2007/375/EC: Commission Decision of 7 February 2007 concerning the exemption from excise duty on mineral oils used as fuel for alumina production in Gardanne, in the Shannon region and in Sardinia implemented by France, Ireland and Italy respectively (C 78/2001 (ex NN 22/01), C 79/2001 (ex NN 23/01), C 80/2001 (ex NN 26/01)) (notified under document number C(2007) 286)   (Text with EEA relevance)
Date: 2007-02-07
Institutions: European Commission
Subjects: France, Ireland, Italy, State aid, control of State aid, excise duty, metallurgical industry, mineral oil, tax exemption

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COMMISSION DECISION

of 7 February 2007

concerning the exemption from excise duty on mineral oils used as fuel for alumina production in
in the Shannon region and in Sardinia implemented by France, Ireland and Italy
Gardanne,

respectively (C 78/2001 (ex NN 22/01), C 79/2001 (ex NN 23/01), C 80/2001 (ex NN 26/01))

(notified under document number C(2007) 286)

(Only the English, French and Italian versions are authentic)

(Text with EEA relevance)

(2007/375/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:

1

PROCEDURE

(1)

Taxation of mineral oils has been subject to harmonisation
at Community level since the entry into force of Council
Directive 92/81/EEC of 19 October 1992 on the
harmonisation of the structures of excise duties on mineral
oils (2). The use of mineral oils for alumina production was
not excluded from the scope of Directive 92/81/EEC, nor
was it the object of a compulsory or optional exemption
under Article 8 of that Directive. Article 6 of Council
Directive 92/82/EEC of 19 October 1992 on the
approximation of the rates of excise duties on mineral
oils (3) established a minimum rate of excise duty on heavy
fuel oil, which Member States had to apply from 1 January
1993. By
the Council
various decisions, however,
authorised France, Ireland and Italy to exempt mineral oils

used for alumina production in, respectively, the Gardanne,
in the Shannon region and on Sardinia, from the excise
duty which would otherwise have been imposed. The most
recent decision is Council Decision 2001/224/EC of
12 March 2001 concerning reduced rates of excise duty
and exemptions from such duty on certain mineral oils
when used for specific purposes (4), which authorises the
exemptions until 31 December 2006.

(2) Council Directive 2003/96/EC of 27 October 2003
restructuring the Community framework for the taxation
of energy products and electricity (5) repealed Directive 92/
82/EEC as from 31 December 2003. Article 2(4)(b) of
Directive 2003/96/EC, states that the Directive does not
apply to a number of uses of energy, including dual use of
energy products. The second indent of Article 2(4)(b) states
that the use of energy products for chemical reduction and
in electrolytic and metallurgical processes is to be regarded
as dual use. The use of heavy fuel for alumina production
falls within this category. Therefore, as from 31 December
2003, the minimum excise duty for heavy fuel no longer
applies to fuel used in the production of alumina. The
derogations in Decision 2001/224/EC and other similar
derogations were incorporated into Annex II of Directive
2003/96/EC.

(3)

By Decisions C(2001)3296, C(2001)3300 and C(2001)
3295 of 30 October 2001 (6) the Commission initiated the
procedure laid down in Article 88(2) of the Treaty with
respect to the exemptions. By Commission Decision 2006/
323/EC (7) of 7 December 2005 (notified under document
number C(2005)4436),
the Commission closed that
procedure in respect of the aid granted during the period
to 31 December 2003, declaring part of the aid to be
incompatible with the common market. As regards the
period from 1 January 2004, the procedure was extended.
Recitals 6 to 15 of Decision 2006/323/EC provide a
detailed description of the correspondence between the
Commission, the Member States concerned, the benefici-
aries of the aid and the European Aluminium Association
(hereinafter ‘EAA’) prior to December 2005.

(1) OJ C 30, 2.2.2002, p. 17, p. 21 and p. 25; and OJ C 109, 9.5.2006,

p. 2.

(2) OJ L 316, 31.10.1992, p. 12. Directive as last amended by Directive

94/74/EC (OJ L 365, 31.12.1994, p. 46).

(3) OJ L 316, 31.10.1992, p. 19. Directive amended by Directive 94/74/

EC.

(4) OJ L 84, 23.3.2001, p. 23. See the Commission's Decision of

7.12.2005 for a detailed reference to earlier decisions.

(5) OJ L 283, 31.10.2003, p. 51. Directive last amended by Directive

2004/75/EC (OJ L 157, 30.4.2004, p. 100).

(6) See footnote 1.
(7) OJ L 119, 4.5.2006, p. 12.

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(4) Decision 2006/323/EC was sent to France, Ireland and Italy
by letters of 8 December 2005 (D/206670, D/206671,
D/206673). It was sent to the beneficiaries concerned and
the EAA by letters of 23 January 2006 (D/50525,
D/50526, D/50527 and D/50528). The three Member
States and two beneficiaries appealed the decision (8). The
Irish beneficiary, Aughinish Alumina Ltd (hereinafter
‘Aughinish’) also applied for the suspension of operation
of the decision. That application was registered as Case T-
69/06R. By order of 2 August 2006 (9) the Court of First
Instance dismissed the application for interim measures.

(5) Decision 2006/323/EC was published in the Official Journal
of the European Union on 4 May 2006 and third parties were
invited to submit comments by a notice published in the
Official Journal of the European Union on 9 May 2006 (10).
The Commission received comments from Aughinish in a
letter dated 9 June 2006 (registered the same day under
A/34490) and from Eurallumina SpA (hereinafter ‘Eur-
allumina’), the Italian beneficiary, in a letter dated 24 dated
2006 (registered on 25 July 2006 under A/35967). The
latter was sent and received only after the delay of one
month set out in the invitation for comments published in
the Official Journal of the European Union and therefore the
Commission is in principle not obliged to take the
comments into account in the framework of this procedure.
The Commission informed Eurallumina to that effect by
letter dated 2 August 2006 (D/56648). Eurallumina replied
by letter dated 3 August 2006 (registered on 4 August
2006 under A/36269). Nevertheless,
the Commission
notes that the comments raised by Eurallumina repeat
the comments the Commission had already
many of
received in the context of the previous decision and is
similar to the comments received in due time, which are
addressed in this decision.

(6)

(7)

The comments from Aughinish were forwarded to France,
Ireland and Italy by letters dated 20 June 2006 (D/55106,
D/55107 and D/55109).

France and Ireland requested an extension of the time limit
responding to Decision 2006/323/EC, which was
for
granted by the Commission. The Commission reminded
Ireland and Italy of its invitation for comments by letters
dated 9 March 2006 (D/52054 and D/52055). France,
Ireland and Italy commented on the Commission's decision
by letters dated 14 February 2006 (registered on
15 February 2006 under A/31248), 12 April 2006
(registered on 18 April 2006 under A/32940) and
17 May 2006 (registered on 18 May 2006 under A/
33852), respectively.

(8)

France commented on Aughinish' comments by letter dated
27 July 2006 (registered on 28 July 2006 under A/35952).
By e-mail of 24 July 2006, Italy informed the Commission
that it did not have any further observations to make.

(8) Cases T-50/06, T-56/06, T-60/06, T-62/06 and T-69/06.
(9) OJ C 249 of 14.10.2006, p. 10.
(10) See footnote 1 and 7.

2

DETAILED DESCRIPTION OF THE MEASURES

CONCERNED

(9)

The measures consist of full exemptions from the excise
duty on industrial heavy oil when used for alumina
production. The beneficiaries of
Irish and
Italian exemption are, respectively, Alcan, Aughinish and
Eurallumina (11).

the French,

(10) The Irish exemption is contained in Section 100(1)(e) of the
Irish Finance Act 1999, which grants relief from mineral oil
tax on ‘fuel oil intended for use in, or in connection with,
the manufacture of alumina, or for the maintenance of the
manufactory in which the said manufacture is carried on’.
The explanatory memorandum of the Finance Act explains
that ‘section 100 provides for relief from mineral oil tax in
respect of oil used for particular purposes or in other
particular situations. These include use for purposes other
than motor or heating fuel, exports, fuel oil used in alumina
production, oil used for sea-navigation, heavy oil used in
commercial aviation and recycled oil’. The exemption for
mineral oils used for alumina production has been in place
in Ireland since 1983. While the original Statutory
Instrument providing for the exemption was revoked in
1999, the exemption was preserved under the Finance Act
1999.

(11) The Italian exemption from excise tax applies to all
undertakings using mineral oils for the production of
alumina within the meaning of point 14 of table A of the
Single Text on excises. The exemption was instituted by Law
of 12 November 1990, n. 331,
implementing Decreto
Legge 15 September 1990, n.261, Article 8(5). That text
has been reproduced in the successive legal texts concerned,
including the national measures transposing Directive 92/
81/EEC and the successive 'Single Text on excises'.

(12) The French exemption has its legal base in the 1997
rectifying Finance Law (‘Loi de finances rectificative pour
1997’. It stipulates in Article 6 that ‘the deliveries of heavy
oil with a sulphur content below 2 % included in the
identification index 28bis of table B of Article 265(1) of the
Customs Code are eligible for exemption from the Internal
consumption tax on petrol products when they are destined
to be used as a fuel
for the production of alumina.
Article 265 bis of the customs code concerns products
destined for uses other than motor fuel or heating fuel, but
it does not, for example, contain similar provisions on uses
of mineral oils in other industrial sectors.

(13) Recitals 16 to 23 of Decision 2006/323/EC provide a more
detailed description of
the measures and beneficiaries
concerned. The Member States concerned have not
they are continuing to apply the
indicated whether
exemption beyond 2006 nor have they informed the
Commission of any changes to the applicable legislation, in
particular changes due to the transposition of Directive
2003/96, that could affect the Commission's assessment.

(11) See www.alcan.com, www.glencore.com and www.eurallumina.com.

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(14) The relevant tax rates have changed since the initiation of
the procedure. On 1 July 2006, the applicable rates of
excise tax on heavy fuel oil for business use in France and
Ireland amounted to EUR 18,50, and EUR 15.00. On the
same date the applicable rates in Italy amounted to
EUR 63,75 per tonne of heavy fuel oil with a sulphur
content above 1 % and EUR 31,39 per tonne of heavy fuel
oil with a sulphur content below 1 %.

3

REASONS TO INITIATE AND EXTEND THE

PROCEDURE LAID DOWN IN ARTICLE 88(2) OF THE
TREATY

(15)

In its decisions of 30 October 2001 to initiate the
procedure laid down in Article 88(2) of the Treaty, the
Commission expressed its doubts as regards the compat-
ibility of
the aid under the Community guidelines on
national regional aid (12) and in particular in the light of the
rules on operating aid contained in those guidelines. The
Commission also raised doubts as
the aids’
compatibility under the Community guidelines on State
aid for environmental protection of 1994 (13) and those of
2001 (14) (hereinafter the ‘Environmental aid guidelines’).

regards

(16)

In Decision 2006/323/EC, the Commission explained that
it maintained similar doubts as regards the period as from
1 January 2004. Given that
the Member States and
interested parties had not had the opportunity to submit
their comments on the legal situation created by Directive
2003/96/EC, the Commission considered it appropriate to
extend the formal investigation procedure.

(19) The rules in Directive 2003/96/EC override the State aid
rules. The Commission could only challenge the validity of
the measures under Article 18(1) of Directive 2003/96/EC
and not under the State aid rules. Applying the State aid
rules would breach the principle of effet utile.

(20)

for

Ireland and Aughinish argue that
the Irish measure
constitutes existing aid and that the Commission's reading
of Article 15 of Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules
the
application of Article 93 of the EC Treaty (15) is wrong:
after expiry of the 10-year limitation period, the Commis-
sion's letter of 17 July 2000 could not have been an act
interrupting the limitation period and the measure would
constitute existing aid also for the period after 17 July
1990. They also claim that the Commission's assessment of
the nature of the agreements between Aughinish and the
Irish authorities in 1970 is flawed: binding commitments
were entered into before Ireland's accession to the
Communities.

(21)

the measure is closely linked to the
Italy argues that
realisation of environmental objectives
related to the
burden arising from alumina production. Aughinish argues
that the exemption falls at least within the spirit of the
Environmental aid guidelines and ‘it has, notwithstanding the
fact that it is not paying “a significant proportion of the tax”, been
provided with more
to improve
than sufficient
environmental protection’.

incentives

4

COMMENTS FROM FRANCE, IRELAND AND ITALY

(22)

AND FROM THIRD PARTIES

(17) The Member States and beneficiaries generally maintain the
comments they made earlier and which are summarised in
recitals 26-56 of Decision 2006/323/EC. Some arguments
have been developed in more detail. In addition, they make
the following comments.

In any event,

(18) The measures do not constitute State aid and this is
confirmed by Directive 2003/96/EC. They fall within the
nature and logic of the respective tax systems. If they were
to constitute State aid, Directive 2003/96/EC explicitly
allows the aid, at least for the period until 31 December
that Directive created legitimate
2006.
expectations for the beneficiaries. Requesting recovery of
the aid also breaches the principle of legal certainty and the
principle of proper administration, given the contradictions
with the Council decisions which were based on Commis-
sion proposals, the considerable delay and the manner in
which the Commission has dealt with the investigation. The
beneficiaries have undertaken long-term capital
invest-
ments in reliance on the Council Decisions and the
Directive. The Commission would therefore be estopped
from adopting an act that is manifestly contrary to its
conduct over a long period.

(12) OJ C 74, 10.3.1998, p. 9.
(13) OJ C 72, 10.3.1994, p. 3.
(14) OJ C 37, 3.2.2001, p. 3.

Ireland argues that alternative measures could have been
implemented from 1 January 2004 had it been known that
the exemption was liable to be found incompatible with the
common market. Ireland refers to the possibility to widen
the scope of the relief to cover heavy fuel oil for dual use, or
more widely to energy products generally for dual use. In
this way, according to Ireland, the relief could have been
converted into a general measure or into an acceptable
State aid,
the Environmental aid
guidelines. In the view of these possibilities, retrospective
recovery would be unconscionable.
Ireland stresses,
furthermore, that Aughinish made various investments on
the reasonable expectation that
the exemptions would
continue until at least December 2006.

for example under

(23) The Commission should allow the aid on the basis of an
effects-based economic assessment of the alumina markets
and their competitive structure. The Commission should
take into account the external aspects of competitiveness in
assessing State aid, as proposed in the State aid action plan.
Detailed information on the markets has been provided.

(24) The Commission ought to suspend the formal investigation
procedure until the Court of Justice has determined the
issues which are the subject of the current challenges to

(15) OJ L 83, 27.3.1999, p. 1. Regulation as last amended by Regulation

(EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1).

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in addition,
Decision 2006/323/EC. Aughinish submits,
that it was not appropriate for the Commission to take a
decision to extend the Article 88(2) procedure by means of
a recital to Decision 2006/323/EC. The Commission should
have taken a separate decision.

(25) The EAA did not submit any comments in addition to the
points raised earlier, which are summarised in recital 50 of
Decision 2006/323/EC.

(26) The comments from the Member States and beneficiaries
coincide to a large extent with their pleadings before the
Court of Justice in the pending challenges to Decision
2006/323/EC (16).

5

ASSESSMENT

5.1

The procedural concerns raised by the parties

(27) The parties argue that the Commission ought to suspend
the formal
investigation procedure until the Court has
determined the issues which are the subject of the current
challenges to Decision 2006/323/EC (17). That decision,
however, concerns the period until 31 December 2003,
whereas this decision concerns the period as from 1 January
2004. In addition, this decision is presumed valid unless
and until annulled by the Court of First Instance. Therefore,
and given the continuing distortion of competition that the
State aid presents, the Commission does not see a reason to
suspend the conclusion of the procedure.

(28) The Commission did not take the decision to extend the
Article 88(2) procedure merely by alluding to this in a
recital. Specific attention was drawn to the extension in the
conclusion in the preamble to Decision 2006/323/EC. The
decision to initiate an investigation procedure under
Article 88(2) of the Treaty takes the form of a letter to
the Member State and therefore does not require the use of
the structure of a normative decision, with an operative
part and numbered articles. Furthermore, it is clear from
the challenges made to Decision 2006/323/EC, and the
comments
the
regards
procedure, that interested parties were able to take the
fullest cognisance of all aspects of the content of that
decision.

the extension of

received as

certain goods, shall, in so far as it affects trade between
Member States, be incompatible with the ommon market’.

(30)

It is evident that the exemptions are financed through State
resources since the State foregoes a certain amount of
money that it would otherwise collect.

(31) As set out in recitals 60, 61 and 62 of Decision 2006/323/
EC, the measures confer an advantage on the beneficiaries
and can be assumed to affect intra-Community trade and to
distort or threaten to distort competition. The exemptions
from excise duty reduce the cost of one important input
and thus confer an advantage on the beneficiaries which are
placed in a more favourable financial position than other
undertakings using mineral oils in other industries or
regions. The fact that competitors in the alumina industry
in other Member States may not be subject to similar taxes
at all and that the beneficiaries have undertaken expendi-
ture to mitigate the environmental
their
impact of
production, does not detract from this assessment.

(32) The measures favour certain undertakings as they only apply
to companies that use heavy fuel
in the production of
alumina and in practice, in each Member State there is only
one company benefiting from the exemption: Aughinish in
the Shannon region, Eurallumina in Sardinia and Alcan in
Gardanne. For the reasons set out in recitals 33 to 40, they
can not be considered as being justified by the nature and
general scheme of the respective energy tax systems.

(33) Dual uses, non-fuel uses of energy and mineralogical
processes fall outside the scope of Directive 2003/96/EC
and, since 1 January 2004, Member States have had
discretion as to whether or not to tax such uses. Indeed, an
exemption of such energy uses may constitute a general
measure that does not involve State aid if it falls within the
nature and the logic of the domestic tax system. Recital 22
in the preamble to Directive 2003/96/EC states that ‘energy
products should essentially be subject to a Community framework
when used as heating fuel or motor fuel. To that extent, it is in the
nature and the logic of the tax system to exclude from the scope of
the framework dual uses and non-fuel uses of energy as well as
mineralogical processes.’

5.2

Existence of State aid as from 1 January 2004

(29) Article 87(1) of the Treaty provides that ‘any aid granted by
a Member State or through State resources in any form
whatsoever which distorts or threatens to distort competi-
tion by favouring certain undertakings or the production of

(16) See footnote 7.
(17) See footnote 7.

(34)

In addition, when Directive 2003/96/EC was adopted, the
Council and the Commission jointly declared (18) ‘Energy
products should essentially be subject to a Community framework
when used as heating fuel or motor fuel. It can be considered that
it is in the nature and the logic of the tax system to exclude from
the scope of the framework dual uses and non-fuel uses of energy
as well as mineralogical processes. Member States may then take

(18) Addendum au projet de process verbal, 14140/03, of 24.11.2003,
http://register.consilium.eu.int/pdf/en/03/st14/st14140-ad01.en03.
pdf

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measures to tax or not to tax or to apply total or partial taxation
to each use. Electricity used in similar ways should be treated on
an equal
footing. Such exceptions to the general system or
differentiations within that system, which are justified by the
nature or general scheme of the tax system, do not involve State
aids.’

(35) The Council also stated that ‘The Council furthermore states
that it understands the legal situation arising with the adoption of
this Directive in relation to the Treaty rules on State Aid, the same
way as it was set out by the Commission at the meeting of the
Working Party on Tax Questions on 14 November 2002.’ In the
Staff Working Paper, which was discussed in that meet-
ing (19), the Commission explained the notion of general
measures, that the situation in each individual Member
State has to be analysed to define the general excise duty
system applicable at national level, and also stated that ‘the
draft directive on energy taxation contains numerous options,
making it impossible to determine in advance whether or not the
way they will be implemented by Member States will give rise to
State aid within the meaning of Article 87’. Recital (32) of the
preamble and Article 26(2) of Directive 2003/96/EC,
accordingly, remind Member States of the obligation laid
down in Article 88(3) of the Treaty to notify State aid.

(36)

(37)

the beneficiaries have demonstrated that

In this specific case, neither France, Ireland and Italy, nor
any of
the
exemptions fall within the nature and logic of the domestic
systems. None of them has, for example, explained whether
dual use of energy products in other production processes
has been exempt, and if not, the underlying reasons. Nor
have they explained how the exemptions compare to the
national
the
purposes of chemical reduction and in electrolytic and
metallurgical processes and energy use for mineralogical
processes, which are other uses of energy falling outside the
scope of Directive 2003/96/EC pursuant to Article 2(4)(b)
thereof.

taxes on electricity used principally for

Italy explained that if any other industrial operator had
requested the same benefit, it would not have encountered
any obstacle to its access to the relevant market. It is,
however, not clear what precisely is meant by this
statement and whether this means that the same benefit
could also be granted to any industry other than alumina.
In any event
the benefit would not be granted with
automatically as in the case of alumina. As regards the
reasons for the exemption, Italy, for example, in its letter of
7 December 2000 referred to the ‘recognition of the island
(Sardinia) as a strongly disadvantaged region, and the
possible negative effects on employment’ (‘reconoscimento
dell'isola (Sardegna) quale area fortemente disagiata, ed i
possibili effetti negative sull'occupazione’.)

(38) As regards the Irish exemption, Article 100 of the Finance
Act, 1999 contains some other specific exemptions, but
this does not bring the exemption for alumina production
within the logic of an overall system. It rather demonstrates
that the exemption for alumina is a particular exemption
alongside other specific exemptions, as is also confirmed in
the preamble to the Law (20). In addition, the Irish law also
excludes potential new entrants from the tax exemption
when dual use of energy concerns other production
processes. With respect to the Irish situation, Aughinish
accepts that it ‘does not believe that there are any other such
industries (benefiting from an excise reduction like the alumina
industry)’ and ‘is also unaware of any allegations of discrimin-
ation’. This rather tends to confirm the selective nature of
the measure.

(39)

(40)

In their letter of 7 August 1998, the French authorities
indicate that they asked for the derogation from Directive
92/81 in order to ‘put in place an excise regime that does
not penalise the sector’ (‘pour pouvoir instaurer un regime
d'accise non pénalisant pour le secteur’) (emphasis added).
The exemption would be limited to re-establishing the
competitive conditions between Péchiney, which has been
taken over by Alcan, and the other producers in the
Community. Article 265bis of the customs code, does not
contain similar provisions for energy uses in other sectors.

In fact,
the Member States and beneficiaries failed to
identify any overall logic of their respective tax systems. On
the basis of the information available to the Commission, it
is clear that the reasons for granting the aid derive rather
from the circumstances of alumina production in the
specific regions concerned. These arguments do not derive
from the nature and logic of the respective domestic tax
systems. Therefore, the Commission concludes that the
exemptions remain highly selective, favouring the produc-
tion of a specific product and, de facto, specific under-
takings and they cannot be justified within the logic of the
domestic tax systems.

(41)

In conclusion, the exemptions at stake constitute State aid.

5.3

New aid, not existing aid

(42) As explained in recitals (65)-(70) of Decision 2006/323/EC,
the aid granted as from 1 January 2004 does not constitute
existing aid within the meaning of Article 1(b) of
Regulation (EC) No 659/1999.

(19) Commission Staff Working Paper State-aid aspects in the proposal for a
Council directive on energy taxation, SEC(2002) 1142 of 24.10.2002.
The same wording appeared already earlier in the Report to the
Ecofin Council and the Council conclusions (note of the presidency
to the Coreper/Ecofin Council of 13.12.2001, 14640/01, FISC 255
of 30.11.2001). See also recital 63 of the Decision of 7 November
2005.

(43) The claim by Ireland and Aughinish that the exemptions
constitute pre-accession aid is in contradiction with the
letter of May 1983 by which Ireland accepted that the aid
was notifiable within the terms of Article 88(3) of the
Treaty. In addition, a commitment to make provision for

(20) See recital 10.

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the exemption is not the same as actually granting the aid
before accession. Finally,
the legislation concerned was
fundamentally altered after accession.

within the meaning of point 51.2(a) and they may be
considered as if they had been decided at the time the excise
tax was adopted. Consequently, in accordance with point
51.2 of the guidelines, the provisions in point 51.1 can be
applied.

(44) As explained in recital (70) of Decision 2006/323/EC, aid
granted by Ireland until 17 July 1990 constitutes existing
aid by virtue of
the limitation period provided for in
Article 15 of Regulation (EC) No 659/1999. The expiry of
the 10-year limitation period does not mean that all aid
granted after the expiry of this period also constitutes
existing aid. The aid was not awarded to Aughinish once
and for all in 1983. The Statutory Instrument enacted by
Ireland to grant the exemption is expressed in general terms
as an exemption for alumina manufacture, so as the
legislation stands, the exemption would extend to any other
alumina producer that commenced production in Ireland.
Furthermore, the exemption in respect of Aughinish was
the time the Statutory Instrument was
not defined at
adopted, nor was its value capable of assessment at that
time: neither the evolution of the excise duty rates from
which Aughinish was exempted, nor the duration of that
exemption was defined by the Statutory Instrument. The
exemption therefore falls within the definition of an aid
scheme in Article 1(d) of Regulation (EC) No 659/1999,
further
being ‘an act on the basis of which, without
implementing measures being required,
individual aid
awards may be made to undertakings defined within the
act in a general and abstract manner’. Therefore, the aid
consists of a series of grants of aid, made each time
Aughinish carried out a customs procedure that would, in
the absence of the exemption, have incurred a liability to
excise duty. Aid granted as from 17 July 1990 therefore
does not constitute existing aid pursuant to Article 15 of
Regulation (EC) No 659/1999.

5.4

Compatibility of the aid granted as from

1 January 2004

5.4.1 Compatibility under the rules for environmental aid

(45) The Commission has examined whether the aid granted by
France, Ireland and Italy as from 1 January 2004 qualifies
for an exemption from the prohibition of State aid
contained in Article 87(1) of the Treaty. The aid consists
in an exemption from energy tax, and such taxes are not
only meant to raise financing for the authorities, but also to
reduce the consumption of energy and thereby protect the
environment. The 2001 Environmental aid guidelines
contain rules for exemptions from environmental taxes.
For reasons of equal treatment, transparency and legal
certainty, these rules are binding upon the Commission.

(46) As regards the period from 1 January 2004, section E.3.2,
recitals (47)-(52), of the 2001 Environmental aid guidelines
lay down rules applicable to all operating aid in the form of
tax reductions or exemptions. As explained in recitals (73)
and (74) of Decision 2006/323/EC, the excise duties on
mineral oils can be considered as environmental taxes, they
must be considered as existing taxes within the meaning of
point 51.2 of the guidelines, they have an appreciable
in terms of environmental protection
positive impact

(47) Under point 51.1 tax exemptions covering a 10-year period
may be authorised. After expiry of such a period, and in line
with point 23 of the Environmental aid guidelines, the
Member States remain free to notify a prolongation of the
measures in question to the Commission, which could
adopt the same approach in its analysis as the one set out in
this point while taking into consideration the positive
results obtained in environmental
through the
adoption of taxes. The Irish and Italian exemptions in this
case have been granted since 1993 and the French
exemption has been granted since 1997, meaning that
the measures have been in force for more than 10 years.

terms

(48) None of the Member States confirmed or denied that the
exemptions would continue to be applied after 31 Decem-
ber 2006. None of the Member States have indicated the
presence of a time constraint for the exemptions which
currently apply, other than the date of 31 December 2006,
which under Community tax law is not a binding
constraint, since the exemptions do not fall within the
scope of Directive 2003/96/EC. Nor have any of
the
Member States notified a prolongation of the measure in
question under
the Environmental aid guidelines. The
provisions in the tax legislation of the respective Member
States do not seem to contain such limits either. The
Commission considers that in this case, the circumstances
referred to in point 23 of the guidelines are still present.
Therefore, pursuant to point 51.1 of the guidelines, the
Commission could authorise further aid, but only on the
condition that it becomes subject to a time limitation of
maximum 10 years.

(49) As explained in recital (75) of Decision 2006/323/EC, the
conditions for applying point 51.1(a) of the Environmental
aid guidelines are not
fulfilled and therefore only the
provisions of point 51.1(b) can be applied in this case.

(50) As from 1 January 2004, taxation of mineral oils intended
for dual uses, non-fuel uses and mineralogical processes
falls outside the scope of harmonised Community measures
and therefore, since that date, the exemptions concern
domestic taxes imposed in the absence of a Community tax
within the meaning of point 51.1(b), second indent, of the
Environmental aid guidelines. That provision requires
companies benefiting from the exemptions to pay a
‘significant proportion’ of the national tax. The reason for
that is to leave them with an incentive to improve their
environmental performance. This follows from the wording
of point 51.1(b), first indent, of the guidelines, which allows
for
the
beneficiaries pay more than the Community minimum
rates ‘in order to provide firms with an incentive to improve
environmental protection’. This also applies where the national
tax is significantly higher than comparable taxes in (some)

from a harmonised tax if

tax reductions

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other Member States, as was the case in Italy. In the practice
of the Commission (21), it has become clear that in general
20 % of the domestic tax or the Community minimum that
applies to other energy uses that do fall within the scope of
Directive 2003/96/EC (EUR 15 per tonne), can be regarded
as a significant proportion, even though the Community
minimum does not apply to the energy use at hand.
Therefore,
that only the
exemption above 20 % of
the domestic tax or above
EUR 15 per tonne, whichever is the lowest of the two, can
be considered compatible with the common market; the
exemption up to the level of 20 %, or up to EUR 15 per
tonne, constitutes incompatible aid.

the Commission considers

5.4.2 Compatibility of the aid pursuant to Article 87(3)(a) of the

Treaty and under other provisions

(51) For the reasons explained in recitals (78)-(81) and (82)-(86)
of Decision 2006/323/EC,
the aid can not be found
compatible with the common market under Article 87(3)(a)
of the Treaty, nor is it covered by the exemptions set out in
Article 87(2) and (3) of the Treaty.

(52) Basing the assessment on section E.3.2 of the Environ-
mental aid guidelines is appropriate since the rules in that
section take into account economic factors, in particular the
risk of a loss of international competitiveness due to the
absence of
tax harmonisation and even allow for full
exemptions for certain firms provided they enter into an
agreement with the Member State concerned to improve
their environmental performance. However, in the current
cases no such agreements were entered into and therefore a
full tax exemption under point 51.1(a) of the Environ-
mental guidelines cannot be justified. Nevertheless, the
information on the alumina markets provided to the
Commission confirms that the authorization of a major
part of the aid is appropriate and, as concluded above, can
be justified under point 51(1)(b) of the Environmental aid
guidelines by the overall positive results obtained in
environmental terms through the adoption of taxes. This
authorisation is, however, subject
to the beneficiaries
paying more than the Community minimum rates or a
significant proportion of
the domestic tax, which is
considered necessary to provide firms with an incentive
to improve environmental protection. There are no grounds
for relying on other provisions in other communications of
the Commission with respect to the part of the aid that
cannot be found compatible on the basis of the Environ-
mental aid guidelines.

(21) See e.g. Commission Decision of 30.6.2004 in Case C42/2003
(OJ L 165, 25.6.2005, p. 21), Decision of 13.2.2002 in Case
N449/01 (OJ C 137, 8.6.2002, p. 24), Decision of 11.12.2002 in
Case N74/A/2002 (OJ C 104, 30.4.2003, p. 9) and Decision of
11.12.2001 in cases NN3A/2001 and NN4A/2001 (OJ C 104,
30.4.2003, p. 10). These cases are particularly relevant, as they also
concerned exemptions from energy taxes. An indication as to what
the Commission might consider as too low on the other hand is
contained in the Commission Decision on the partial refund of the
waste water tax in Denmark, Decision of 3.4.2002 in case NN30/A-
C/2001 (OJ C 292, 27.11.2002, p. 6).

(53) As there are no other grounds for finding the aid to be
compatible with the common market, the only aid that can
be found compatible is the part of the aid complying with
the Environmental aid guidelines as specified in recital (50).

6

RECOVERY OF THE INCOMPATIBLE AID

(54) Under Article 14(1) of Regulation (EC) No 659/1999,
where negative decisions are taken in cases of unlawful aid,
the Commission must decide that
the Member State
concerned is to take all necessary measures to recover the
aid from the beneficiary.

legitimate expectations and of

(55) Recitals (95)-(100) of Decision 2006/323/EC explain why
legal
the principles of
certainty, or any other general principle of Community law,
preclude recovery from the beneficiaries of the unlawful
and incompatible aid granted until 2 February 2002.
However, recitals 101 and 102 of the decision explain why
these principles do not preclude the recovery of
the
unlawful and incompatible aid granted from 3 February
2002 until 31 December 2003. The arguments in these
latter recitals are also equally applicable with respect to the
aid granted as from 1 January 2004.

(56)

In addition, the preparation and adoption of Directive
2003/96/EC cannot have given rise to legitimate expecta-
tions on the part of
the beneficiaries, nor is recovery
precluded by the principle of legal certainty. Recital 32 of
the preamble to the Directive refers to the obligation laid
down in Article 88(3) of the Treaty upon Member States to
notify State aid and it explicitly stipulates that the Directive
‘does not prejudice the outcome of any future State aid
procedure that may be undertaken in accordance with
Article 87 and 88 of the Treaty’. The reference to any future
State aid procedure in that recital cannot be understood as
an authorisation of aid subject of a procedure that had
already started when the Directive was adopted. In fact, the
the
same wording was already present in recital 6 of
preamble to Decision 2001/224/EC, which extended the
derogations until
the end of 2006. The explanatory
memorandum that accompanies the Commission's propo-
sal for that decision (22) reads ‘The Commission proposes to
(…) extend for a two-year period the (…) derogations which
require a detailed examination, in particular in the light of the
State aid rules (…) Nevertheless, nothing in this Decision
overrides the requirement for Member States to notify instances of
potential State aid to the Commission under Article 88 of the
Treaty. Such notifications will be examined under the terms of
Article 87 of the Treaty’. In addition, in summer 2000 the
Commission had already asked the Member States to notify
the measures in question.

(22) COM(2000)678.

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subject

‘energy products

should essentially be

(57) Recital 22 of the preamble to Directive 2003/96/EC states
that:
to a
Community framework when used as heating fuel or motor fuel.
To that extent, it is in the nature and the logic of the tax system to
exclude from the scope of the framework dual uses and non-fuel
uses of energy products as well as mineralogical processes. (…)’
That recital, although not referring to Articles 87 and 88 of
the Treaty, cannot be understood to restrict the concept of
State aid as laid down in Article 87(1) of the Treaty. The
Commission explained the notion of general measures in a
‘In this matter, the
Staff Working Paper which explained:
situation in each individual Member State has to be analysed, to
define the general excise duty system applicable at national
level’ (23). That paper was discussed in the meeting of the
Council Working Party on 14 November 2002. The paper
continues with an explanation of the conditions under
which aid in the form of tax measures can be found
compatible with the common market. The minutes of the
Council meeting of 27 October 2003, when Directive
2003/96/EC was adopted, expressly refer to the explana-
tions given during the meeting of the Council Working
Party on 14 November 2002.

(58) Although ‘dual use of energy’ does not fall within the scope
of Directive 2003/96/EC, Article 18 of
the Directive
authorises the Member States to continue to apply the
exemptions listed in Annex II thereto. That Annex includes
the three exemptions to which this Decision relates, for the
period foreseen in the last extension in 2001, that is to say,
until 31 December 2006. The authorisation is, however,
not an authorisation under the State aid rules which the
Commission is competent to enforce. To the contrary, this
precisely demonstrates the potential relevance of recital 32.
The argument put forward by the Member States and
beneficiaries that the authorisation by the Council overrides
the State aid procedures is incorrect.

(59) When Directive 2003/96/EC was adopted, the Commission
and the Council jointly declared that ‘the Commission should
go to the greatest possible length to ensure that measures taken by
Member States in accordance with the exemptions and tax
reductions laid down in the Directive will be considered compatible
with state aid rules’. Of course, the Commission must act
within the framework of applicable State aid rules, in this
case in particular the Environmental aid guidelines. In any
event, that statement does not apply to the exemptions to
which this decision relates, since they do not fall within the
scope of the Directive.

(60) Directive 2003/96/EC, the Staff Working Paper and the
joint Commission and Council statement referred to above
have never confirmed the absence of incompatible State
aid. It should be recalled that the Commission had initiated
the procedure laid down in Article 88(2) and any interested
party could have asked the Commission to adopt a final
decision. The initiation of a procedure under Article 88(2)

vitiated the further existence of legitimate expectations (if
any) as to the absence of incompatible aid.

(61) Decision 2001/224/EC and earlier Council decisions on the
exemptions were not State aid decisions.
the
Commission has long expressed doubts about the compat-
ibility of the exemptions with the State aid rules.

In fact,

(62) As regards the duration of the investigation in this case, the
Commission considered it necessary to await the adoption
of Directive 2003/96/EC and to extend the procedure by
Decision 2006/323/EC, in order to seek the views of the
Member States on the situation in each Member State
resulting from the transposition of Directive 2003/96/EC
which permitted a number of possible outcomes. In any
event, a ‘prudent businessman’ should be aware that once
an investigation starts into unlawful aid, then should the
investigation find that aid to be incompatible with the
Treaty,
the
Commission will order
the aid. The
Member States and the beneficiaries could have urged the
Commission to conclude the procedure sooner, had they
wished to consider alternative investments or alternative
measures to comply with the Environmental aid guidelines.

inevitable consequence is that

the recovery of

the almost

(63) For

these reasons,

the beneficiaries cannot hold any
legitimate expectations precluding the recovery of
the
incompatible State aid after 31 December 2003, nor is
recovery precluded on the basis of the principle of legal
certainty.

7

SUSPENSION OF PAYMENT OF COMPATIBLE AID

(64)

In its judgement in Case C-355/95P, Textilwerke Deggendorf
GmbH (TWD) v. Commission, the Court of Justice stated that
‘when the Commission examines the compatibility of a State aid
with the common market it must take all the relevant factors into
account, including, where appropriate, the circumstances already
considered in a prior decision and the obligations which that
decision may have imposed on a Member State’. According to
the Court of Justice, the compatibility of a new aid could
depend on the existence of a previous unlawful aid that has
not been repaid, since the cumulative effect of the aids
could distort competition in the common market to a
significant extent. Therefore the Commission, when it
examines the compatibility of a State aid with the common
market, has the power to take into consideration both the
cumulative effect of this aid with an old one and the fact
that such old aid has not been repaid (24).

(65) Therefore,

in application of

this case-law, when the
takes into
Commission assesses a new aid measure it
account
the beneficiaries may not have
complied with earlier Commission decisions ordering them
to reimburse previous unlawful and incompatible aid. In

the fact

that

(23) See footnote 17 above.

(24) [1997] ECR I-2549, paragraphs 25 to 27.

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such cases, the Commission examines the effects on the
beneficiaries of the combination of the new aid with the old
incompatible aid which has not yet been reimbursed.

HAS ADOPTED THIS DECISION:

Article 1

(66) France, Ireland and Italy have not yet effectively recovered
the aid that
the Commission found incompatible in
Decision 2006/323/EC (25). The sums to be recovered, as
calculated by the Member States and excluding interest,
amount
to EUR 786 668, EUR 8 095 881,43 and
EUR 6 612 489,02 respectively. Moreover, this decision
has also identified incompatible aid granted for an
additional period, which should also be recovered. The
cumulation of these aid amounts with otherwise compa-
tible aid would continue to distort competition to an extent
contrary to the common interest and no arguments were
found to justify such a distortion. Therefore, any payment
of compatible aid as described in point 50 above should be
suspended until all incompatible aid has been recovered
from the beneficiaries.

8

CONCLUSION

(67)

It is concluded that the exemptions from excise duty on
heavy fuel oils used in the production of alumina granted
by France,
Ireland and Italy as from 1 January 2004
constitute State aid within the meaning of Article 87(1) of
the Treaty. The aid is partially incompatible with the
the beneficiaries did not pay a
common market as
significant part of the tax. The part of the exemption
which exceeds the rate of 20 % of the tax level which would
otherwise have been payable or EUR 15,00 per 1 000 kg,
whichever is the lowest, can be found compatible with the
common market on the condition that it is granted for a
maximum of 10 years, after which the compatibility of the
aid must be reviewed. The remaining aid should be declared
incompatible with the common market.

(68) France, Ireland and Italy should be required to take all
necessary measures to recover the incompatible aid granted
from 1 January 2004 onward from the recipients.

(69) France, Ireland and Italy should be required to suspend the
application of the exemptions until they have recovered
from the respective beneficiaries the aid held to be
incompatible with the common market
in Decision
2006/323/EC and in this Decision.

The exemptions from excise duty granted by France, Ireland and
Italy in respect of heavy fuel oils used in the production of
alumina as from 1 January 2004 constitute State aid within the
meaning of Article 87(1) of the Treaty.

Article 2

The aid referred to in Article 1 is compatible with the common
market insofar as the beneficiaries pay at least a rate of 20 % of
the excise tax which would otherwise have been payable or the
minimum level of taxation as determined by Directive 2003/96
(EUR 15,00 per 1 000 Kg), whichever is the lowest, subject to
the condition that the aid is limited to a maximum duration of
10 years.

Article 3

The aid referred to in Article 1 is incompatible with the common
market insofar as the beneficiaries do not pay at least a rate of
20 % of the excise tax otherwise payable or the Community
minimum (EUR 15,00 per 1 000 Kg), whichever is the lowest.

Article 4

1.
France, Ireland and Italy shall take all necessary measures to
recover from the beneficiaries the aid referred to in Article 3 and
unlawfully made available to the beneficiaries.

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 the decision.

3. The sums to be recovered shall include interest from the date
on which it was at the disposal of the beneficiaries until the date
of its recovery. The interest shall be calculated in compound basis
in conformity with the provisions laid down in Chapter V of
Commission Regulation (EC) No 794/2004 (26).

France,

4.
Ireland and Italy shall cancel all payment of
outstanding aid referred to in Article 3 with effect from the
date of notification of this decision.

5.
France, Ireland and Italy shall ensure that this decision is
implemented within four months of the date of its notification.

Article 5

(70) The French, Irish and Italian authorities should forward a
copy of this decision to the beneficiaries of the measures
immediately,

(25) The Decision has been appealed before the Court of Justice, but
the appeal does not have a

according to art. 242 EC Treaty,
suspensive effect.

France, Ireland and Italy shall suspend the payment of the aid
referred to in Article 2, to beneficiaries who have not yet repaid
the aid held to be incompatible with the common market by
Decision 2006/323/EC and the aid referred to in Article 3 of this
decision in so far as it was unlawfully made available to the
beneficiaries, with interest.

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

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Article 6

France,

1.
informed of
implement
completed.

Ireland and Italy shall keep the Commission
the national proceedings to
these proceedings have been

the progress of
this Decision until

2. Within two months of notification of this Decision, France,
Ireland and Italy shall
inform the Commission of the total
amount to be recovered from the beneficiaries, indicating both
principal amount and interest using the table in the Annex and
submit a detailed description of the measures already taken and
planned to comply with this Decision. Within the same time
limit, they shall send to the Commission all the documents
demonstrating that the beneficiaries have been ordered to repay
the aid.

3. Within two months of notification of this Decision, France,
Ireland and Italy shall submit evidence to the Commission
showing that they have complied with Article 6.

4. After the expiry of the periods referred to in paragraphs 2
and 3, France, Ireland and Italy shall submit, on simple request
by the Commission a report on the measures already taken and
planned to comply with this Decision. The report shall also
provide detailed information on the amounts of aid and recovery
interest already recovered from the beneficiaries.

Article 7

This Decision is addressed to the French Republic, Ireland and
the Italian Republic.

Done at Brussels, 7 February 2007.

For the Commission

Neelie KROES

Member of the Commission

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Information about the amounts of aid received, to be recovered and already recovered (*)

ANNEX

Identity of the beneficiary

Total amount of
aid received
under the
scheme

Total amount of
aid to be
recovered
(Principal)

Total amount already reimbursed

Principle

Recovery interest

(*) Million of national currency.