2008/746/EC: Commission Decision of 20 May 2008 on State aid implemented by France for building the cruise vessel Le Levant (C 74/99 (ex-NN 65/99)) (notified under document number C(2007) 5419) (Text with EEA relevance)
Date: 2008-05-20
Institutions: European Commission
Subjects: France, State aid, control of State aid, joint ownership, shipbuilding, tax relief

20.9.2008

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Official Journal of the European Union

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 20 May 2008

on State aid implemented by France for building the cruise vessel Le Levant
(C 74/99 (ex-NN 65/99))

(notified under document number C(2007) 5419)

(Only the French text is authentic)

(Text with EEA relevance)

(2008/746/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

comments by letters dated 12 May 1999 (A/33645) and
19 August 1999 (A/36449).

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

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

regard

Having
of
21 December 1990 on aid to shipbuilding (1) and in particular
Article 4(7) thereof,

Council Directive

90/684/EEC

to

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2) and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

the aid which is the subject of

On learning of
this
decision, the Commission initially asked the French auth­
orities for information by letters dated 2 December 1998
and 4 June 1999. The French authorities submitted

(2)

(3)

(4)

light of

In the
this
2 December 1999 (3),
formal
Article 88(2) of
granted for building the cruise vessel Le Levant.

information, by decision of
the Commission initiated the
in
provided
procedure
the Treaty in respect of certain aid

investigation

for

by

letters

Following this decision, the French authorities submitted
observations
dated 12 January 2000
(A/30357), 14 June 2000 (A/34964), 30 April 2001
(A/33440)
The
Commission also received comments from an interested
party, Compagnie des Îles du Levant (hereinafter referred
to as CIL), which were forwarded to the French authori­
ties and to which they replied.

(A/34609).

2001

June

and

11

the cruise vessel

The proceedings culminated in Commission Decision
2001/882/EC of 25 July 2001 on the State aid im­
plemented by France in the form of development
‘Le Levant’, built by
assistance for
Alstom Leroux Naval
for operation in Saint-Pierre-et-
Miquelon (4), by which the Commission found the aid
incompatible with the common market and called on
France to ‘take all necessary measures to discontinue
and recover [the aid] from the investors, as the direct
beneficiaries and current owners of the cruise vessel’.

(1) OJ L 380, 31.12.1990, p. 27.
(2) OJ C 33, 5.2.2000, p. 6, and OJ C 23, 1.2.2007, p. 28.

(3) OJ C 33, 5.2.2000, p. 6.
(4) OJ L 327, 12.12.2001, p. 37.

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(5)

(6)

(7)

(8)

Decision 2001/882/EC was annulled by judgment of the
Court of First Instance of the European Communities of
22 February 2006 (5). The Court found in particular that
the statement of reasons in the Commission’s Decision
was incomplete and that it was not therefore able to
confirm that elements constituting State aid within the
meaning of Article 87(1) of the Treaty were present.

(10)

France notified the Commission of these measures so
that their compatibility with the Community State aid
legislation could be assessed. By letter of 27 January
the Commission informed France that, having
1993,
to raise
examined the measures,
objections under Articles 92 and Article 93 of
the
Treaty (now Articles 87 and 88). The Commission never­
theless pointed out that the application of the aid was
subject to the Community rules and frameworks on aid
for various sectors of industry.

it had decided not

As a result of the Court’s judgment, the investigation
procedure initiated by the decision of 2 December
1999 is still open.

to its

In the light of the grounds of the Court’s judgment and
of new information brought
the
Commission deemed it appropriate to ask the French
their
authorities
comments again on the basis of Article 88(2) of the
Treaty. The decision of 2 December 1999 to initiate
the formal investigation procedure was therefore supple­
mented by a decision of 6 December 2006 (6).

and interested parties

to submit

attention,

Following that decision, the French authorities initially
requested and were granted an extension of
the
deadline for a reply, before submitting their comments
by letters dated 16 March 2007 (A/32335)
and
12 December 2007 (A/40301). Observations were also
submitted by interested parties, namely CIL, by letter
registered on 21 March 2007 (A/32446), and the
investors who were former shareholders in the joint-
ownership companies, backed by the Bank (7), by letters
registered on 1 March 2007 (A/31951) and 7 March
2007 (A/32026).

(11)

In this decision, references to the Loi Pons should be
taken as referring to Article 238a HA I and IIIc of the
General Tax Code (CGI) as applicable on 23 November
1996, which can be summarised as follows.

Article 238a HA I CGI

(12) Under Article 238a HA I CGI, undertakings are au-
thorised to deduct
from their taxable profits a sum
equivalent to the total amount of productive investments
made in some of the French overseas departments and
including Saint-Pierre-et-Miquelon (8). This
territories,
article offers a derogation from the general CGI scheme
which does not allow these amounts to be deducted for
purposes of determining
taxable
income.

an undertaking’s

(13) Article 238a HA IIIb CGI states that

investments in
certain sectors,
including the pleasure boat sector, are
eligible for the deduction provided for in paragraph I
of the Article only subject to the prior approval of the
‘may be granted after
budget minister. Such approval
seeking the opinion of
the minister for the overseas
departments and territories provided that the investment
is of economic interest for the department in which it is
made, that it is in keeping with regional planning and
environmental policy and that it guarantees protection
for investors and third parties.’

II. DETAILED DESCRIPTION OF THE MEASURE

1. The ‘Loi Pons’

(9)

The amended Finance (Amendment) Act for 1986 of
11 July 1986 allowed tax concessions in relation to
certain investments in the French overseas departments
and territories (‘Loi Pons’).

(14)

(5) Case T-34/02 EURL Le Levant 001 and Others v Commission [2006]
ECR II-267. France had brought an earlier action for annulment of
Decision 2001/882/EC which had been dismissed by the Court of
Justice (Judgment of 3 October 2002, Case C-394/01 France v
Commission [2002] ECR I-8245).

Article 238a HA IIIc CGI

the total net

The CGI states that natural persons are taxed on their
income. The tax is charged on the taxpayer’s net income,
i.e.
income from various categories of
income. Net income in the various categories generally
consists of property, capital assets, salaries, etc. owned or
received by taxpayers, and profits from the lucrative
losses
in which they engage, minus
activities
recorded in a year in an income category.

the

(6) OJ C 23, 1.2.2007, p. 28.
(7) The company concerned has asked for

to be
published. In this decision, therefore, it is referred to only as ‘the
Bank’.

its identity not

(8) A 242 km2 archipelago with some 6 500 inhabitants, Saint-Pierre-
et-Miquelon is a French ‘overseas collectivity’ lying off the Canadian
coast (approximately 25 km from Newfoundland).

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(15) However,

in relation to the category of ‘industrial and
commercial profits’, Article 156(1a) CGI states that the
deduction is not allowed for ‘losses attributable, directly
or indirectly, to activities for industrial and commercial
the
such activities do not
profit where
continuous, direct and personal participation of one of
the members of the tax unit in the performance of the
acts entailed in the activity. Such is the case, for example,
where management of the activity is entrusted in law or
in fact to a person who does not belong to the tax unit
by virtue of a mandate, a contract of employment or
other such agreement.’

involve

(16) Nevertheless, Article 238a HA IIIc CGI

states

that
Article 156(1a) does not apply to losses resulting from
the deduction of the investments referred to in paragraph
I of the said Article 238a HA and from their operation
where such investments are made after 1 January 1996
and have the prior approval of the minister responsible
for the budget in accordance with Article 238a HA IIIb.

2. The Levant financing operation

(17)

In 1996 the Bank and the Compagnie des Iles du Ponant
(CIP) put together a package to finance the building and
(capacity of approximately 95
operation of a small
passengers and 55 crew) luxury cruise vessel called Le
Levant. This was
formalised by an agreement of
9 December 1996 between the Bank, the CIP and CIL,
a subsidiary of the CIP specially formed for the purposes
of the project (9).

(18)

The various
summarised as follows:

components of

the package may be

ownership was divided into 740 co-ownership shares, or
‘quirats’, of which CIL acquired two and the Bank the
remaining 738.

(20)

The joint-ownership vehicle would order the vessel from
the Leroux & Lotz Naval shipyards in France for a price
(approx. EUR 35
of 228 550 000 French francs (FRF)
million) (10). The vessel was to be delivered in 1998.

(21)

the joint-ownership
CIL was appointed manager of
vehicle and,
in return for payment, would oversee the
construction of the vessel and its operation after delivery.

Sale of the co-ownership shares

(22)

The Bank sold its 738 shares to investors subject to
income tax who wished to benefit from tax advantages
under the Loi Pons. For this purpose, each investor set up
an undertaking of which they were the sole shareholder
whose corporate purpose was to acquire the shares and
(‘joint-ownership
operate the vessel as
companies’). These companies had the status of one-
person limited liability undertakings (EURLs).

joint owners

(23) An EURL in which the sole shareholder is a natural
person is fiscally transparent. The shareholder therefore
includes the company profits of the EURL in his income
tax return (under industrial and commercial profits). He
if necessary, write off the company’s losses
may also,
against his other income, provided it is the same type
of income. However, under Article 156(1a) CGI, he may
not as a rule write off losses from activities for industrial
and commercial profit unless such activities involve the
personal participation of one of the members of the tax
unit in the performance of the acts necessary to the
activity.

The joint-ownership vehicle

(19)

The Bank and CIL set up a joint-ownership vehicle
(within the meaning of Law 67-5 of 3 January 1967
on the status of ships and other seagoing vessels, as
amended), the ‘copropriétée du navire Le Levant’, with
its head office in Nantes. According to its articles of
association, the joint-ownership vehicle was set up for
the purposes of ‘financing, purchasing, fitting out and
operating the luxury cruise vessel Le Levant’. The joint-

(9) CIL is a wholly controlled subsidiary of CIP. CIP is the guarantor of
all commitments entered into by CIL as part of
the Le Levant
financing operation. The Commission does not therefore consider
it necessary to distinguish between the two bodies and CIP and CIL
are used interchangeably in this decision.

(24)

Each investor would acquire at least two co-ownership
shares. The price was FRF 636 216 (about EUR 100 000)
per set of two shares. The joint-ownership companies
financed the acquisition of the shares as follows (per
set of two shares):

— a capital

investment by the shareholder of FRF

50 000 (about EUR 7 700),

(10) For events preceding the introduction of the euro, an indicative
conversion rate of FRF 6,5 to EUR 1 has been used to convert
amounts in French francs.

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— a loan from the Bank at a fixed rate of 8 % over a
period of seven years from 31 December 1996. The
amount was FRF 554 683 (about EUR 85 300) for a
set of two shares,

— the companies’ operating expenses.

— the share of CIL’s deposit of guarantee set up with
each joint-ownership company as security for its
sound management of
the joint ownership. This
guarantee was for a sum of FRF 40 000 000 (about
EUR 6 150 000), or FRF 108 108 (about EUR
16 600) per set of two shares, at an interest rate of
8 % per annum, with the interest capitalised annually
from 31 December 1996. The principal and capi­
talised interest on the guarantee would be repayable
as of 31 December 2003.

(28)

(29)

(25) After all the Bank’s shares had been transferred, the joint-
joint-ownership

ownership vehicle
companies and the CIL (as holder of two shares).

consisted of

the

Operating phase of the vessel

(26) As part of the package, Le Levant was to be operated as a
cruise vessel following its delivery until the end of 2003.
In accordance with the joint-ownership vehicle’s articles
of association, the investor-shareholders would share the
operating profits and losses pro rata to their interest in
the vessel.
the
package was based on the assumption of significant
losses in the first five years of Le Levant’s operation (11).

It should however be underlined that

(27)

The joint-ownership companies’ cash requirements would
arise from:

— the operating results of the joint-ownership vehicle,

forecast as a loss,

— the annual repayments and financial costs of

the
bank loan granted by the Bank to acquire the
shares, and

(11) According to the background documents submitted by the Le
Levant project promoters to France’s Commission des opérations
de bourse (COB, stock exchange committee),
the shareholders
would ‘… in theory reinvest practically the whole of their tax
savings by subscribing to the joint-ownership companies’ annual
capital increases. The capital increases will be done in such a way
as
leaving any
surpluses’. Regarding the joint-ownership companies’ accounts, the
‘forecast profit-and-loss accounts of the joint-ownership’ annexed to
the documents submitted to the COB show a projected negative
operating result for each year in the period 1996-2003.

to balance the companies’ accounts without

The cash requirements were to be covered by the
investors who formally undertook to reinvest each year
the tax savings made as a result of deducting the vessel’s
operating losses in the joint ownership in the form of
capital
joint-ownership
companies (other than in the last operating year, when
the investors had the right to retain the tax savings). The
reinvestment of the tax savings would be the sole source
of financing for the joint-ownership companies during
the operating phase.

increases by

respective

the

End of the operation

The joint-ownership companies promised to sell
the
shares to the Bank (and the Bank promised to buy
them)
for a total price of FRF 124 861 905 (about
EUR 19 million) at the end of the vessel’s operating
phase. This price (the ‘base price’) could however vary
according to a predefined formula on the basis of the
actual rates applied in the top income tax bracket for the
years 1997-2003. The base price would be reduced by
the joint-ownership companies’ liabilities on the date of
the CIL’s deposit of
transfer (consisting essentially of
guarantee plus capitalised interest). The net price was
estimated at FRF 56 494 213 (about EUR 8,7 million),
or FRF 153 101 (about EUR 23 500) per set of two
shares. The transfer was expected to take place by
29 February 2004 at the latest.

(30)

For their part, the Bank and CIL made a mutually binding
promise according to which CIL would acquire all the
Bank’s shares at a price corresponding to the price paid
by the Bank. This transfer, which would make the CIL
the legal owner of Le Levant, would take place not later
than 29 February 2004.

3. The approval of the French authorities

(31)

The Bank and CIP submitted the scheme summarised in
section 2 to the French authorities in order to obtain the
necessary approval to benefit from the tax advantages
under the Loi Pons.

(32)

By approval dated 26 November 1996, granted pursuant
to Article 238a HA IIIb and c CGI, the budget minister
decided that:

— the joint-ownership companies could deduct

the
amount of their investments from their tax results
for the year of purchase of their shares (the total
basis for deduction was set at FRF 228,5 million,
plus any bridging costs), and that,

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— Article 156(1a) CGI would not apply to losses arising
the vessel
the
these losses

from the acquisition and operation of
(which would thus allow the shareholders of
joint-ownership companies to deduct
from their income).

single shareholder requires the joint-ownership vehicle to
joint-ownership companies were
be dissolved. The
dissolved and deleted from the company register
in
May and July 2004 (13).

In the text of the approval decision the French authorities
expressly noted certain elements of
in
particular that CIP and the Bank would ‘guarantee …
holders of shares in the companies set up to purchase
the shares that they would buy back their shares at the
end of the 5th year of operation at a value of FRF
56 756 million’.

the operation,

(39)

(33)

(34)

(35)

The approval was subject to the condition that the joint-
ownership companies keep their joint-ownership shares
for five years from the delivery of the vessel and that the
vessel operate overseas, notably out of Saint-Pierre-et-
Miquelon, for a period of five years. The shareholders
should
joint-ownership
keep their
companies for the same period.

in the

shares

The application for approval also reveals that the Bank
the tax benefit claimed
and CIP were aware that
constituted State aid within the meaning of Article 87
of the Treaty (12). The Bank and CIP implemented the
financing scheme despite the fact
the approval
decision made no mention of notifying the Commission
of the aid in accordance with Article 88 of the Treaty or
of its compatibility with the common market.

that

4. Current situation

(36) According to information at the Commission’s disposal,
the Le Levant financing operation was implemented in
accordance with the package summarised in section 2.

III. GROUNDS FOR INITIATING THE PROCEDURE

In its initiation decisions of 2 December 1999 and
6 December 2006, the Commission found that the appli­
cation of the Loi Pons to the Le Levant financing package
had provided an advantage to shareholders in the joint-
ownership companies (‘the investors’) and to CIL and that
that advantage, which led to a shortfall in tax revenue,
had been granted through State resources. As regards the
selectivity of the advantage, the Commission noted that
the Loi Pons was selective in scope as the scheme applied
only to investments in certain French overseas commu­
nities. Lastly, the Commission considered that the aid was
likely to distort competition in the cruise market, a
market which was
characterised by trade between
Member States. The Commission therefore found that
the measure in question constituted State aid.

(40) As regards the compatibility of the aid with the common
market, the Commission felt that it did not appear to
satisfy the conditions applicable to the development
referred to in Article 4(7) of Directive
assistance
90/684/EEC.
the Commission expressed
doubts regarding the condition that the real owner of
the vessel must reside in the territory eligible for deve­
lopment assistance and as to the existence of a real
development component.

In particular,

(41)

The Commission therefore initiated a formal
gation procedure.

investi­

IV. COMMENTS FROM INTERESTED PARTIES

(42)

The Commission received comments from CIL and from
the investors’ representatives, backed by the Bank.

(37)

The various binding promises of sale and purchase
between the parties in the package were applied as
expected, as a result of which CIL took ownership of
all the shares in Le Levant in January 2004 for a price
of EUR 17 825 989.

(43)

(38)

The Commission notes that, under French law, the fact
that all shares in a vessel have come to be held by a

1. CIL comments

the

first

questions

CIL
applicability of Directive
90/684/EEC. CIL believes that the aim of that Directive
is to manage the aid for which shipyards established in
the Community may be directly or indirectly eligible and
concludes that
the Directive applies only to aid that
benefits a shipyard. As the Commission had not demon­
strated such a benefit, the Commission could not base its
assessment of the aid on Directive 90/684/EEC.

(12) Application of the Bank and CIP for approval, dated 19 August

1996 (the ‘application for approval’), pp. 21-22.

(13) Apart

from two EURLs which were not deleted for technical

reasons but have been inactive since 2 January 2004.

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(44)

(45)

(46)

Secondly, CIL disputes the existence of State aid with
reference to the criteria of Article 87(1) of the Treaty.
Regarding the advantage allegedly obtained by CIL on the
purchase of the investors’ shares in the vessel, CIL points
out that it bought the shares in the vessel from the joint-
ownership companies for a price of EUR 17 825 989.
This price was higher than the vessel’s market value,
estimated in June 2004 by the reputable shipbrokers
Barry Rogliano Salles at between EUR 14,5 and 16,1
million. It was also higher than the price at which CIL
resold the vessel in June 2004 (EUR 15 322 581). The
Commission’s assertion that CIL had thus benefited from
an advantage by purchasing the investors’ shares at a
reduced price was not therefore accurate.

it

is incorrect
in fact,

Regarding the advantage that CIL allegedly gained from
operating Le Levant, CIL makes the following three
to regard CIL as
observations. Firstly,
operator of the vessel as,
it had acted only in
the capacity of manager on behalf of the joint-ownership
real operator. Secondly, CIL
which was
believes that the Commission has failed to prove that
the aid helped to operate Le Levant under more
favourable conditions
than those available to other
operators as the Commission had not quantified the
size of the alleged advantage.

the vessel’s

Lastly, as regards the effect on trade between Member
States, CIL notes
is a low-capacity
that Le Levant
it did not once operate in Community
vessel,
that
waters in the first
its
five years of operation,
clientele in this period consisted mainly of North
Americans,
i.e. non-Community nationals, and finally
that
it had no European competitors in its market
niche. CIL doubts whether the operation of Le Levant
can be considered to have affected trade between
Member States.

that

(47) Nor did CIL benefit from aid in its capacity as investor-
shareholder given that, as a company established outside
mainland France, it did not pay tax in France and could
not therefore make any tax deductions.

2. The investors’ comments

(48)

The investors consider first that the procedure adopted
by the Commission was flawed. The Court of First
Instance judgment of 22 February 2006 had invalidated
the initiation decision of 2 December 1999, as this was
inextricably linked to the final decision annulled, so the
Commission could not legitimately supplement it with its
Decision of 6 December 2006. In accordance with the
procedure, the Commission should have adopted a new
initiation decision and its supplementary decision of

(49)

(50)

(51)

2 December 2006 must thus be regarded as initiating
proceedings from scratch.

Secondly, the investors believe that the supplementary
decision of 6 December 2006 contains a number of
errors and shortcomings,
in short the omissions iden­
tified by the Court of First Instance in its judgment of
22 February 2006 relating in particular to the nature of
the business relationship between the investors, the Bank
and CIL.

that

they were

shareholders

The investors stress that they had signed a membership
contract proposed by the Bank which was designed to
bring them the benefits of a tax optimisation scheme.
They also point out
they were not qualified to
operate a cruise business as most of them were senior
managers or professionals (doctors, chemists,
lawyers,
bailiffs, solicitors) or had retired. While it is formally
correct
joint-
that
ownership companies,
the latter had no assets other
than the shares and at no stage were they undertakings
within the meaning of Article 87(1) of the Treaty. Rather
than economic operators bearing the risks inherent to an
economic activity, the investors had merely subscribed to
a financial product with a minimum return guaranteed
by the promoters of the package. As a result, neither the
investors, nor their joint-ownership companies, nor the
joint-ownership vehicle to which they belonged were
eligible to receive State aid as they were not engaged
in an economic activity.

in the

The investors further contend that the Commission made
a mistake by applying Directive 90/684/EEC to the aid in
question. They believe that the Directive applies only to
aid received by a vessel’s constructor (i.e. the shipyard), a
fact which the Commission had dismissed in this case. In
this connection, the investors are also of the opinion that
the Commission’s conclusion is based on a superficial
the facts
analysis and that a closer examination of
would have shown that the aid granted had benefited a
shipyard. Winning the contract had given the shipyard,
which was in financial difficulties, a genuine lifeline. As
the vessel would not have been built without
the
financing scheme which the Loi Pons allowed, the tax
benefits at issue did indeed confer a financial advantage
on the yard without any reciprocal concession.

V. COMMENTS OF THE FRENCH AUTHORITIES

(52)

In their observations, the French authorities first point
out that the real purpose of the Loi Pons was to help
overseas operators develop their activities in order to
compensate for the specific disadvantages they faced. It
was not therefore aid for shipbuilding and, moreover, no
direct construction aid was granted under the project.

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(53)

(54)

(55)

(56)

(57)

requires an outsourcing scheme

In this connection the French authorities also comment
that, although the financing of the vessel under the Loi
Pons
to bring in
investors — in the form of a joint-ownership vehicle
— who supply the vessel to the actual operator, the
investors’ role is merely as subscribers to a ready-made
financial product with potential
tax benefits which
transmits the aid to the operator who is the real bene­
ficiary insofar as the scheme allows him eventually to
acquire the vessel on favourable terms. They therefore
formally dispute the fact
the investors can be
qualified as beneficiaries of State aid.

that

recipient of the aid. As CIL is established in Wallis-et-
Futuna, a territory that is eligible for development aid,
the residence condition is met. Moreover, as CIL is
responsible for all aspects relating to the operation of
the vessel, it is not a non-operational subsidiary.

(58) On the question of the development component, the
French authorities have made the following comments:

Loi

the aid,

Regarding the selective nature of
the French
authorities dispute the additional argument made by
the Commission on the basis of the margin of discretion
left to the authorities to issue the approvals necessary for
granting tax benefits under the Loi Pons. The French
authorities state firstly that the above aspect is part of
the
the
Commission. Secondly,
the French authorities express
surprise that the criteria for granting approval can be
qualified as imprecise when they have been clarified by
an administrative instruction and are identical to criteria
set out in the Loi Paul and Loi Girardin, two State aid
schemes which the Commission has approved without
any reserves on this point (14).

approved unreservedly

Pons

by

as

The French authorities thirdly state that, as the aid had
not benefited
in
shipbuilding
particular, had not benefited the shipyard that built Le
Levant), Directive 90/684/EEC did not apply.

industry

(and,

the

Even if
the aid were to be assessed in the light of
Directive 90/684/EEC, the French authorities are of the
opinion that the conditions are met for considering the
aid in question compatible as development aid within the
meaning of Article 4(7) of the Directive. The French
authorities put
in
particular in this connection.

forward the following arguments

— firstly, the French authorities consider that the aid
should be assessed in the light of
the special
its
situation of Saint-Pierre-et-Miquelon, notably
remoteness, the difficult operating conditions there
owing to the climate and geographical constraints,
and, in particular, the economic and social situation
of the islands arising from the fisheries monoculture
the
crisis.
The
importance
diversifying
tourism to revive the local economy and maintain
that the operation of Le Levant would be one of
the few major projects likely to contribute to such
a revival,

authorities
connection of

French
in this

underline

— secondly,

regarding

repercussions

for
the
employment, the French authorities point out that
from Saint-Pierre-et-Miquelon were
16 persons
employed on Le Levant in the first five years of its
operation. Expenditure in the islands in connection
with the vessel’s operation in the years 1999 to 2003
is estimated at a total of EUR 3 328 891. In addition
to this amount, the French authorities refer to the
expenditure in other territories eligible for develop­
ment aid when Le Levant stops there during its
cruises.

Regarding the condition that the real owner must be
resident in the recipient country and that the recipient
company must not be a non-operational subsidiary of a
foreign company,
state, with
reference to the Commission’s assessment put forward
‘Renaissance’ (15),
that CIL must be
in a similar case,
regarded as the actual owner of the vessel and the real

the French authorities

(59)

in the French authorities’ opinion, the propor­
Lastly,
tionality of the aid should be assessed not in terms of
absolute value, but of relative value. The impact of the
aid should be judged in the light of the size of the
economy in the islands and their economic potential.

(14) For the Loi Paul, see the Commission Decision of 3 December
2001 (OJ C 30, 2.2.2002, p. 13) and for the Loi Girardin, see
the Commission Decision of 11 November 2003 (OJ C 16,
22.1.2004, p. 24).

(15) Commission Decision 1999/719/EC of 30 March 1999 on State aid
which France is planning to grant as development aid in the sale of
two cruise vessels to be built by Chantiers de l’Atlantique and
operated by Renaissance Financial in French Polynesia (OJ L 292,
13.11.1999, p. 23).

VI. RESPONSE OF THE FRENCH AUTHORITIES TO THE
COMMENTS OF THE INTERESTED PARTIES

(60)

The comments of
interested third parties have been
forwarded to the French authorities who have not
made any further observations.

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VII. ASSESSMENT OF THE MEASURE

1. Procedure

(61)

The investors’ complaints about
procedure must first be dismissed.

irregularities

in the

considers that the tax benefits granted in relation to the
construction and operation of Le Levant constitute State
aid within the meaning of Article 87(1) of the Treaty,
according to which ‘any aid granted by a Member State
or through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods
shall, in so far as it affects trade between Member States,
be incompatible with the common market’.

(62)

(63)

(64)

First

Instance’s

The Commission cannot agree with the view that the
Court of
annulment of Decision
2001/882/EC had the effect of invalidating the initiation
decision of 2 December 1999. It is established case-law
that the annulment of a Community measure does not
necessarily affect
the preparatory acts leading to its
adoption (16).

(66)

(1)

the measure

The classification of a national measure as State aid
the following cumulative conditions
presupposes that
are met:
in question confers an
advantage through State resources; (2) the advantage is
the
selective,
the measure
production of certain goods; and (3)
distorts or
to distort competition and is
capable of affecting trade between Member States (18).

favours certain undertakings or

threatens

i.e.

it

It is incumbent on the institution whose act has been
declared void to take the necessary measures, having
regard both to the operative part and the grounds of
the judgment annulling the act, to remedy the defects
that gave rise to the annulment. In this case, the Court
of First Instance annulled Decision 2001/882/EC on the
the Commission had not respected the
grounds that
rights of the defence and the duty to give reasons for
its conclusions regarding the existence of a State aid
within the meaning of Article 87(1) of the Treaty.

the Court’s judgment

Regarding the acts preliminary to the final decision in
this case,
therefore requires the
Commission to take the necessary measures of inquiry
in order to comply fully with the rights of the defence of
the Member State and interested parties. This does not
mean that the initiation decision of 2 December 1999
should be regarded as invalid and excluded from the
procedure, as the investors would appear to believe.
The decision needs only to be amended and the parts
that are incomplete supplemented in order for the French
authorities and interested parties to be able to duly
submit
in
Article 88(2) of the Treaty (17). That result is achieved
in full by the supplementary decision of 6 December
2006.

observations

provided

their

for

as

(67)

It is necessary to explain the reasons why it is considered
that
the tax measures adopted in relation to the
construction of Le Levant satisfy these conditions.

2.1. The existence of an advantage conferred through State

resources

(68)

The provisions of the Loi Pons applied to the contested
financial package are a derogation from the general tax
legislation and, because they allow a larger than usual
deduction, confer an advantage on the taxpayers to
which they relate. By conferring that advantage, France
is foregoing tax revenues and its resources are conse­
quently diminished. The aid is thus granted through
State resources.

(69)

The instrument conferring that advantage is the budget
minister’s approval decision of 23 November 1996.
Pursuant to the approval, the benefit of Article 238a
HA IIIb and c CGI is granted to the ‘joint-ownership of
the vessel Le Levant’.

2. Existence of State aid

(65)

Following the formal investigation procedure and in the
light of the arguments presented in that respect by the
French authorities and interested parties, the Commission

(70) However, the earnings of the joint-ownership vehicle are
liable to tax in the hands of
the joint-ownership
companies that form it and it is to these companies
that
for the
(granted on the basis of
the
purchase of
Article 238a HA I CGI) relates.

the possibility of deducting the amount

shares

(16) Judgment of 12 November 1998 in Case C-415/96 Spain v

Commission [1998] ECR I-6993, paragraph 32.

(17) For this, see the judgment of the Court of Justice in Case C-415/96,

in particular paragraphs 33 and 34.

(18) See, for example, the Judgment of the Court of Justice of 10 January
2006 in Case C-222/04, Ministero dell’Economia e delle Finanze/Cassa
di Risparmio di Firenze, [2006] ECR. I-289, paragraph 129.

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(71)

(72)

The derogation from Article 156(1a) CGI granted on the
basis of Article 238a HA IIIc CGI benefits the investors
in whose hands the earnings of
the joint-ownership
companies are subject to tax (income tax) by virtue of
the fiscal transparency of the joint-ownership companies.
The advantages conferred by the approval thus have an
immediate financial impact on the investors in the form
of tax savings, made possible by the deductions applied
under the Loi Pons derogation scheme.

It should however be noted that the tax savings are not
the investors’ disposal but pre-assigned
simply left at
under the terms of the financing package endorsed by
the French authorities under the approval decision. The
investors are in fact obliged, under the terms of the
investment to which they have subscribed, to reinvest
practically all the tax savings in the joint ownership in
the form of capital
increases by their respective joint-
ownership companies in order to cover the costs of
financing the purchase of Le Levant and the losses
arising from its operation (see recital 27).

(73)

In order to identify the beneficiaries, a detailed examina­
tion is required of
the circumstances governing the
purchase and operation of Le Levant.

(74)

Firstly it should be recalled that the objective of the
in accordance with the application
financing package,
lodged by CIP, was ‘the purchase of a
for approval
cruise vessel’ (19).

(77)

(78)

(79)

(75)

But ‘the CIP does not possess the necessary financial
the cost of purchasing Le Levant
resources to bear
financing (mortgage)’.
through a traditional source of
‘by means
CIP therefore proposes to finance its vessel
of a financial package qualifying for tax assistance for
investment’, which will be based on a
overseas
‘financing scheme involving the setting-up of a joint-
ownership vehicle’. For this purpose the Bank would
‘propose
joint-
ownership’ and ‘launch a public offer …’ (20).

clients buy shares

in the

that

its

(76)

Clearly the purpose of the package was to allow CIP to
purchase a vessel which it would own and the role of the
investors recruited from the Bank’s clients was merely to
finance the purchase.

(19) Application for approval, p. 11.
(20) Application for approval, pp. 11 and 15.

investment

resources brings

The financial package selected for this purpose is one
that is very common in the case of tax-free overseas
i.e. an ‘outsourced’ package, where a
investments (21),
company that wishes to acquire an asset but which
from its own funds
cannot make that
in outside
because of a lack of
investors who purchase the asset and put
the
disposal of the operator, who then uses it, and at the
the period of operation laid down by law,
end of
In packages of this type, the tax
becomes its owner.
benefit is partially transferred to the buyer, while the
investor retains another part, thus ensuring a return on
his investment. The transfer of the benefit to the buyer is
carried out normally through a reduction in the rent
charged during the operating period (a ‘lease’ package).

it at

The Commission has already assessed the State aid
aspects of such packages in relation to the financing of
cruise vessels through the benefits deriving from the Loi
Pons in the ‘Club Med’ (22) and ‘Renaissance’ (23) cases.
The latter case is especially relevant in view of its resem­
blance to the Le Levant financing operation. Both cases
concern investors whose tax situation allows them to
take advantage of
the tax exemption, who form a
joint-ownership and who purchase cruise vessels to be
operated overseas for a specific period by an operator
(Renaissance or CIL) that makes an undertaking to the
investors to buy the vessel at the end of the operating
period.

in

77.

The

In ‘Renaissance’ the vessel was leased to the operator and
the investors’ tax concession under the Loi Pons was
transferred to him by means of a reduction in the rent
technique of a leasing package
using the traditional
described
authorities
French
recital
commented that this package allowed for ‘effective retro­
cession of the tax aid to the operator’. The Commission
in the initiating decision, had found that the
(which,
investors were the ‘immediate beneficiaries’ and the
‘beneficiaries of quantifiable aid’ (24)) noted that
‘RF
[Renaissance] is the effective recipient of the aid, and
since RF is obliged to buy the vessels, RF can be
considered to be the de facto owner’. The Commission
therefore made a distinction between the investors, the
the aid, and the ‘effective’
immediate beneficiaries of
beneficiary (within the meaning of the State aid rules)
to whom the tax benefits were partially transferred by
means of a rental that was below the vessel’s market
value (25).

(21) See the report on behalf of the National Finance, Budgetary Control
and Accounts Committee on tax exemptions in the overseas
departments and territories (Senate, ordinary session 2002-2003,
report No 51,
session of
7 November 2003).

annexed to the

record of

the

(22) OJ C 279, 25.10.1995, p. 3.
(23) See Decision 1999/719/EC above.
(24) OJ C 307, 7.10.1998, p. 6.
(25) This
further

is

supported by the Commission’s more recent
approach in the
case: Commission Decision
2007/256/EC of 20 December 2006 on the aid scheme implemen­
ted by France under Article 39 CA of the General Tax Code (OJ
L 112, 30.4.2007, p. 41), paragraphs 101 to 103.

fiscaux’

‘GIE

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(80)

‘Renaissance’

In the case of Le Levant, the tax benefits of the investors
(the immediate beneficiaries) were transferred to CIL by a
different mechanism.
the
In the
investors leased the vessels to the operator whereas, in
the present case, CIL formally disposes of the vessel only
in its capacity as manager of the joint-ownership vehicle,
the formal operator of the vessel in its own right. There
is therefore in principle no tenancy relationship that
would allow the benefit
to be retroceded through a
reduction in the rent.

case

(81)

In practice the benefit is transferred to CIL as follows:

(86)

(82)

(83)

(84)

these losses

The cost of acquiring the vessel and its operating losses
are reflected in losses in the shareholding EURLs. Thanks
to the tax benefits allowed under the Loi Pons,
the
investors may deduct
from their other
revenue liable for income tax, thereby obtaining a tax
saving which represents the concretisation of their tax
benefit and which consists, as such, of State resources
within the meaning of Community law. However, rather
than keep these tax savings, the investors undertook to
use most of them for calls for funds to cover the losses
of the EURLs.

In the normal process of capitalisation, an investor would
make sure of capitalising on his investment (in this case,
the vessel) by securing a return on the investment that
would cover his purchasing costs and include an
the leasing
adequate profit margin.
package in ‘Club Med’ and ‘Renaissance’, this outcome
is
rent paid by the buyer
(although the rent is beneficial to the buyer as part of
the tax benefit is retroceded to him in the form of a
below market-price rent).

achieved through the

In the case of

In a normal situation, these costs (e.g. payment of the
rent or covering all the losses) would be borne by CIL
and not by the investor. In the disputed package, these
costs are allocated to the EURLs and, by means of the
calls for funds, absorbed into the tax savings which are
State resources within the meaning of Article 87(1) of
the Treaty. CIL is likewise relieved of the expenses it
would normally have had to bear for the operation of
the vessel. For all the above reasons, the Commission
finds that the investors’ benefit is transferred to CIL. It
should nevertheless be said that not all the tax benefit is
transferred to CIL. Under the terms of the package, the
investors keep the tax savings relating to 2003, the last
year of operation.

in the ‘Renaissance’ case. In fact, as in ‘Renaissance’, CIL
enjoys the actual benefit of Le Levant as soon as it is
delivered, thus anticipating its formal ownership of the
vessel, which will take effect only on completion of the
is made
package.
available to CIL without its having to bear the real cost
as no financial contribution is required of it. The costs
that CIL should normally have borne for the operation of
the vessel
an
advantage to CIL.

Just as in ‘Renaissance’,

reduced, which represents

the vessel

thus

are

to deduct

The fact that the investors are able to put the vessel at
CIL’s disposal free of charge is due to the tax benefits
granted to them under the Loi Pons which enable them,
through their EURLs,
taxable
income both the purchase price of the vessel and the
losses of their EURLs, which include the annual capital
and interest on the loan granted by the Bank for the
purchase of
the
EURL also include their respective shares of Le Levant’s
operating profits within the limits guaranteed by CIL.

the shares. The deductible profits of

from their

(87)

(88)

(89)

advantages granted under

The package and the coverage by the investors of the
costs of financing and, in part at least, of operating Le
Levant by means of the compulsory calls for funds for
the EURLs are intended to ensure that CIL benefits from
the
the Loi Pons. This
mechanism for transferring aid was one of the conditions
laid down in the application for approval and was, as
such, endorsed by the French authorities. This transfer of
resources
to the joint-ownership
vehicle helps to subsidise the operation of Le Levant by
the CIL. Without this mechanism, the operation of the
vessel by the CIL would not be economically viable.

from the investors

the investors,

For
the return from the package is
produced at the end of the financing operation through
the purchase of their shares and the fact that they can
keep the tax savings relating to 2003, the last year of the
period of operation (which is not negated by a
compulsory call for funds).

the investors’

The State resources (consisting of
tax
savings) are thus split between CIL, to whom practically
all the aid is retroceded, and the investors. The part of
the benefit retroceded to CIL consists of the total of the
calls for funds to which the investors responded for the
EURLs.

(85)

Regardless of this technical difference in the package, the
results are no different to those produced by the package

(90)

CIL’s comment that the Commission has not proved that
the aid would allow Le Levant to be operated under more
favourable conditions
than those available to other
operators cannot therefore be accepted.

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(91) As regards the price for the sale of Le Levant to CIL in
January 2004, according to the Commission’s infor­
mation,
it did not appear to include a concessionary
element in favour of CIL. According to CIL, the selling
price was estimated by an independent maritime broker
as higher than the vessel’s market value. The Commission
has no reason to question the validity of
this infor­
mation.

2.2. The classification of recipients of State resources as an

undertaking

(or

(92) One further precondition for classifying a measure as
State aid is that the advantage conferred favours certain
undertakings
the production of certain goods).
According to Article 87(1) of the Treaty, the definition
of undertaking covers
every entity engaged in an
economic activity, regardless of the legal status of the
entity and the way in which it is financed. Any activity
consisting in offering goods and services on a given
market is therefore an economic activity (26).

(93)

(94)

(95)

that

Justice of

the European Communities
The Court of
found, however, in Cassa di Risparmio, in which it distin­
guished between ‘an operator in direct contact with the
market and, indirectly, [of] another entity controlling that
operator as part of an economic unit which they together
‘the mere fact of holding shares, even
form’
is insufficient to characterise
controlling shareholdings,
as economic an activity of
the entity holding those
shares, when it gives rise only to the exercise of the
rights attached to the status of shareholder or member,
as well as, if appropriate, the receipt of dividends, which
are merely the fruits of the ownership of an asset’ (27).

Case law thus demonstrates that the classification as an
undertaking must be based not just on the legal forms
the economic realities of a
but on an assessment of
specific case. CIL and the investors’ status as an under­
taking must therefore be established by an assessment of
business
to
determine how the economic activity that consists of
is actually
operating Le Levant as a cruise vessel
conducted.

in the package

relationships

in order

it

It should first be noted that under the formal terms of
the package,
through their EURLs
brought together in the joint ownership vehicle, who
are presented as owners and operators of the vessel, on
their own account. CIL’s role, on the other hand,
is

is the investors,

simply that of the vessel’s manager ‘for the account and
risk of the joint ownership vehicle’ (28). It is, of course,
perfectly feasible for an owner/operator to entrust a
manager with the day-to-day management of his
economic activities. This does not mean that the owner
is not classified as an undertaking within the meaning of
the State aid rules, provided that he meets the deter­
mining criteria formulated by case law, namely that he
is engaged in an activity consisting of supplying goods
and services in a given market and that he does not
merely have shareholdings and receive dividends.

(96)

In the case at hand, the Commission notes that under the
terms of the joint ownership articles of association, each
through his
investor exercises rights over
the vessel
shares and that
these rights may only be exercised
jointly (each share also gives entitlement to a propor­
the operating revenue). The investors
tional part of
exercise their rights at
joint
owners where each shareholder has voting rights propor­
tional to his share in the joint-ownership. In this sense,
the investors’ situation is comparable to that of share­
holders or members.

the general meeting of

(97)

investors are not actively involved in Le
In addition,
Levant’s economic activities, which are completely left
to CIL. It is quite clear from the management mandate
that CIL is responsible for all aspects of operating the
vessel and has all the necessary powers, so that investors
cannot interfere in its operation in any way. Accordingly:

— CIL is responsible for the fitting-out, maintenance,
operation and technical and commercial management
of the vessel,

— CIL manages the hotel and catering services and
organises ports of call and sightseeing visits. CIL is
responsible for managing port and pilotage charges
etc. More generally, it operates the vessel on the best
economic terms and ‘is authorised to conclude all
charter contracts and, more generally, to negotiate
transactions’
(Article 3.1 of
all
the
management mandate). The
joint-ownership has
therefore given CIL a completely free hand in the
core business in question — namely the provision
of cruises on board Le Levant,

commercial

(26) See, for example, the Cassa di Risparmio judgment above, paragraphs

107 and 108.

(27) Cassa di Risparmio, above, paragraphs 109 to 114.

(28) Management mandate of

the vessel Le
Levant, Annex 4 of the file submitted to the COB (hereinafter the
management mandate).

the joint-ownership of

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— ‘the manager has full powers with respect to third
to manage the joint-ownership’s property
parties
and business and can carry out all tasks relating to
administration, including laying-up of the vessel, but
the property’
the
not disposition of
management
joint-ownership
The
therefore gives CIL virtually full autonomy as, on its
own initiative and without consulting the investors,
CIL can even have the vessel laid-up — i.e. terminate
its operation,

(Article 6 of

mandate).

the

— according to Article 6 of the management mandate,
the manager ‘shall undertake the following measures
on behalf of
staff
recruitment and management,
shipboard working
arrangements […]. The full powers thus conferred
can undertake
on the manager mean that he
management tasks with a maximum degree of flex­
ibility’.

joint-ownership vehicle:

the terms of

the package. Under

their members but by

The investors’ lack of involvement in operations is not
the result of a commercial choice which they could freely
go back on — rather it is determined by the actual
their
structure of
investment contracts, each joint-ownership company is
headed by two joint managers who are actually Bank
executives. All the practical aspects of setting up and
running the joint-ownership companies are undertaken
by these managers or people presented by the Bank. At
the joint-ownership’s general meeting (where, in theory
the investors could exercise their rights over the vessel
the joint-ownership companies are
and its operation),
their
represented not by
managers. The investor cannot appoint other managers
or even take over management of his EURL, without
sacrificing the Bank’s undertaking to acquire the shares,
which is the guarantee of the return on his investment.
As for the choice of manager of the joint-ownership and
the terms of its mandate, CIL was appointed in the joint
ownership’s articles of association (drawn up by the Bank
and CIP) and in practice cannot be revoked except in
cases of
serious misconduct or wilful wrong. The
Commission therefore concludes that the package does
not include any way of allowing the joint-ownership to
be effectively involved in the operation of Le Levant as a
in the actual business itself, which is
cruise ship,
it can be
carried on exclusively by CIL.
concluded that
signed a membership
contract whose terms they could not freely determine.

the investors

In short,

i.e.

to note that

risk inherent

is also important

and his manager,

in operating the vessel

in the relationship
It
the
between an owner-operator
economic
is
usually borne by the owner as the manager is paid for
his services and is not concerned by the operating results.
In the case of Le Levant, however, as the investors are
guaranteed a return by the promoters of the project, they
do not run any real risks in respect of the Le Levant’s
operating results. It is really CIL which incurs the risks

(98)

(99)

for

and, even though it has only two shares out of the 740
shares of the joint ownership, it has agreed to assume full
losses which exceeded the
responsibility
the period 1996-2003. The
operating estimates
this distribution of risks,
Commission concludes that
which is unusual
relationship between
operator and manager, demonstrates that CIL bears sole
responsibility for commercial activity.

in a normal

any
for

(100)

It is therefore quite right that the Le Levant project was
described to potential investors not as an offer to take
part in organising and marketing cruises on the board Le
Levant but as ‘a profitable, risk-free investment and with
no management obligations’ (29). It is also symptomatic
of the real relations between CIL and the investors that
‘the CIP via its subsidiary CIL’ is described as ‘shipowner
and manager of the joint-ownership vehicle’ (30).

(101) This organisation faithfully reflects the purpose of the
package, whereby CIL must acquire a vessel and the
investors intervene only in its financing and not in its
operation. The only reason why the investors, via their
the vessels is
companies, are the official owners of
because of the fiscal engineering of the package. It does
not mean actual participation in its
commercial
operation.

(102) The investors’ activity is limited to an equity holding
aimed at making a return, with no real participation in
Le Levant’s operation. CIL, which in formal terms is just
the manager, has the guarantee that on conclusion of the
package, it will obtain sole ownership of the vessel at a
price calculated according to a pre-determined method.
Pending this legal
its rights over the
formalisation of
vessel, it can decide freely (unlike the investors) how it
is operated. CIL therefore acts as the real owner of the
vessel as regards everything to do with the Le Levant’s
commercial operation.

(103)

In terms of Le Levant’s operation, only CIL can be clas­
sified as an undertaking under Article 87(1) of the Treaty.
As the investors are not undertakings in this sense, the
advantages
they have obtained through State
resources under the Le Levant financing package do no
constitute State aid.

that

(29) Brochure ‘Become a joint-owner of the “Le Levant” cruise ship’,

included in the documents submitted to the COB.

(30) Idem. Under French maritime law, the fact of being joint-owner
(copropriétaire) of a vessel does not automatically make you the
shipowner (armateur). This merely implies a presumption, which
can be confirmed or overturned on the basis of management
actions concerning the vessel,
to identify, via these
the captain, responsibility for nautical
actions (appointment of
and/or commercial management) who is the operator of
the
vessel
January 3 1969
concerning shipowning and maritime sales, as last amended).

(Articles 1 and 2 of Law No 69-8 of

in order

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(104) As regards the status of the shipyard, the Commission
finds that the comments from interested parties provide
no proof of an advantage financed through State
the shipyard. The formal
resources to the benefit of
found any
investigation procedure has therefore not
evidence that the shipyard was the beneficiary of the aid.

very limited market where no other cruise company was
present. CIL also invoked Le Levant’s small capacity and
the fact that it was mainly targeted at North American
customers. For these reasons, the French authorities and
CIL dispute that the advantage granted to CIL could have
caused distortion of competition and affected trade
between Member States.

2.3. Selective character of the measure

the

(105) The specific nature of a State measure, namely its
selective application, constitutes one of
the necessary
aid within the
concept of State
elements of
meaning of Article 87(1) of the Treaty. In that regard,
it
the tax
scheme in question entails advantages accruing exclu­
sively to certain undertakings or certain sectors of
activity (31).

is necessary to determine whether or not

(109)

It should be recalled that aid which is intended to release
an undertaking from costs which it would normally have
had to bear in its day-to-day management or normal
activities, distorts the conditions of competition (34).
It
has been ruled that any grant of aid to an undertaking
exercising its activities in the Community market would
be likely to affect
trade between Member States and
would threaten to distort competition between Member
States (35).

(106)

In principle, in order for a tax measure to be classified as
state aid, the recipient undertakings must belong to a
specific category determined by the application,
in law
or in fact, of the criterion established by the measure in
question (32). In the case at hand, it is sufficient to note
that the measure under examination is an application of
the Loi Pons,
that only concerns
tax scheme
investments made in certain French overseas territories
and whose selective character was already recognised by
the Commission in its Decision of 27 January 1993 not
to raise any objections to the state aid scheme established
by the Loi Pons (33).

a

(110) The Commission considers that
cruises

is not relevant
it
from Saint-Pierre-et-Miquelon as

to
consider
a
separate market. A consumer who is planning to go
on a cruise in that
region would probably also be
prepared to consider cruises to other destinations or
from other ports and his choice would be determined
by a range of factors,
including price, which could be
affected by the measure in question. Cruises therefore
form part of a bigger market and since the tax benefits
in question release CIL from costs that it would normally
have had to bear to finance its economic activities, the
aid could cause a distortion of competition on this
market.

(107) The Commission considers that the selective nature of
the measure in question has been sufficiently demon­
it results from applying the
strated by the fact
selective scheme of
is not
therefore necessary to comment on the nature of the
discretion given to the French authorities in granting
the approval provided for under Article 238a HA IIIb
of
the CGI, a point which the Commission raised
merely for the sake of completeness.

that
the Loi Pons and that

it

2.4. Effect on trade between Member States and distortion of

competition

(108) The French authorities and CIL stated that Le Levant was
operated out of Saint-Pierre-et-Miquelon, therefore on a

(31) See, for example, the judgments of the Court of Justice in Case C-
241/94 France v Commission [1996] ECR I-4551, and in Case C-
200/97 Ecotrade v Altiforni e Ferriere di Servola [1998] ECR I-7907.
(32) See, to that effect, the judgment of the Court of First Instance in
Case T-308/00 Salzgitter v Commission [2004] ECR II-1933,
paragraph 38.
(33) See recital 10.

(111) As regards the effect on trade between Member States,
the Commission has taken note of the fact that Le Levant
mainly targeted the North American market and that CIL
agency which
therefore worked with a US travel
promoted and distributed the cruises. The Commission
nevertheless points out that it is possible that aid might
distort competition within the Community, even if the
undertaking receiving it exports almost all its production
outside the Community (36). Furthermore,
it seems that
some cruises may have been marketed in Europe.

(112) The measure in question may therefore distort compe­

tition and affect trade between Member States.

(34) See the judgment in Case C-156/98 Germany v Commission [2000]

ECR I-6857, paragraph 30, and the case-law cited there.

(35) See, in particular, the judgment of the Court in Case 730/79 Philip
Morris v Commission [1979] ECR 2671, paragraphs 11 and 12.
(36) Judgment of the Court in Case C-142/87 Belgium v Commission

[1990] ECR I-959, paragraph 35.

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2.5. Aid intensity

(113) The Commission considers that the aid includes all the
tax savings passed on by the investors to their joint-
ownership companies
capital
in the
increases that they were committed to as part of their
involvement in the Le Levant financing package.

form of

the

(114) The French authorities claimed that they are unable to
provide figures for the tax savings without conducting a
separate examination of the tax situation of each of the
investors.

to the

the aid,

calculation of

its calculation.

(115) The Commission does not in any case consider that it
has to provide exact figures for the aid but just to specify
It points out, however,
the bases of
total
without prejudice
that according to the Bank’s
amount of
estimates based on the profile of a ‘typical investor’ (37),
the tax savings made by deducting just the purchase price
of
the ship would give capital contributions of FRF
278 506 per set of two shares, i.e. for the 738 shares
sold to investors, a total of FRF 102 490 200, namely an
intensity of some 44,8 % compared with the price of the
ship.

the

3. Compatibility of the aid with the common market

Legal provisions applicable

the question of

(116) As the Commission found that the measure constitutes
State aid within the meaning of Article 87(1) of the
compatibility with the
its
Treaty,
common market should be addressed.
In this respect,
the Commission indicated in its decisions opening the
procedure that
the aid should be
examined in the light of Directive 90/684/EEC, and in
particular, given the purpose of the aid, of Article 4(7)
thereof (38). The French authorities and the interested
parties disputed the relevance of this legal basis on the
grounds set out in parts IV and V. The reasons for the
choice of this legal basis should therefore be examined.

it considered that

(117) The Commission’s Decision of 27 January 1993 not to
raise any State aid objections as regards the Loi Pons

(37) See

the
paragraph 72.

supplementary Decision

of

6 December

2006,

(38) Directive 90/684/EEC ceased to have effect on 31 December 1997.
It is, however, still relevant for examination of this case as its
provisions were in force at
in
accordance with 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).

the time the aid was granted,

clearly stated that ‘the application of the aid in question
is subject
to the rules and guidelines laid down by
Community law in relation to (…) certain industrial
sectors …’. Consequently that Decision does not cover
the aid in question since it comes under the scope of
Directive 90/684/EEC.

the

the Commission has not
for

(118) France and the interested parties claim that Directive
90/684/EEC only applies to aid to a shipbuilder and
identified an
since
that
advantage
shipyard that built Le Levant,
Directive 90/684/EEC is not applicable to this case. The
Commission does not accept this argument. It is clear
from the wording itself of Article 3(1) of Directive
90/684/EEC that it applies to ‘all forms of aid to ship­
owners or to third parties which are available as aid for
the building or conversion of ships’. It is therefore not so
much the nature of the beneficiary as the purpose of the
the application of Directive
aid that
90/684/EEC, which refers to aid for ‘shipbuilding’ and
for ‘shipbuilders’. This interpretation is supported
not
by the case law of the Court which, in response to the
argument that only aid available for the production of
ships, and not for their operation, should be taken into
account in the context of Directive 90/684/EEC, found
that its provisions are applicable ‘not only to all forms of
production aids granted directly to the yards but also to
the aid covered by Article 3(2), which refers to all forms
of aids granted to shipowners or to third parties where
these aids are actually used for the building or conversion
of ships in Community shipyards’ (39).

is decisive for

(119) The Commission accordingly confirms that the compati­
bility of the aid with the common market should be
assessed in the light of Directive 90/684/EEC.

Analysis of compatibility

(120) Under the terms of Article 4(7) of Directive 90/684/EEC,
aid related to shipbuilding and ship conversion granted
as development assistance to a developing country may
be deemed compatible with the common market if it
complies with the terms laid down for that purpose by
OECD Working Party No 6 in its Agreement concerning
the interpretation of Articles 6 to 8 of the Understanding
on Export Credits for Ships or with any later addendum
or corrigendum to the said Agreement (hereinafter OECD
criteria).

(39) Judgment of the Court in Joined Cases C-356/90 and C-180/91

Belgium v Commission [1993] ECR I-2323, paragraph 14.

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(121) As communicated to Member States by Commission
letter SG(89)D/311 of 3 January 1989, development-aid
projects must comply with the following OECD criteria:

— Saint-Pierre-et-Miquelon is on the list of countries
eligible for development aid annexed to Commission
letter SG(89)D/311 to Member States,

— vessels must not be operated under a flag of conve­

nience,

— in the event that the aid cannot be classified as public
development aid for the purposes of the OECD, the
donor must confirm that the aid is part of an inter­
governmental agreement,

— the donor must give appropriate assurances that the
real owner is resident in the recipient country and
that the recipient company is not a non-operational
subsidiary of a foreign company (eligible recipient
countries include not only developing countries clas­
sified as such by the OECD but also all overseas
countries
the
European Union, including the French overseas terri­
tories),

associated with

territories

and

— the recipient must give undertakings not to sell the

ship without governmental approval.

(122) Also,

the aid granted must

include a concessionary

element of 25 % at least.

(123)

In addition, as indicated above, the Commission must
also verify that the project has a genuine ‘development
component’. The Court (40) ruled that the Commission is
obliged to verify the development content of the project
separately from the OECD criteria. It follows that the
Commission’s assessment must include verification that
projects have a genuine development objective and that
they would not be viable without the aid (i.e. that the aid
is necessary).

(124) As the Commission indicated when the Article 88(2)
the project meets the OECD

procedure was initiated,
criteria for the following reasons:

— Le Levant

is operated under the French flag. The
requirement that it not be operated under a flag of
convenience is thus met,

the purposes of

— the Commission notes that under the terms of the
package, CIL is intended to become the sole owner of
the vessel and that, during the intervening period, it
operates the vessel in its commercial business as a de
facto owner. For
the residence
condition for the owner, the Commission finds that
CIL should be considered the real owner of Le
Levant (41). CIL has
its head office in Wallis-et-
the ‘beneficiary
Futuna. This archipelago is not
country’
Saint-Pierre-et-Miquelon).
However, since both groups of islands are on the
Commission’s list of countries eligible for develop­
ment aid,
the aid cannot be objected to on this
ground. Furthermore, CIL is not a non-operational
subsidiary of a foreign company,

(which

is

— the vessel cannot be resold without the approval of
the French authorities since the aid is granted on the
condition that CIL actually operates the vessel for at
least five years mainly to and from Saint-Pierre-et-
Miquelon,

— the aid intensity exceeds 25 % (see recital 115).

(125) The Commission must

that

take into account

In this connection,

to the development of

still verify the ‘development
component’, namely satisfy itself
the aid will
the beneficiary
contribute
the
territory. This analysis must
the territory in
circumstances and specific needs of
question.
the French authorities
underlined that the economy of Saint-Pierre-et-Miquelon
was in a particularly difficult situation when the aid was
granted. The archipelago was historically dependent on
industrial fishing. The sudden and total collapse of this
industry in 1993, following the settlement in Canada’s
favour of a dispute with France on fishing rights and a
Canadian moratorium on cod fishing, meant an urgent
need to re-orient the territory’s economy. Opportunities
for reorientation were considerably hampered by the
small size of
its
relative isolation and limited economy. Diversifying into
tourism therefore seemed to be the best option, taking
the territory’s untouched nature and its
advantage of
proximity
Saint-Pierre-et-
Miquelon could not offer long-stay tourism it seemed
reasonable to try developing the archipelago as a cruise
port.

the archipelago and its population,

to North America. As

(40) Judgment of the Court in Case C-400/92 Germany v Commission

[1994] ECR I-4701.

(41) This

analysis
is
‘Renaissance’ case.

in line with that

in the

abovementioned

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(126)

In the comments submitted following the Decision of
2 December 1999 initiating the procedure, the French
authorities claimed that operating Le Levant would
contribute to Saint-Pierre-et-Miquelon’s development,
in
particular by creating jobs and expenditure in the
territory generated by its operation.

(129)

fresh observations

submitted following the
In the
Commission’s supplementary decision of 6 December
2006, the French authorities and the interested parties
provided information which the Commission did not
have when Decision 2001/882/EC was adopted and
which give a different
the economic
effects of operating Le Levant.

impression of

(127)

that

In Decision 2001/882/EC, the Commission concluded,
‘development
however,
component’ (42). This assessment was based on the
following conclusions as regards the economic benefits
of the aid:

there

was

no

— the Commission found on the basis of the infor­
mation at
the economic benefits
that
linked to operation of le Levant could be estimated
at FRF 5,52 million for the period 1999-2001,
i.e.
some EUR 0,84 million,

its disposal

— as regards the creation of direct jobs, the Commission
considered that there was no proof of any effect as
the information provided by the French authorities
‘four former fishermen from the
only stated that
islands had been trained to work on the ship’,

— finally, as regards the effect on the archipelago’s infra­
structure development and the indirect effects linked
to the possible
the
French authorities’
Commission found that
assertions had not been quantified and that it was
in the
not necessary to take them into account
assessment of the aid measure for le Levant.

entry of other operators,

the

(128) These conclusions were clearly based on the information
available to the Commission at the time when it took its
Decision. As it emerged clearly from the judgment of the
Court in the action for annulment in abovementioned
Case C-394/01 (43), the Commission could only base its
Decision on the information that
it had been given
during the formal
investigation procedure initiated by
its Decision of 2 December 1999, which ruled out
certain information that
the French authorities only
presented at the stage of proceedings before the Court.

(42) Decision 2001/882/EC, recital 33.
(43) See footnote 5.

(130)

appear

from the observations
It would therefore
least 14
submitted by the French authorities that at
people from Saint-Pierre-et-Miquelon were employed on
board Le Levant from 1999 to 25 July 2001. In addition
to these jobs at sea there were jobs on land because of
the use of
local suppliers and service providers. The
French authorities estimate that operating Le Levant
generated at
least 10 jobs on land from 1999 to
25 July 2001 (44).

(131) According to the same information from the French
authorities, operating Le Levant generated EUR 1,66
million of direct expenditure in Saint-Pierre-et-Miquelon
(linked to the ship’s supplies, passenger transfers etc.) in
the period 1999-2001 (45).

(132) Unlike the information available to the Commission in
2001,
this new information therefore demonstrates a
quantified impact in terms of job creation. This effect
is not insignificant bearing in mind the small size of
in the territory and comparing it
the labour market
with the number of
in
1999) (46).
that direct expenditure in
Saint-Pierre-et-Miquelon linked to operating Le Levant
is about twice the amount stated by the Commission
in the grounds for Decision 2001/882/EC (47).

It also shows

(409 people

job seekers

(44) According to the French authorities, 14 to 16 nationals of Saint-
Pierre-et-Miquelon were employed on board during the first five
years of Le Levant’s operation,
i.e. 1999-2003. During the same
period, operation of Le Levant generated 11 to 12 jobs on land.
However, for reasons linked to the principle of legal certainty, for
the purposes of this Decision the Commission will only take into
account
to Decision
the
2001/882/EC. Likewise, the Commission will only consider the
lowest number of jobs.

concerning

period

prior

facts

(45) This period covers the whole of 2001. It should also be noted that
the French authorities estimate the expenditure directly generated
by Le Levant in 2002 and 2003 at EUR 1,66 million a year, i.e.
five years of Le Levant’s
some EUR 3,4 million for the first
operation.

(46) Number of job seekers at 31 December 1999 (report by the Institut
‘Saint-Pierre-et-

d’émission des départements d’outremer (IEDOM):
Miquelon in 1999’).

(47) That is, for the period 1999-2001, some EUR 1,66 million as
against EUR 0,84 million (FRF 5,52 million) estimated by the
Commission in Decision 2001/882/EC.

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(133) This new information shows that the aid to le Levant
generated economic effects, admittedly limited but which
could none
to Saint-Pierre-et-
contribute
the
Miquelon’s economic development.

less

by

(134) The French authorities also argued that the aid could,
more generally, contribute to the development of Saint-
necessary
Pierre-et-Miquelon
the
economic
Commission’s
that
Saint-Pierre-et-Miquelon’s
economy had been almost
entirely dependent on industrial fishing until 1993 and
then it was dependent on the public sector and public
procurement (48).

this
investigation procedure

encouraging
On

point,
showed

diversification.

the

In view of

characteristics of

(135) The Commission accepts that this dependence on very
limited sources of jobs and income may hold back the
territory’s development.
the particular
Saint-Pierre-et-Miquelon
geographic
and the very small size of
the
Commission admits that economic diversification was
tourism could
useful
prove a promising path for diversification when the aid
was granted. The Commission also accepts the French
authorities’ comments that the small size of the archi­
pelago limited the possibilities for proposing long-stay
tourism but that on the other hand it was suited to
developing cruise activities.

its development and that

its domestic market,

for

it could cause.

In this respect,

can make to Saint-Pierre-et-Miquelon’s development and
the degree of trade distortion between Member States
the Commission
that
considers that while there is no doubt
the aid
could have some adverse effect on trade between
Member States as shown in section 2.4, it is none the
less likely that this effect will be very slight given the
specific circumstances of the case. In this connection, the
Commission notes the following:

that

— Le Levant is a small capacity ship as it carries only
its
about 95 passengers, which obviously limits
impact on the market,

— the cruises offered by Le Levant from Saint-Pierre-et-
Miquelon (i.e. outside Community waters) were
mainly targeted at the North American market (50),
both because of the marketing networks set up by
CIL and the geographic location of the archipelago,
which made it a cruise ‘hub’ (some 4 600 kilometres
from Paris, but only 25 kilometres from the Canadian
coast) (51),

— the Commission also notes that according to the
information it has received, no other operator estab­
lished in the Community offers or offered in the
Saint-Pierre-et-
in
period
Miquelon and that
the cruises organised by Le
Levant, which combined top luxury and unusual
destinations, were clearly targeted at a very narrow
segment of the cruise market, and one which was not
highly developed in Europe.

question,

cruises

to

(136) The Commission notes that according to the information
provided by the French authorities, the number of cruises
visiting the archipelago fluctuated sharply in the years
prior to the granting of the aid and the commissioning
of Le Levant, but that this figure seems to have stabilised
at a relatively high level from 2000 (49).

(138)

In the light of the above, the Commission finds that the
aid in question could make a contribution to Saint-Pierre-
et-Miquelon’s development by creating jobs and diver­
this
sifying its economy and that although modest,
trade
than the distortion of
contribution is greater
between Member States that the aid could cause.

(137) However real

they are,

these contributions to Saint-
Pierre-et-Miquelon’s development may never
the less
seem limited, especially in comparison with the aid
intensity. The Commission considers, however, that the
compatibility of the aid with the common market should
be assessed by comparing the contribution that the aid

(48) In 1999, the building and public works and the fisheries sectors,
widely supported by the public authorities, accounted for 63,8 % of
employment. Civil servants made up 25,8 % of the working popu­
lation (see report by the Institut d’émission des départements
d’outremer (IEDOM): ‘Saint-Pierre-et-Miquelon in 1999’).

(49) There were 2 134 cruise passengers in 1995, 820 in 1996, 785 in
1997, 2 123 in 1997, 2 123 in 1998, 428 in 1999, rising to
3 242 in 2000 and 2 474 in 2001. It should also be noted that
the level was maintained throughout
the whole period of Le
Levant’s operation, with 5 120 cruise passengers in 2002 and
3 022 in 2003.

(50) It is also clear from the request for approval submitted to the
the ‘Le Levant’
French authorities by the Bank and CIP that
project depended ‘closely on the links forged between CIP and
Travel Dynamics […] a US tour operator which specialises in orga­
nising cruises’. CIP emphasises that the ‘Le Levant’ project is based
on experience gained with its
ship, Le Ponant, whose
‘customers … chiefly North American … now mainly come from
the partnership established with Travel Dynamics’. CIP adds that it
‘it was capable of attracting North American
has shown that
customers on to a French ship …’.
is also clear from the
report by the Institut d’émission des départements d’outremer
(IEDOM):
in
1999 the destination was
sold by 11 North American tour
operators as against only two French tour operators.

‘Saint-Pierre-et-Miquelon in 1999’

(page 37)

that

first

It

(51) Under Decision 2003/66/EC of 24 July 2002 declaring a concen­
tration to be compatible with the common market and the func­
tioning of the EEA Agreement (Case No COMP/M.2706 — Carnival
Corporation/P&O Princess)
the
Commission already concluded that the market for cruises was
still predominantly of a national character.

(OJ L 248, 30.9.2003, p. 1),

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(139) The Commission also finds that this aid was necessary.
The profitability forecasts for operating the vessel from
Saint-Pierre-et-Miquelon under the terms of the package
approved by the French authorities were such that the
project’s profitability could only be guaranteed as a result
of the aid. The project to build and operate Le Levant
could therefore not have been achieved without the aid.

(140) For the above reasons, the Commission therefore finds
includes a ‘development

the aid to Le Levant

that
component’.

VIII. CONCLUSIONS

the

(141) The Commission finds that France has unlawfully im­
plemented
of
in
Article 88(3) of the Treaty. However, the Commission
considers that the aid constitutes development assistance
pursuant to Article 4(7) of Directive 90/684/EEC and
that it is therefore compatible with the common market,

question

breach

aid

in

HAS ADOPTED THIS DECISION:

Article 1

The State aid which France has implemented in favour of la
Compagnie des Îles du Levant in respect of the construction of
the cruise ship Le Levant
is compatible with the common
market.

Article 2

This Decision is addressed to the French Republic.

Done at Brussels, 20 May 2008.

For the Commission

Neelie KROES
Member of the Commission