation period taking into
account the interest rates applied.

(93) Senate Report No 413 (34) confirms this analysis when it
states that ‘[t]he tax savings thus obtained by the members
during the first few years of operation are offset by the
additional
tax payable thereafter when the financing
structure earns profits’. However, this time-lag makes it
possible, so the report says, to achieve an increase in cash
flow equal to the difference between the discounted values
of the tax savings for the first few years and the additional

(33) The EIG proper, being a fiscally transparent structure, is not liable to
tax and cannot therefore be deemed to benefit from the scheme
provided for in Article 39 CA of the General Tax Code.

(34) Senate Report No 413 on the draft

law laying down various
economic and financial provisions, produced on behalf of
the
Nation's Committee on Finance, Budgetary Control and Economic
Accounts by Mr Alain Lambert, Rapporteur-General, and Mr
Philippe Marini (Ordinary Session of 1997-98).

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tax contributions in subsequent years. The Commission
would also point out that it is stated in Tax Instruction
No 120 of 17 June 1999 (35)
the tax advantage
resulting from the application of Article 39 CA of the
General Tax Code makes it possible to achieve tax savings.

that

asset to the user and provided certain conditions are met,
from exemption from capital gains tax (38).

(94)

It would appear, therefore, that the scheme introduced by
Article 39 CA of the General Tax Code seeks to enable the
members of an EIG to enjoy an advantage in the form of a
tax deferment.

(95) No support can be given to the argument that users for
whom an EIG does not receive approval pursuant
to
Article 39 CA of the General Tax Code have recourse to
other methods of financing in order to circumvent the tax-
deductible depreciation ceiling provided for in the second
paragraph of Article 39 C of the Code and are therefore not
placed at a disadvantage compared with those for whom
the EIG does receive approval. It should be pointed out first
of all that, in the case of an aid scheme, the Commission
may confine itself to examining the general characteristics
of
the scheme in question without being required to
examine each particular case in which it applies (36).
Secondly, such an argument means having to take into
account individual situations which are factually and legally
distinct (37) and, what is more, hypothetical.

in the light of

the financial situation of

(96) Lastly, it cannot be ruled out that users who cannot benefit
from the provisions of Article 39 CA of the General Tax
Code may be unable to have recourse to an alternative
method of financing. This might be the case where a bank
the
decided,
undertaking concerned, not
to assume alone the risks
inherent in the financing operation (leasing in its own right)
or where, for reasons to do with the user’s balance sheet
structure or financing capacity, other financing methods
proved impossible (direct investment with recourse to debt
or equity). At all events, even if such users were actually
able to have recourse to an alternative financing method
and thereby circumvented their depreciation ceiling, the fact
the most advantageous solution initially
remains that
chosen would have to be abandoned in favour of a
necessarily less favourable second choice and that they
would not benefit from the tax treatment specific to leasing
out by an EIG (in the form of the obligation laid down in
Article 39 CA of the General Tax Code to pass on part of
the tax advantage to the user).

(97) Besides the removal of

the ceiling on the amount of
deductible depreciation, the members of an EIG benefit
from a one-point increase in the declining depreciation
coefficient and, in the event of early transfer of title in the

(35) Tax Instruction 4D-3-99 No 120 of 29 June 1999, paragraph 47
(annexed by the French authorities to their comments of 3 May
2004).

(36) See, for example, Case C-278/00 Greece v Commission [2004] ECR I-

3997, paragraph 24.
(37) See recitals 86 and 87.

(98) The increased coefficient and the possible exemption from
transfer capital gains tax are advantages from which the
members of an EIG benefit under Article 39 CA of the
General Tax Code, but from which they would not benefit
under the reference tax framework, namely the second
paragraph of Article 39 C of the Code. At all events, the
application of Article 39 CA of the General Tax Code as far
as these two advantages are concerned cannot constitute a
return to the ordinary law on depreciation, as claimed by
the French authorities, since the first paragraph of Article 39
C of the Code makes no provision whatsoever for such tax
advantages.

(99)

In these circumstances, the argument to the effect that,
from 2007, the exemption from transfer capital gains tax
will come under the ordinary law is irrelevant inasmuch as
the existence of that advantage must be assessed in the light
of the legal framework in force and not in that of a future
legal situation (39). Nor is it claimed by the parties that an
amendment of the applicable legal framework would make
the advantage granted earlier disappear.

(100) With regard to the state origin of the advantages resulting
from the application of the scheme at issue,
it will be
recalled that the concept of aid is more general than that of
subsidy because it embraces not only positive benefits, such
as subsidies themselves, but also measures which,
in
various forms, mitigate the charges which are normally
included in the budget of an undertaking and which,
therefore, without being subsidies in the strict sense of the
word, are similar in character and have the same effect (40).
It follows from this that a measure by which the public
authorities grant to certain undertakings exemption from, a
reduction in or a deferral of payment of the tax normally
due, which, although not involving a transfer of state
in a more favourable
resources, places beneficiaries

(38) Senate Report No 413 (cited above in footnote 34) makes clear that
the exemption from transfer capital gains tax has the effect of
multiplying by two the tax advantage resulting from the first part of
the provision (removal of the ceiling on the amount of tax deductible
depreciation and increase in the depreciation coefficient).

(39) The legality of Commission decisions falls to be assessed on the basis
of the elements of fact and of law existing at the time when the
measure was
adopted and cannot depend on retrospective
considerations (see inter alia the judgment of the Court of First
Instance in Joined Cases T-371/94 and T-394/94 British Airways and
Others v Commission [1998] ECR II-2405, paragraph 81).

(40) See inter alia the judgments of the Court of Justice in Cases C-143/99
Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke [2001]
ECR I-8365, paragraph 38; C-501/00 Spain v Commission [2004]
ECR I-6717, paragraph 90, and the case law cited therein; C-66/02
Italy v Commission [2005] ECR I-10901, paragraph 77; and C-222/
04 Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze,
cited above in footnote 28, paragraph 131, and the case law cited
therein.

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financial situation than other taxpayers constitutes state aid
within the meaning of Article 87(1) of the Treaty (41). In
the present case, therefore, although the measures resulting
from Article 39 CA of the General Tax Code do not involve
any transfer of state resources, it cannot be denied that they
entail a loss of tax resources and hence constitute state
financing.

advantages accruing exclusively to certain undertakings or
certain sectors of activity (42).

T h e s e l e c t i v e c h a r a c t e r o f

t h e s c h e m e

(101) In these circumstances, the Commission considers that the
members of an EIG benefit from advantages in the form of
tax savings (removal of
the depreciation ceiling and
increase in the depreciation coefficient) and, in the event
of early transfer of title in the asset carried out under
certain conditions, of a tax exemption, both of which
represent a cost to the budget of the French State.

(106) As a general rule, a tax measure which is likely to be found
to be state aid differs from a general tax provision in that
the number of recipients tends to be limited in law or in
fact. Hence what matters, for a measure to be found to be
state aid,
is that the recipient undertakings belong to a
specific category determined by the application, in law or
in fact, of the criterion established by the measure in
question (43).

(102) In conclusion, as far as the members of EIGs are concerned,
given that they must pass on two thirds at least of the
overall tax advantage resulting from the application of
Article 39 CA of the General Tax Code to the user of the
the
asset
advantage from which they benefit amounts, at most, to
one third of that overall advantage. The Commission would
reiterate in this connection that the members of EIGs are
mainly financial institutions.

the Commission considers that

in question,

(103) As far as the users of the assets in question are concerned,
the passing-on of part of the overall tax advantage accruing
to the members of an EIG takes the form, under the
provision at issue, of a reduction in the amount of their
leasing charges or in the amount of the purchase option.
This advantage passed on to users thus reduces the charges
leasing
normally borne by their budgets as part of
operations. Since the advantage passed on accounts for at
least two thirds of the advantage accorded to the members
of the EIG through state resources, it must be considered
that users benefit, through this measure, from an advantage
granted through state resources within the meaning of
Article 87 of the Treaty which amounts to at least two
thirds of the overall advantage.

(104) The French authorities and certain interested parties
maintain, however, that the tax scheme provided for in
Article 39 CA of the General Tax Code is a general measure
under French tax law.
therefore be examined
It must
whether the overall advantage accruing to the members of
an EIG and to users is of a selective character.

The general character of the tax scheme at issue

(105) It should be noted first of all that the specificity of a state
the
measure, namely its selective character,
defining features of state aid within the meaning of
Article 87(1) of the Treaty. In that regard, it is necessary to
determine whether or not the tax scheme at issue entails

is one of

(41) See, for example, the judgment of the Court of Justice in Case C-387/
92 Banco Exterior de España [1994] ECR I-877, paragraph 14.

(107) In the present case, Article 39 CA of the General Tax Code
applies only to movable assets depreciable according to the
declining balance method over a period of at least eight
years and acquired new, with the exception of ships, which
may be acquired second hand. Senate Report No 413 (44)
states that
‘the … measure is designed specifically to
encourage heavy investment through highly favourable tax
leveraging’.

(108) The reduction in taxation resulting from the application of
this measure therefore benefits,
in law, exclusively the
members of the EIGs financing such assets (45) and — by
reason of the obligation to pass on two thirds at least of the
overall tax advantage accruing to an EIG’s members — the
users of such assets. Investors belonging to an EIG who do
not finance assets covered by Article 39 CA of the General
Tax Code and the users of assets with a depreciation period
of
less than eight years cannot, by contrast, claim the
benefit of the tax advantage.

(109) Even if the users of assets which are not eligible under
Article 39 CA of the General Tax Code may be advised to
try to have recourse to a form of financing other than a tax
EIG, they are nevertheless deprived of this method of
financing.

(42) See the judgments of the Court of Justice in France v Commission,
cited above in footnote 17, paragraph 24, and Ecotrade v Altiforni e
Ferriere di Servola, cited above in footnote 17, paragraphs 40 and 41,
and the judgment of the Court of First Instance in Case T-55/99
CETM v Commission [2000] ECR II-3207, paragraph 39. See also the
Commission Notice on the application of the State aid rules to
measures relating to direct business taxation, cited above in footnote
30, paragraph 18.

in Salzgitter, cited above in footnote 29,

(43) See the judgment
paragraph 38.
(44) See footnote 34.
(45) See, by analogy,

in the case of a tax measure benefiting only
companies carrying on a certain type of operation, the judgment of
the Court of Justice in Case C-148/04 Unicredito Italiano [2005] ECR
I-11137, paragraphs 45-47.

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(110) In view, moreover, of the depreciation period of the assets
in question provided for in Article 39 CA of the General
Tax Code, that provision benefits, in fact, mainly under-
takings operating in the — particularly maritime and air —
transport sector, and EIGs financing assets in that sector.

(111) In that respect, the information furnished by the French
authorities shows that, of the 189 applications for approval
lodged under Article 39 CA of the General Tax Code, 182
concerned the transport sector. And, according to that
information, the maritime transport sector alone accounted
for 75 % of the applications for approval lodged and 82 %
of the approvals granted (see the table in recital 17 above).

(112) The introduction of

this scheme derogating from the
ceiling on the depreciation of assets financed by EIGs was
the
primarily motivated by the desire on the part of
legislature to promote the transport sector, and, more
particularly, maritime transport.

(113) That this is the case can be seen from the following.

(114) Firstly, of all the assets that are eligible under Article 39 CA
of the General Tax Code, ships alone are expressly referred
to in Tax Instruction No 120 (46). It is thus stipulated that
the only second-hand assets capable of benefiting under
the tax scheme provided for in Article 39 CA of the
General Tax Code are ships. As far as the approval grant
procedure is concerned, it is also stipulated that approval
applications for ships must be submitted before they are
ordered inasmuch as they start to depreciate as soon as
they are laid down (47).

the scheme at

(115) Secondly, as is clear from the preparatory work prior to the
adoption of Law No 98-546 and, more particularly, from
Senate Report No 413 (48), the previously existing tax
arrangements applied to all economic sectors whereas
Article 39 CA of the General Tax Code applies ‘only to
heavy capital goods (aircraft, high-speed trains, ships, etc.)’.
As regards, more specifically, the maritime sector, the said
that, compared with the co-
report criticises the fact
ownership shares scheme,
issue is not
favourable enough to boost investment in the sector. It also
states that the introduction, in Article 39 CA of the General
Tax Code, of a provision on exemption from capital gains
tax in the event of early transfer of title in an asset to the
user was motivated by the fact that the scheme at issue was
less
favourable to maritime investment. The French
authorities likewise pointed out in this connection in their
comments of 3 May 2004 that it was with a view to ending
the stagnation in the number of commercial vessels
registered in France and to reducing tax expenditure that
provision had been made for
the possibility of EIGs
benefiting, subject
to certain criteria, not only from
depreciation-related tax deferment, but also from exemp-
tion from capital gains tax on the asset transfer.

(46) See footnote 35.
(47) See paragraph 70 of Tax Instruction No 120, referred to above in

footnote 35.
(48) See footnote 34.

(116) Thirdly, General Report No 66 on the 1999 Finance
Bill (49) states that ‘Law No 98-546 … made possible the
creation of a new tax arrangement in favour of maritime
investment’. It also states that, although the preferential
scheme of financing by leasing introduced by Article 39
CA of the General Tax Code does not apply only to ships,
in reality it was designed mainly with them in mind.

(117) In the light of all the above considerations, the Commission
takes the view that the scheme provided for in Article 39
CA of the General Tax Code is selective in character in that
it
favours certain economic operators active in the
transport sector and in the financial sector. Since the
scheme does not apply to all economic operators, it cannot
be considered to be a general tax policy measure.

(118) This assessment cannot be called into question by the

arguments raised by the French authorities.

(119) Firstly,

the French authorities’ argument based on the
multiplicity of sectors potentially concerned by the tax
measure at issue cannot be accepted. Apart from the fact
that certain assets only are concerned by the tax scheme,
the very marginal number of approval applications for
financing assets in sectors other than transport (50) does
not leave any doubt as to the scheme’s specificity. It has
been ruled in any event that the fact that the number of
undertakings able to claim entitlement under a measure is
very large, or that they belong to different sectors of
activity, is not sufficient to call into question its selective
character (51).

(120) Secondly, contrary to what the French authorities claim, the
argument that there are equivalent tax measures in the
other Member States is irrelevant for purposes of justifying
the existence of the scheme provided for in Article 39 CA
of the General Tax Code. Comparison of the tax rules
applicable in all of the Member States, or even some of
them, would inevitably distort the aim and functioning of
the provisions on the monitoring of state aid.
In the
the tax
absence of Community-level harmonisation of
provisions of the Member States, such an approach would
in effect compare different
factual and legal situations
arising from legislative and regulatory disparities between
the Member States (52). It has also been ruled that the fact
that a Member State seeks to approximate, by unilateral
measures, the conditions of competition in a particular
sector of the economy to those prevailing in other Member
States cannot deprive the measures in question of their

(49) Report No 66 — 1998-99 session, Rapporteur-General: Mr P.

Marini, Senator/Volume III.

(50) It is clear from the information supplied by the French authorities
that fewer than 4 % of approval applications and fewer than 3 % of
approvals granted concerned a sector other than transport (see the
table in recital 17).

(51) See the judgment of the Court of Justice in Case C-409/00 Spain v
Commission [2003] ECR I-1487, paragraph 48, and the case law cited
therein.

(52) See the judgment
paragraph 81.

in Salzgitter, cited above in footnote 29,

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character as aid (53). Similarly, the fact that competitors in
other Member States benefit
tax
measures, even illegal ones, is irrelevant for purposes of
classifying the scheme at issue as aid (54).

from comparable

(121) Thirdly, France and some interested parties claim that the
non-selective character of the scheme at issue is established
by the lack of discretionary power on the part of the French
authorities when it comes to granting approval.

(122) The Commission would point out that, according to the
case law, even interventions which, prima facie, apply to
undertakings in general may be to a certain extent selective
and, accordingly, be regarded as measures designed to
favour certain undertakings or the production of certain
goods. That is the case, in particular, where the adminis-
tration called upon to apply a general
rule has a
discretionary power so far as concerns the application of
the measure at issue (55).

(123) In the present case, it should be pointed out straight away
that, inasmuch as the tax measure at issue can benefit only
the users of certain assets and the members of the EIGs
financing them and in fact benefits mainly the transport
and financial sectors, the condition of specificity is already
fulfilled. Other financing schemes, concerning assets in
sectors other than transport and/or having a depreciation
period of less than eight years, might include safeguards of
such a character as to rule out any attempt at
tax
optimisation. Consequently, in view of the limited scope
of this tax measure, it is not necessary, in order to establish
the selective character of
to determine
whether
authorities have a
competent national
discretionary power in the measure’s application (56).

the measure,

the

(124) When questioned about the scope of the examination they
carry out to establish whether the investment in question is
interest (57) both in
of significant economic and social
general and from an employment standpoint in particular,

(53) See, inter alia, the judgments of the Court of Justice in Cases C-372/
97 Italy v Commission [2004] ECR I-3679, paragraph 67, and the
case law cited therein, and C-172/03 Heiser v Finanzamt Innsbruck
[2005] ECR I-1627, paragraph 54.

(54) See the judgment of the Court of Justice in Case 78/76 Steinike &
Weinlig v Federal Republic of Germany [1977] ECR 595, paragraph 24,
and the judgment of the Court of First Instance in Case T-214/95 Het
Vlaamse Gewest v Commission [1998] ECR II-717, paragraph 54.
(55) See the judgments of the Court of Justice in Case C-295/97 Piaggio
SpA v International Factors Italia SpA and Others [1999] ECR I-3735,
paragraph 39, and the case law cited therein, and in Diputación Foral
de Álava v Commission, cited above in footnote 17, paragraph 31.
(56) See the judgment in Spain v Commission, cited above in footnote 40,

paragraphs 120 and 121, and the case law cited therein.

(57) According to the French authorities, of the 22 decisions not to grant
approval, 7 were based on the lack of any significant economic and
social spin-offs.

that

stated that

interest was
the French authorities
determined in the light of six criteria, including that of
‘the impact of the investment on the economic environ-
ment of the area in which it is to be carried out and in
which the user operates’. In the Commission’s opinion, the
assessment of that criterion necessarily involves giving the
national authorities a margin of discretion.

subject

(125) Despite the legitimacy of such a goal, there is no link
between this criterion as to the existence of an economic
interest on the part of the investment and the objective
sought by the legislature in making the carrying out of the
to the prior grant of ministerial
investment
approval. The criteria governing the grant of approval are
said to be intended to help establish that recourse to the
method of financing via an EIG does not pursue any tax
optimisation goal. The criterion as to the economic interest
of the investment is, however, not likely to prevent such
optimisation. Irrespective of the period of depreciation of
the assets concerned, such financing operations may well
not pursue any tax optimisation goal, but this does not
necessarily mean that they are deprived of any significant
economic and social
interest primarily in terms of
employment.

(126) Reference may be made once more here to Senate Report
No 413 (58), which states that the criterion as to the
existence of a significant economic and social interest is ‘a
means to promote goods manufactured in France or
financing operations for the benefit of a French user’. More
generally, the report also states that the approval procedure
leaves the authorities too wide a margin of discretion.

(127) The unsuitability of

the criterion as to the economic
interest of the investment in the light of the objective
pursued therefore increases, in the Commission's opinion,
the margin of discretion enjoyed by the national authorities
in its application.

(128) Still concerning the margin of discretion enjoyed by the
French authorities for approval granting purposes, it should
be noted that
the Constitutional Council decision of
30 December 1987 (59), which was referred to by the
French authorities and some interested parties, is irrelevant
in the present context. What was involved in that instance
was a tax measure which provided that a new legal person
resulting from the merger of two companies could take
over for a limited period all or part of the losses of the
merged companies and that, in the event of the partial
contribution of capital to a company in the group, any
losses not yet deducted before the merger could be set off,
with the approval of the Minister for the Budget and within
the limits of that approval, against any future profits. The
Constitutional Council was asked to rule on the conformity
the
that approval procedure with Article 34 of
of

(58) See footnote 34.
(59) See footnote 9.

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Constitution, which entrusts to the legislature the task of
determining the scope of a tax advantage. It held that the
measure in question did not allow the legislature to
subdelegate its taxation powers to the Minister and that the
latter had conferred on him only the power to ensure, in
keeping with the legislature's objective of preventing tax
avoidance, that the conditions laid down by law were met.
On that occasion, what the Constitutional Council was
being called on to do was to rule on compliance with the
respective powers of
and regulatory
authorities in tax matters and not at all on whether the
Minister had a discretionary power when adopting the
individual measures needed to implement the law.

legislative

the

(129) In any event, the Commission considers that the conditions
of Article 87(1) of the Treaty cannot be called into question
by decisions of national courts.

(130) Fourthly, in response to the argument that the national
authorities did not have arbitrary power
since their
decisions could be appealed against before the national
courts with a view to reviewing the grounds for with-
holding approval, it should be pointed out that, in order to
preclude characterisation as a general measure, it is not
necessary to determine whether the conduct of the tax
administration is arbitrary. It need only be established that
the administration has a discretionary power enabling it to
vary the conditions for granting the tax concession in
question according to the characteristics of the investment
project submitted for its assessment (60). It has been ruled,
moreover, that debt remissions granted in the course of
judicial proceedings and in accordance with the applicable
national law were selective in character as they did not flow
automatically from the application of the law, but from the
discretionary decisions made by the public bodies in
question. In making this ruling, the Court again made it
clear that Article 87(1) of the Treaty does not distinguish
between measures of state intervention by reference to
their causes or aims but defines them in relation to their
effects (61).
In the present case, a fortiori, the fact that
decisions withholding approval may be appealed against
before a national court cannot call
into question the
existence of a margin of discretion on the part of the
national authorities in applying the ministerial approval
grant criteria.

(131) Lastly, the Commission considers that the French author-
ities’ argument centred on the absence of a distinction
based on the nationality of the members of an EIG and of
users likewise does not call
into question the selective
character of the scheme provided for in Article 39 CA of

(60) Judgments of the Court of First Instance in Diputación Foral de Álava v
Commission, cited above in footnote 17, paragraph 35, and in Case T-
36/99 Lenzing v Commission [2004] ECR II-3597, paragraph 132.
(61) Judgment of the Court of First Instance in Case T-152/99 HAMSA v

Commission [2002] ECR II-3049, paragraph 158.

the General Tax Code (62), especially since Senate Report
No 413 (63) states that the condition as to the existence of a
significant economic and social interest of the investment is
‘a means to promote goods manufactured in France or
financing operations for the benefit of a French user’.

(132) In the light of the above, the Commission considers that
the scheme provided for in Article 39 CA of the General
Tax Code is selective in character.

r e l e v a n c e o f

T h e
t h e n a t u r e a n d o v e r a l l s t r u c t u r e o f
s y s t e m

e x c e p t i o n b a s e d o n
t h e t a x

t h e

(133) The French authorities claim that the combined provisions
of the second paragraph of Article 39 C and Article 39 CA
of the General Tax Code are a means of ex ante control by
the tax authorities aimed at combating tax avoidance
through the abuse of movable asset financing operations by
tax-transparent structures such as EIGs. They consider that
the scheme provided for in Article 39 CA of the General
Tax Code is thus justified by the nature and overall
structure of the tax system. They state in this connection
that the scheme provided for in Article 39 CA of the
General Tax Code is ‘based on objective, horizontal tax
avoidance combating criteria’.

(134) It is true that the definition of state aid does not include
national measures introducing a differentiation between
undertakings when that differentiation arises from the
nature and overall structure of the system of charges of
which they form part. This justification based on the nature
or overall
the
consistency of a specific tax measure with the internal
tax
logic of
differentiations cannot be simply dictated by the general
aims and objectives pursued by the State in adopting the
measures in question (64).

tax system in general. However,

the tax system reflects

structure of

the

(135) In the present case, the Commission considers that, by
limiting the amount of deductible depreciation, the second
paragraph of Article 39 C of the General Tax Code does in
fact seek to combat abusive recourse to tax-transparent
structures with a view to achieving a tax saving as part of
operations to finance assets leased out or otherwise made
available. That objective is clearly necessary and rational for
purposes of ensuring the effectiveness of the scheme of tax-

(62) Judgment

in CETM v Commission, cited above in footnote 42,

paragraph 49.
(63) See footnote 34.
(64) Judgment

in Spain v Commission, cited above in footnote 51,
paragraphs 52 and 53, and the judgment in Diputación Foral de Álava
v Commission, cited above in footnote 17, paragraph 60, and the case
law cited therein. This case law was reproduced by the Commission
in its Notice of 10 December 1998 on the application of the State
aid rules to measures relating to direct business taxation (cited above
in footnote 30).

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deductible depreciation of assets leased out or otherwise
made available and must therefore be considered to form
an inherent part of the said scheme (65).

creating or safeguarding jobs that most aid measures are
granted (67).

(136) On the other hand, the scheme provided for in Article 39
CA of the General Tax Code cannot be justified by the
the French system of
nature and overall structure of
depreciation of assets leased out or otherwise made
from the ceiling in
available. Although derogations
principle on depreciation provided for
in the second
paragraph of Article 39 C of the General Tax Code are
they should be based only on criteria the
admissible,
fulfilment of which would be capable of preventing
recourse, for tax optimisation purposes, to the financing
of the said assets by means of tax-transparent structures
such as EIGs.

(137) Firstly, the limitation of the scope of the derogation in
question to the financing of assets depreciable over a
period of at least eight years cannot be justified, either in
itself or in combination with the other approval grant
criteria, in the light of the objective pursued by the French
authorities. During the course of the present administrative
procedure, those authorities have provided no explanation
as to why, in the light of the objective of combating tax
avoidance, the derogation was limited to assets having such
a depreciation period.

(138) Secondly, as indicated above, of the ministerial approval
grant criteria, that which relates to the existence on the part
of the financing operation of an economic and social
interest, particularly in relation to employment, leaves the
national authorities a margin of discretion. This criterion
bears no relationship, moreover, to France’s objective of
combating tax avoidance. At all events, such a social
objective is not capable in itself of excluding the scheme at
issue from classification as aid within the meaning of
Article 87(1) of the Treaty inasmuch as that article does not
distinguish between measures of state intervention by
reference to their causes or their aims but defines them in
relation to their effects (66). It has been ruled, furthermore,
that Article 87(1) of the Treaty would be deprived of
effectiveness if specific measures were to be excluded from
classification as state aid for reasons to do with the creation
or maintenance of employment, since it is with a view to

(65) The Commission considers it appropriate to refer, by analogy, to the
judgment in Case C-308/01 Gil Insurance and Others v Commissioners
of Customs & Excise [2004] ECR I-4777, paragraphs 74 et seq., in
which the Court of Justice regarded as justified by the nature and
general scheme of the national system of taxation of insurance a
taking
measure whose aim was to counteract
advantage of the difference between the standard rate of insurance
premium tax and that of VAT by manipulating the prices of rental or
sale of appliances and of the associated insurance.

the practice of

(66) Judgment of the Court of Justice in Case C-159/01 Netherlands v
Commission [2004] ECR I-4461, paragraph 51, and the case law cited
therein.

(139) The French authorities also claim that the tax scheme
provided for in Article 39 CA of the General Tax Code has
made possible a rejuvenation and consolidation of the
commercial sea fleet. Similarly, Air France states that the
scheme promotes the renewal of its fleet, which has been
made necessary by changes in environmental standards.
However, apart from the fact that such claims confirm the
Commission’s assessment as to the selective character of
the scheme at issue, the pursuit of economic or industrial
policy objectives cannot be considered to exclude a
selective measure from the application of Article 87(1) of
the Treaty (68). It has been ruled, moreover, in a similar
context that a scheme providing for an interest rate subsidy
on loans granted to natural persons, SMEs,
local and
regional public bodies and bodies providing local public
services for purchasing vehicles or for leasing them with
intention to purchase was an aid measure and could not be
justified by the fact that it was aimed at modernising the
commercial vehicles on the road in Spain in the interest of
environmental protection and improving road safety (69).

(140) All of the general interest grounds to which the scheme at
issue is claimed to have the object or effect of contributing
— namely employment and the renewal or consolidation
of the ships or aircraft concerned — however legitimate
they may be, are not justified by the nature and overall
structure of the tax scheme at issue and are even irrelevant
when it comes to classifying a measure as state aid within
the meaning of Article 87(1) of the Treaty.

(141) The Commission also considers that it is irrelevant, for the
purposes of applying Article 87(1) of the Treaty, that the
scheme provided for in Article 39 CA of the General Tax
Code is less favourable to beneficiaries than was the co-
ownership shares scheme, the scheme at issue in the case
falling to be assessed by the Commission at the time of its
implementation (70).

(142) In the light of the above, the Commission considers that
the scheme provided for in Article 39 CA of the General
Tax Code is not justified by the nature and overall structure
of the tax scheme at issue and that its selective character is
therefore beyond question.

(67) See, on the subject of selective exemptions from social security
charges, the judgment of the Court of Justice in Case 173/73 Italy v
Commission [1974] ECR 709, paragraphs 27 and 28. See also the
judgments in CETM v Commission, cited above in footnote 42,
paragraph 53, and in Case T-127/99 Diputación Foral de Álava and
Others v Commission [2002] ECR II-1275, paragraph 168.

(68) See,

for example,

the judgment
Commission, cited above in footnote 17, paragraph 51.

in Diputación Foral de Álava v

(69) Judgment

in CETM v Commission, cited above in footnote 42,
paragraph 53, and the judgment of the Court of Justice in Case C-
351/98 Spain v Commission [2002] ECR I-8031.

(70) See the judgments of the Court of Justice in Case 57/86 Greece v
Commission [1988] ECR 2855, paragraph 10, and in Adria-Wien
Pipeline and Wietersdorfer & Peggauer Zementwerke, cited above in
footnote 40, paragraph 41, and the case law cited therein.

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Effect on trade between Member States and distortion of
competition

(143) As indicated above, the beneficiaries under the tax scheme
provided for in Article 39 CA of the General Tax Code are,
firstly, economic operators active in the sectors of transport
and industry and, secondly, the members of EIGs financing
assets in those sectors, being financial institutions for the
most part. All of
these operators are active in the
Community markets of the above-mentioned sectors.

(144) In principle, aid which is intended to release an under-
taking from costs which it would normally have had to
bear in its day-to-day management or normal activities
distorts the conditions of competition (71). It has been ruled
that any grant of aid to an undertaking exercising its
activities in the Community market
is liable to cause
distortion of competition and affect trade between Member
States (72).

(145) In the present case, in view of the nature and international
dimension of the sectors in question, the Commission
considers that the aid at issue strengthens the position of
operators in these sectors participating in national and
intra-Community trade.

intended to end the stagnation in the number of
commercial vessels registered in France and to reduce tax
expenditure. Lastly, as indicated above, Senate Report
No 143 (74) states that the scheme is ‘a means to promote
goods manufactured in France or financing operations for
the benefit of a French user’.

(148) Consequently, without its being necessary to carry out an
economic analysis of the actual situation in the markets
concerned (75) and in view of the fact that the tax scheme
introduced by France strengthens the position of
the
economic operators who benefit from it compared with
other operators competing in intra-Community trade, the
trade
Commission considers
between Member States and distorts competition between
those operators.

the scheme affects

that

(149) In the light of all the above considerations, the Commission
takes the view that the scheme provided for in Article 39
CA of the General Tax Code constitutes aid within the
meaning of Article 87(1) of the Treaty.

2.

Quantification and apportionment of the aid

among beneficiaries

(146) Beneficiaries under the scheme at issue are in a privileged
position vis-à-vis both their national competitors (73) and
their competitors in other Member States who, either
because they do not finance or use assets eligible under the
scheme or because they are not taxable in France, do not
qualify under the scheme.

(150) As indicated above, the tax advantages resulting from the
application of Article 39 CA of the General Tax Code are,
firstly, the removal of the ceiling on deductible deprecia-
tion, secondly, the one-point increase in the depreciation
the possible exemption from
thirdly,
coefficient and,
transfer capital gains tax.

(147) On this last point, while it is true that, from a formal point
of view, there is no legal obstacle to economic operators
from Member States other than France financing or using
assets covered by Article 39 CA of the General Tax Code, it
is undeniable that, in practice, the scheme at issue favours
operators whose tax domicile is in France. It is noteworthy
in this respect that all the interested parties benefiting
under the scheme at issue who submitted comments as
part of the formal investigation procedure are companies
incorporated under French law. As regards, moreover, the
sector mainly concerned by the tax arrangements at issue,
namely maritime transport, the French authorities have
themselves stated that the arrangements’ adoption was

(71) See the judgment of the Court of Justice in Case C-156/98 Germany v
Commission [2000] ECR I-6857, paragraph 30, and the case law cited
therein.

(72) See, inter alia, the judgments of the Court of Justice in Case 730/79
Philip Morris v Commission [1980] ECR 2671, paragraphs 11 and 12,
and in Vlaams Gewest v Commission, cited above in footnote 54,
paragraphs 48-50.

(73) It is not necessary for the recipient undertaking itself to take part in
intra-Community trade. Where a Member State grants aid to an
undertaking, domestic production may for
reason be
maintained or increased with the result that undertakings established
in other Member States have less chance of exporting their products
to the market in that Member State. Moreover, the strengthening of
an undertaking which, until
in intra-
Community trade may enable it to penetrate the market of another
Member State (see Case C-310/99 Italy v Commission [2002] ECR I-
2289, paragraph 84).

then, did not

take part

that

(151) The amount of

increase

the aid,

the one-point

for each leasing operation,
corresponds to the difference between the discounted
values of the taxes paid throughout the depreciation period,
taking into account
in the
depreciation coefficient, and those which would have
resulted from the application of the provisions of the
second paragraph of Article 39 C of the General Tax Code,
to which difference must be added any exemption from
transfer capital gains tax (76). This amount is determined,
in accordance with the
for each leasing operation,
procedure laid down in paragraphs 46 and 47 of Tax
Instruction No 120 (77) for the purpose of passing on part
of the overall advantage to the user.

(152) As

regards

the overall
the exact apportionment of
advantage accruing under Article 39 CA of the General
Tax Code, the members of an EIG are required — as the
direct beneficiaries — to pass on at least two thirds of that
advantage to the user of the asset in question. In the
context of each leasing operation, the exact amount of the

(74) See footnote 34.
(75) See the judgment of the Court of Justice in Case C-372/97 Italy v
Commission [2004] ECR I-3679, paragraphs 44 and 45, and, on the
unlawfulness of the scheme at issue, paragraphs 153-155.

(76) See the Commission Notice on the application of the State aid rules
to measures relating to direct business taxation (referred to above in
footnote 30), paragraph 35.

(77) See footnote 35.

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advantage to be passed on to the user is determined, in
accordance with the provisions of Article 39 CA of the
General Tax Code, at the time of grant of approval.

3.

Classification of the scheme as unlawful aid

(158) As for the exception in Article 87(3)(b) of the Treaty, it is
sufficient to note that the tax scheme at issue is not an
important project of common European interest and does
not seek to remedy a serious disturbance in the French
economy. Nor does it seek to promote culture and heritage
the exception in
conservation within the meaning of
Article 87(3)(d) of the Treaty.

(153) Pursuant to Article 88(3) of the Treaty, Member States must
notify any plans to grant or alter aid. They may not put the
proposed measures into effect until the procedure has
resulted in a final decision.

(159) The Commission would point out in this connection that
neither the French authorities nor any interested parties
invoked the above-mentioned exceptions during the course
of the administrative procedure.

(154) In the present case, the French authorities informed the
Commission, by letter dated 17 March 1998 (A/32232), of
the introduction of arrangements limiting the depreciation
of leased-out assets so as to combat use of the mechanism
solely for tax optimisation purposes and providing for an
exception to such limitation. In their letter, the French
authorities stated that the arrangements did not appear to
constitute state aid notifiable to the Commission in
advance under Article 88(3) of the Treaty.

(155) The Commission considers that, in these circumstances, the
letter cannot be deemed to be a notification within the
meaning of Article 88(3) of the Treaty. It would point out,
moreover, that the letter did not comply with the formal
rules mentioned in the Commission’s letter to the Member
States No SG (81) 12740 of 2 October 1981, which was in
force at the material time. France therefore acted unlawfully
by implementing the aid scheme at issue in infringement of
Article 88(3) of the Treaty.

(160) Examination of the exceptions provided for in Article 87(3)
(a) and (c) of the Treaty will be carried out sector by sector.

Compatibility of aid to the air transport sector

(161) The Commission takes

the view,

in relation to the
exception provided for in Article 87(3)(c) of the Treaty,
which authorises aid to facilitate the development of
certain economic activities where such aid does not
adversely affect trading conditions to an extent contrary
there is no basis for
to the common interest,
considering that the aid granted to the air transport sector
under the scheme at issue is compatible with the common
market. None of
the exemptions provided for in this
respect by the Commission’s guidelines on the application
of Articles 92 and 93 of the EC Treaty and Article 61 of the
EEA Agreement to State aids in the aviation sector (79) is
applicable in the present case.

that

4.

Compatibility of the aid scheme with the

common market

(162) Nevertheless,

it should be noted that the Commission
authorises exceptionally certain types of operating aid in
the air transport sector:

that article.

(156) In so far as the tax scheme at issue constitutes state aid
within the meaning of Article 87(1) of the Treaty,
its
compatibility with the common market must be assessed in
the light of the exceptions provided for in paragraphs 2 and
3 of
the actual
beneficiaries of the scheme at issue operate, according to
the information transmitted by the French authorities, in
the maritime, air and rail transport sectors and, marginally,
in the industrial sector (78). Inasmuch as the members of
EIGs are financial institutions for the most part, the said
beneficiaries also operate in the financial sector.

It will be recalled that

(157) The exceptions provided for in Article 87(2) of the Treaty,
which concern aid of a social character granted to
individual consumers, aid to make good the damage
caused by natural disasters or exceptional occurrences and
aid granted to the economy of certain areas of the Federal
Republic of Germany, are irrelevant in the present context
regardless of who the beneficiaries of the scheme at issue
are.

(78) See the table in recital 17.

a)

b)

on the basis of
the 1998 guidelines on national
regional aid, as amended in 2000 (80), for airlines
operating from the outermost regions, with a view to
offsetting the additional costs arising from the
permanent handicaps suffered by those regions as
identified in Article 299(2) of the Treaty; and

on the basis of
the Community guidelines on
financing of airports and start-up aid to airlines
departing from regional airports (81), for new airlines
departing from regional airports with an annual
passenger volume of less than five million, up to 30 %
of the costs strictly linked to their start-up over the
first three years (or 40 % of the said costs over the
first three years in the case of regional airports located
in a disadvantaged region within the meaning of the
guidelines).

(79) OJ C 350, 10.12.1994, p. 5.
(80) OJ C 258, 9.9.2000, p. 5.
(81) OJ C 312, 9.12.2005, p. 1.

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(163) The Commission accordingly agrees

to France’s not
including in the calculation of any aid to be recovered
aid amounts relating to:

(167) The objective of state aid within the common maritime
transport policy is to promote the competitiveness of the
Community fleet in the world market. Consequently, tax
relief schemes must, as a rule, require a link with a
Community flag.

a)

b)

aircraft operated on a permanent basis by airlines
departing from an outermost region, provided it can
be proved that the maintenance of the aircraft was
actually carried out in that region and that the aid is
less than the additional costs incurred; and

aircraft operated by new airlines departing from a
regional airport, up to the above-mentioned share of
the eligible costs, provided the routes in question do
form the subject matter during the period
not
concerned of
contract giving
entitlement to financial compensation pursuant to
Article 4 of Council Regulation (EEC) No 2408/92 of
23 July 1992 on access for Community air carriers to
intra-Community air routes (82).

a public

service

(164) In all other cases, aid granted to air transport undertakings
under the scheme at issue is incompatible with the Treaty.

Compatibility of aid to the maritime transport sector

(165) In accordance with Article 87(3)(c) of

the Treaty,

the
Community guidelines of 1997, then those of 2004 (83),
specify the state aid schemes which may be authorised,
with a view to promoting the interests of Community
maritime transport undertakings in the face of competition
from third countries, in the pursuit of general objectives
such as:

— safeguarding employment in the Community (at sea

and on shore)

— improving safety

— maintaining maritime know-how in the Community

and improving maritime skills.

(166) In the light of the above-mentioned objectives, the 1997
and 2004 Community guidelines authorise certain tax
measures in favour of shipping companies with a view to
improving their competitiveness (point 3.1).

(82) OJ L 240, 24.8.1992, p. 8.
(83) See footnote 12. The Commission would point out

in this
connection that the compatibility of unlawfully granted aid must
be assessed in accordance with the substantive rules in force at the
time when the aid was granted (see the Commission notice on the
determination of the applicable rules for the assessment of unlawful
State aid, OJ C 119, 22.5.2002, p. 22). Where aid measures pursuant
to Article 39 CA of the General Tax Code were granted subsequent
to the entry into force of the 2004 Community guidelines on State
aid to maritime transport, only those guidelines will therefore be
applicable. The relevant rules have not been amended, save as
regards tugs and dredgers (see recital 170 below).

(168) The advantages procured by such schemes must facilitate
the development of maritime transport and employment in
the sector in the Community interest. Consequently, the
above-mentioned tax advantages must be strictly limited to
maritime transport activities. Hence, if a maritime trans-
port undertaking also carries on other
commercial
activities, there must be a strict separation in the accounts
between the two activities to prevent any ‘spillover’ to non-
maritime-transport activities.

(169) It cannot be denied that the scheme at issue seeks to
promote the financing of ships under the French flag and
to develop maritime transport and employment.

(170) Moreover, aid granted under the scheme at issue facilitates
the financing of ships and thus contributes to the renewal
of the Community fleet. In this connection, the Commis-
sion shares the view of the French authorities that the aid
contributes to a consolidation and rejuvenation of the fleet
under the French flag (84). It subscribes particularly to the
argument that, owing to the approval mechanism which
makes the application of the scheme at issue conditional on
possession, in the territory of the Community, of a strategic
decision-making centre for managing maritime activities
and ships and which takes into account employment-
related considerations,
the scheme helps to safeguard
Community employment both on board and on shore (85).
(85). This has been confirmed, moreover, by several
interested third party shipowners who stress the important
part played by the scheme at
issue in offsetting the
additional cost of crewing under this flag, maintaining
high-quality jobs in maritime transport and helping to
maintain, or even develop, a fleet flying the flag of a
Member State (86). The Commission would point out,
however, that, under the 2004 Community guidelines, if
the ships are tugs or dredgers, the aid granted can be
considered compatible with the common market only if at
least 50 % of
their annual activity corresponds to the
definition of maritime transport (87).

(171) In the light of the above, it can therefore be considered that,
in so far as it is compatible with point 3.1 of the 2004
Community guidelines, the tax scheme provided for in
Article 39 CA of the General Tax Code is favourable to the
maritime transport sector and is in keeping with the
objectives laid down by the applicable Community guide-
lines.

(84) See recital 38.
(85) See recitals 25 and 26.
(86) See recital 57.
(87) See, in this connection, the twelfth to sixteenth paragraphs of point
3.1 of the 2004 Community guidelines on State aid to maritime
transport, cited above in footnote 12.

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(172) However, to qualify for exemption under Article 87(3)(c) of
the Treaty, aid granted under the scheme must be strictly
proportionate to the objective pursued and not affect trade
to an extent contrary to the common interest.

is to be no further fall
compared with other,
onmentally damaging, transport modes.

in rail transport’s market share
less sustainable and more envir-

‘A reduction to zero of

(173) In this connection, the French authorities’ attention is
drawn to the rule on the limitation of aid laid down in
Chapter 11 of the 2004 Community guidelines, according
taxation and social
to which:
charges for seafarers and a reduction of corporate taxation
of shipping activities … is the maximum level of aid which
may be permitted. To avoid distortion of competition,
other systems of aid may not provide any greater benefit
than this. Moreover, although each aid scheme notified by a
Member State will be examined on its own merits, it is
considered that the total amount of aid granted under
Chapters 3 to 6 should not exceed the total amount of
taxes and social contributions collected from shipping
activities and seafarers’. In implementing this provision, the
French authorities will have to verify that the annual aid
received by a given shipowner under the present scheme,
together with that granted under all
the aid schemes
the 1997 and 2004
concerned by Chapters 3-6 of
Community guidelines (including the scheme of flat-rate
tonnage taxation for maritime transport companies (88)
and the exemptions from social security charges and from
payment of the maritime part of business tax), does not
exceed, for that shipowner, the total amount of taxes and
social contributions which ought normally to have been
collected from maritime transport activities and from
seafarers. Any sum exceeding the above amount
is
incompatible with the common market and will have to
be recovered.

(174) Consequently, the Commission considers that aid granted
to maritime transport undertakings under the scheme
introduced by Article 39 CA of the General Tax Code is
compatible with Article 87(3)(c) of the Treaty subject to the
conditions set out in recitals 172 and 173.

Compatibility of aid to the rail transport sector

(175) The Commission considers that the exceptions provided for
in Article 87(3)(a) of the Treaty concerning the develop-
ment of certain areas are not applicable to the scheme at
issue in so far as it is used to finance assets in the rail
transport sector. It has, however, examined the scheme’s
compatibility with the common market under Article 87(3)
(c) of the Treaty.

(176) In view of the historical situation of the railways and the
fall in rail transport’s market share, the process of replacing
rolling stock must be speeded up in order to compete with
other modes of transport. A more serious and urgent effort
to modernise and/or renew rolling stock is needed if there

(177) The Commission considers that the replacement of rolling
stock is compatible with the common policy of increasing
interoperability. It contributes, moreover, to safety and to
the modernisation of services in terms of punctuality,
reliability and speed. Since the replacement of rolling stock
is a key element of
the policy of strengthening the
development of the rail sector, the Commission considers
that the measures proposed do not run counter to the
common interest.

(178) Consequently, the Commission considers that aid granted
to railway undertakings under the scheme introduced by
Article 39 CA of the General Tax Code is compatible with
Article 87(3)(c) of the Treaty.

Compatibility of aid to the industrial sector

(179) With regard to the exception provided for in Article 87(3)
(c) of the Treaty, which authorises aid to facilitate the
development of certain economic activities where such aid
does not adversely affect trading conditions to an extent
contrary to the common interest, there is nothing in the
scheme at issue to suggest that aid granted under it to the
industrial sector would be compatible with the common
market.

(180) However, the Commission cannot exclude out of hand the
possibility that certain assets in the industrial sector have
been financed under Article 39 CA of the General Tax
Code in accordance with the conditions laid down by the
guidelines on national
including the
condition that the investment be carried out in a region
eligible under Article 88(3)(a) or (c) of the Treaty and the
condition that the recipient’s contribution to the financing
of the investment be at least 25 %. At all events, the
regional aid intensity ceilings must be complied with where
an undertaking has benefited from a combination of the
aid at issue and approved regional aid.

regional aid (89),

(181) Subject to these conditions, the Commission considers that
aid granted to this sector under the scheme at issue is
compatible with the common market.

Compatibility of aid to the financial sector

(182) With regard to the financial sector,

the Commission
the non-sectoral exceptions referred to
considers that
above are
for purposes of assessing the
compatibility of aid granted to EIG members with the
common market.

irrelevant

(88) Commission Decision C(2003) 1476 FIN of 13 May 2003 — State

aid N 737/2002.

(89) OJ C 74, 10.3.1998, p. 9.

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(183) However,

in view of

the general character of

leasing
operations, the Commission considers that, inasmuch as it
can be declared compatible with the common market, aid
to the maritime, air and rail transport sectors and to the
industrial sector is compatible not only with respect to the
users of the assets in question but also with respect to the
members of the EIGs concerned. In order that users might
benefit from the exceptions referred to above, the members
of EIGs should not be penalised for not belonging to the
above-mentioned sectors provided their intermediation was
indispensable to carrying out the financing operations in
question. The Commission considers that this analysis is
borne out by the fact that the exact share of the overall
advantage which is to be passed on to the user — which
under Article 39 CA of the General Tax Code amounts to at
least two thirds of that overall advantage — is, as the
French authorities have pointed out, the outcome of a
commercial negotiation between EIG members and users.
This bears witness to the fact that, in accordance with the
the above-
rules
mentioned aid measures, only that part of the overall
advantage that is indispensable to attaining the objectives
pursued is retained by the EIG’s members.

for assessing the compatibility of

5.

Recovery

(184) The Commission would point out

that, pursuant

to
Article 14(1) of Council Regulation (EC) No 659/1999 of
the
22 March 1999 laying down detailed rules for
application of Article 93 [now Article 88] of
the EC
Treaty (90), any aid found to be incompatible with the
common market granted under the scheme at issue must
be recovered.

(185) Article 14(1) provides, however, that ‘[t]he Commission
shall not require recovery of the aid if this would be
contrary to a general principle of Community law’. In this
respect, it has been ruled that the Commission is required
to take into consideration on its own initiative exceptional
circumstances
to
Article 14(1), for it to refrain from ordering the recovery
of unlawfully granted aid where such recovery is contrary
to a general principle of Community law (91).

justification, pursuant

that provide

(186) The fundamental requirement of legal certainty is designed
to ensure the foreseeability of
situations and
relationships governed by Community law and hence has
the effect of preventing the Commission from indefinitely
delaying the exercise of its powers (92).

legal

(90) OJ L 83, 27.3.1999, p. 1.
(91) See the judgment in RSV v Commission, cited above in footnote 24.
(92) See the judgment of the Court of Justice in Joined Cases C-74/00 P
and C-75/00 P Falck and Acciaierie di Bolzano v Commission [2002]
ECR I-7869, paragraph 140.

(187) While the principle of legitimate expectation cannot be
considered to have been infringed in this case (93), the
Commission is of the opinion, in the light of the highly
specific circumstances of this case, that the principle of
legal certainty has not been taken proper account of vis-à-
vis the beneficiaries of the tax scheme at issue.

(188) The Commission considers

that

there is a body of
exceptional evidence to suggest, firstly, that the Commis-
sion delayed exercising its powers when it came to
examining the scheme here at issue and, secondly, that
beneficiaries under the scheme have been misled as to its
lawfulness.

(189) It will be recalled that, by their letter dated 17 March 1998,
the French authorities informed the Commission of the
existence of the mechanism provided for in the second
paragraph of Article 39 C and Article 39 CA of the General
Tax Code. While it is true that that letter did not constitute
a notification within the meaning of Article 88(3) of the
Treaty (94) and that the absence of a reaction on the part of
the Commission to the letter could not, therefore, by itself
alone, constitute an infringement of the principle of legal
certainty on pain of depriving the provisions of Articles 87
and 88 of
it
nevertheless remains that the Commission’s attention was
drawn, on that date, to the scheme at issue (95).

the Treaty of all practical effectiveness,

(190) During the course of

the investigation into the two
complaints made to it denouncing the aid which the
shipping companies Sea France and BAI had allegedly
received, the Commission twice questioned the French
authorities about the method of financing some of those

(93) The Commission has not provided any specific, unconditional and
concordant assurances of such a nature as to give rise to justified
hopes on the part of the French authorities and/or beneficiaries
under the scheme at issue that the scheme was lawful (see, on the
definition of the principle of legitimate expectation, the judgments
of the Court of Justice in Cases 265/85 Van den Bergh en Jurgens v
Commission [1987] ECR 1155, paragraph 44, and C-152/88
Sofrimport v Commission [1990] ECR I-2477, paragraph 26; judg-
ments of the Court of First Instance in Cases T-290/97 Mehibas
Dordtselaan v Commission [2000] ECR II-15, paragraph 59, and T-
223/00 Kyowa Hakko Kogyo v Commission [2003] ECR II-2553,
paragraph 51; see, on the absence of a legitimate expectation on the
part of recipients of aid unlawfully implemented, the judgment of the
Court of Justice in Joined Cases C-183/02 P and C-187/02 P Demesa
and Territorio Histórico de Álava v Commission [2004] ECR I-10609,
paragraphs 44 and 45, and the case law cited therein.

(94) See recitals 153-155.
(95) The Commission would point out that, since the entry into force of
Regulation No 659/99 (referred to above in footnote 90) and of
Commission Regulation (EC) No 794/2004 of 21 April 2004
implementing it (OJ L 140, 30.4.2001, p. 1), such a state of affairs
cannot happen again. Both Regulations remind Member States of
their obligation to notify in advance any proposal to grant new aid.
The practical arrangements for making such notifications, such as
the use of standard forms, are set out clearly.

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companies’ ships. Both in their reply of 10 July 2000 and
in that of 2 April 2003, the French authorities described
clearly the scheme provided for in Article 39 CA of the
General Tax Code (96), setting out its content in unambig-
uous terms.

as the user of the asset is concerned, the amount to be
recovered from the members of the EIG will be determined
in the same proportion as that applied to the share of the
advantage passed on to the user.

(191) Consequently, in not following up these letters describing
the scheme at issue sent by the French authorities at its
request, the Commission may be deemed to have delayed
investigation
the exercise of
procedure having been initiated only on 14 December
2004 — and to have left room for doubt as to the scheme’s
lawfulness.

its powers — the formal

(192) As for the French authorities’ reference to the Commission
Decision of 8 May 2001 concerning State aid implemented
by France in favour of Brittany Ferries (97), it should be
pointed out that the Commission found therein that the
scheme then at issue constituted a general measure as it
was open to all sectors of the economy and came under the
ordinary law. While it is true that the scheme at issue in
that case was
it must
nevertheless be observed that that fact was not made clear
in the grounds for the Decision and that that circumstance
may have helped to mislead beneficiaries under the scheme
here at issue.

in force before 1998,

that

(193) All the above-mentioned factors taken together illustrate
the exceptional nature of the circumstances of the present
case and justify, in the interests of compliance with the
principle of legal certainty vis-à-vis beneficiaries under the
scheme at issue, limiting recovery of the aid by drawing a
distinction according to the date of grant.

(194) The Commission considers, therefore, that France need not
recover any incompatible aid unlawfully granted since the
entry into force, in 1998, of Law No 98-546 as part of
financing operations concerning which the competent
national authorities have undertaken to grant the benefit of
the scheme provided for in Article 39 CA of the General
Tax Code by a legally binding act (98) predating the
publication in the Official Journal of the European Union,
the Commission’s decision of
on 13 April 2005, of
investigation
14 December 2004 to initiate the formal
procedure under Article 88(2) of the Treaty.

the benefit of

the scheme provided for

(195) By contrast, in the case of financing operations concerning
which the competent national authorities have undertaken
to grant
in
Article 39 CA of
the General Tax Code by a legally
binding act postdating the above-mentioned publication,
any incompatible aid will be recovered from its recipients.
Account will be taken here of the amount of any advantage
ultimately retained by the members of the EIG and of the
amount passed on the user (99). In the event of the aid
being partially compatible with the common market as far

(96) Referred to above in footnote 16.
(97) Referred to above in footnote 15.
(98) See the judgment of the Court of First Instance in Case T-109/01
Fleuren Compost v Commission [2004] ECR II-127, paragraphs 74 et
seq.

(99) See recitals 150-152.

(196) The Commission considers it appropriate to point out in
this connection that the fact that the legal and tax-related
risks incurred by the members of EIGs may, in some cases,
have been contractually passed on to the users of the assets
cannot negate the principle that the Commission’s purpose
in demanding, where appropriate, the recovery of unlawful
aid is to deprive the various recipients of the advantage
they have enjoyed in their respective markets compared
with their competitors and to restore the status quo that
existed before the aid was granted. Just as the achievement
of that purpose cannot depend on the form in which the
aid was granted, so it also cannot depend on contractual
stipulations agreed upon by the aid recipients (100).

VIII.

CONCLUSION

(197) The Commission finds

France has unlawfully
that
implemented the aid scheme provided for in Article 39
CA of the General Tax Code, in infringement of Article 88
(3) of the Treaty.

(198) Consequently, France must take all necessary measures to
recover the aid, apart from that which the competent
national authorities have undertaken to grant by a legally
binding act predating the publication in the Official Journal
of the European Union, on 13 April 2005, of the decision to
investigation procedure and that
initiate the formal
concerning assets in the rail transport sector, and, in the
case of other operations, minus the maximum amounts of
aid admissible under the sectoral rules applicable to state
aid and taking into account any aid already granted under
other heads. The sectoral rules in question are the 1997
and 2004 Community guidelines on State aid to maritime
transport, the 1998 guidelines on national regional aid, as
amended in 2000, the 2005 Community guidelines on
financing of airports and start-up aid to airlines departing
from regional airports and, lastly, as far as the financing of
assets in the industrial sector are concerned, the guidelines
on national regional aid.

(199) The above-mentioned incompatible aid which the compe-
tent national authorities have undertaken to grant by a
legally binding act postdating the above-mentioned pub-
lication must be recovered from its recipients in accordance
with recitals 151, 152 and 194 to 196.

(200) In respect of such aid, the Commission would ask France to
transmit to it the attached form reporting progress with the
recovery procedure and to draw up a list of recipients from
whom aid is to be recovered,

(100)See, by analogy, the judgment of the Court of Justice in Case C-183/

91 Commission v Greece [1993] ECR I-3131, end of paragraph 16.

30.4.2007

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Official Journal of the European Union

L 112/63

HAS ADOPTED THIS DECISION:

Article 1

The scheme provided for in Article 39 CA of the General Tax
Code, which has been implemented by France in infringement of
Article 88(3) of the Treaty, is, with the exception of the measures
referred to in Article 2, incompatible with the common market.

Article 2

Grants of aid under the scheme referred to in Article 1 are
compatible with the common market where they are made:

(1)

in the maritime transport sector and in the air transport
sector, up to the maximum amounts permissible under the
Community guidelines on State aid to maritime transport
or the corresponding guidelines on aid to air transport,
taking into account any aid already granted during the
period concerned;

(2)

in the rail transport sector; and

(3)

in the industrial sector, up to the maximum amounts
permissible under the guidelines on national regional aid.

In view of the general character of leasing operations under the
said scheme, aid to the maritime, air and rail transport sectors
and to the industrial sector which can be deemed compatible
with the common market shall be so compatible not only with
respect to the users of the assets in question but also with respect
to the financial sector operators belonging to the EIGs involved.

Article 1, with the exception of aid granted as part of financing
operations concerning which the competent national authorities
have undertaken to grant the benefit of the said scheme by a
legally binding act adopted before 13 April 2005 and the aid
referred to in Article 2.

2. 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 sums to
be recovered shall bear interest throughout the period running
from the date on which they were put at the disposal of the
recipients until their actual recovery. Interest shall be calculated
in accordance with the provisions of Chapter V of Commission
Regulation (EC) No 794/2004 (101).

Article 5

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

France shall furnish such information to the Commission using
the form in Annex II and shall draw up an exhaustive list of
undertakings which have received aid from the scheme referred
to in Article 1 under the conditions of Article 4(1), of the
movable transport assets concerned and of the amounts paid in
each case.

France shall also draw up a list of undertakings which have
received aid as referred to in Article 4(1), specifying the amounts
of aid which each undertaking has received. For this purpose,
France shall use the forms in Annex III.

Article 3

Article 6

France shall put an end to the aid scheme referred to in Article 1
to the extent that it is incompatible with the common market
and hence shall grant no new approvals falling within the bounds
of such incompatibility.

This Decision is addressed to France.

Done at Brussels, 20 December 2006.

Article 4

1.
France shall take all necessary measures to recover from
recipients aid granted unlawfully under the scheme referred to in

For the Commission

Neelie KROES

Member of the Commission

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

L 112/64

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Official Journal of the European Union

30.4.2007

List of interested parties who submitted comments to the Commission under Article 88(2) of the Treaty

ANNEX I

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)

Méridionale de Navigation
Caisse d'Epargne
Broström
Calyon
BNP Paribas
Brittany Ferries
CMA CGM
Bourbon Maritime
Société Générale Corporate and Investment Banking
Gaz de France
Louis Dreyfus Armateurs
Anonymous
Fouquet Sacop
Pétro Marine
Air France
Anonymous

30.4.2007

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Official Journal of the European Union

L 112/65

ANNEX II

Information concerning implementation of the Commission Decision 2007/731/EC

(to be transmitted to the Directorate-General for Competition in the case of projects in the industrial sector and to the
Directorate-General for Energy and Transport in the case of projects in the transport sector)

1.

Total number of recipients and total amount of aid to be recovered under Article 4(1) of this Decision

1.1. Please explain how the amount of aid to be recovered from the various recipients will be calculated, giving a

breakdown into:

— capital:

— interest:

1.2. What is the total amount of unlawful aid granted under the scheme that has to be recovered (gross grant equivalent,

price, etc.)?

1.3. What is the total number of recipients from whom unlawful aid granted under the scheme has to be recovered?

2. Measures taken and to be taken to recover the aid

2.1. What measures have been or will be taken to recover the aid immediately and effectively? What is the legal basis for

those measures?

2.2. When will all the aid have been recovered?

3.

Information on individual recipients

For each recipient from whom unlawful aid granted under the scheme at issue is to be recovered, please fill in the
following table:

Name of recipient

Amount of unlawful aid
granted (*)
Currency:....

o Amounts reimbursed
Currency:…

(*) Amount of aid made available to the recipient (gross grant equivalent, price, etc.)
o

Gross amounts reimbursed (including interest)

L 112/66

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Official Journal of the European Union

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ANNEX III

A —

MARITIME AND AIR TRANSPORT

(to be transmitted to the Directorate-General for Energy and Transport)

FOR EACH MARITIME OR AIR TRANSPORT COMPANY

A.

Nature of the investment and eligibility under the applicable guidelines. For example, in the case of air transport:
location in an outermost region, additional operating costs; maximum eligible expenditure under the guidelines, etc.

B.

Calculation of the aid to be reimbursed

(1) Share of the advantage passed on by the EIG to the company.

(2) Amount of the advantage received by the company under Article 39 CA for its entire air or sea fleet throughout
the period concerned.

(3) Amount of any other aid granted to the company under the applicable guidelines during the period concerned.

(4) Maximum allowable amount of aid which may be granted to the company under the applicable guidelines.

(5) = (2) + (3) — (4) is the amount of any incompatible aid to be reimbursed

If (5) is a positive figure, the EIG concerned must reimburse: (5) * [1- (1)]
and the company must reimburse: (5) * (1)

B —

INDUSTRIAL INVESTMENTS AND THE CORRESPONDING EIGs

(to be transmitted to the Directorate-General for Competition)

A.

Amount of the investment, region in which it was carried out and payment of the recipient's 25 % contribution

B.

Regional aid ceiling for the region concerned

C.

Calculation of the aid to be reimbursed

(1) Amount of the advantage such as it results from the ministerial instruction

(2) Amount of the advantage enjoyed by the company under Article 39 CA

(2) = (1) x share of the advantage passed on by the EIG to the company in accordance with the approval

(3) Amount of any other regional aid obtained for the same investment

(4) Maximum amount of regional aid allowable under ceiling B

(5) = (2) + (3) — (4) is the amount of any incompatible aid to be reimbursed

If (5) is a positive figure, the EIG concerned must reimburse: [(1) — (2)] x (5)/(1).
and the company must reimburse: (5) * (2)/(1)