CELEX: C2003/112/20
Language: en
Date: 2003-05-10 00:00:00
Title: Case C-88/03: Action brought on 27 February 2003 by Portuguese Republic against the Commission of the European Communities

10.5.2003                EN                        Official Journal of the European Union                                         C 112/11
Action brought on 27 February 2003 by Portuguese                                      selectiveness element with regard to State aid cannot
Republic against the Commission of the European Com-                                  necessarily have as its frame of reference the whole
                                munities                                              of the territory of the Member State.
                             (Case C-88/03)
                           (2003/C 112/20)                                      —     Erroneous description of the measures in question
                                                                                      as State aid inasmuch as it disregards the fact that
                                                                                      they are justifiable by the nature and the scheme of
                                                                                      the tax system in general:
An action against the Commission of the European Communi-
ties was brought before the Court of Justice of the European
Communities on 27 February 2003 by the Portuguese Repub-                              the scheme laid down in Decreto Legislativo
lic, represented by L. Fernandes, acting as Agent, and by J.L. da                     Regional (Regional Legislative Decree) No 2/99/A
Cruz Vilaça and L.M. Romão, lawyers, with an address for                              on tax reductions for natural and legal persons does
service in Luxembourg.                                                                not amount to an exception to the application of
                                                                                      the tax system but rather an adaptation which falls
                                                                                      within the founding and guiding principles of the
                                                                                      Portuguese tax system, which is applicable to all
The applicant claims that the Court should:                                           economic operators having their tax residence in
                                                                                      the Autonomous Region of Azores. Moreover, it
1.     find the present application admissible;                                       constitutes the corollary to a tax system which
                                                                                      follows a redistributive approach based on the
                                                                                      special situation of the Autonomous Region of
2.     declare the present application well-founded and, accord-                      Azores as an outermost region rendering it materi-
       ingly, annul the decision of the Commission of the                             ally different from other parts of Portugal, as well
       European Communities C(2002) 4487 final (State Aid C                           as on the constitutional principles of autonomy,
       35/02 (ex NN 10/2000) — Portugal), of 11 December                              solidarity and equality among all Portuguese
       2002 on the part of the scheme adapting the national tax                       nationals.
       system to the specific characteristics of the autonomous
       region of the Azores with regard to the tax reductions
       insofar as it takes the view that the tax reductions for
       natural and legal persons having their tax residence in the
       Autonomous Region of the Azores constitute State aid;
                                                                           —    Inadequate statement of reasons with regard to the effect
3.     in the alternative, declare the present application well-                on intra-Community trade and significant restrictions on
       founded and annul in part the contested decision insofar                 competition:
       as it finds incompatible with the common market the tax
       reductions applicable to undertakings operating in the
       financial sector and orders the applicant to recover the
       amount concerned;                                                        The contested decision provides inadequate reasons inas-
                                                                                much as it neither explains nor justifies the impact of
                                                                                reductions in personal income tax (IRS) and in corpor-
4.     order the defendant to pay the costs of the proceedings,                 ation tax (IRC), applicable to any person having their tax
       including those incurred by the applicant.                               residence in the Autonomous Region of Azores, on trade
                                                                                between the Member States or the significant distortion
                                                                                of competition which will arise from the abovementioned
                                                                                measures. It merely states that, because some of the
                                                                                undertakings pursue economic activities involving trade
Pleas in law and main arguments                                                 between the Member States, it follows, by some obscure
                                                                                fatalistic logic, that the condition regarding the effect on
—      Errors of law in the application of Article 87(1) EC:                    trade is met.
       —      Erroneous description of the measures in question
              as State aid by reference to the concept of territorial
              selectiveness:
                                                                           —    Manifest error of assessment of the facts for the purposes
              The constitutional and legal circumstances of the                 of Article 87(3)(a) EC, breach of the principles of
              relationship between the Portuguese State and its                 sound administration, equality and proportionality and
              autonomous regions mean that analysis of the                      infringement of Article 299(2) EC:
 ---pagebreak--- C 112/12             EN                        Official Journal of the European Union                                        10.5.2003
    The additional costs of transport and related infrastruc-                Furthermore, the defendant infringed the principle of
    ture, energy, health, education, industry and services                   proportionality inasmuch as, in view of the elementary
    resulting from the remoteness and insularity of the                      finding that the situation was absolutely identical with
    Autonomous Region of the Azores also affect all under-                   regard to the abovementioned structural costs for under-
    takings in the financial sector. Thus, the elevated cost of              takings in the region which operate in the financial sector,
    transporting goods to and from mainland Portugal and                     it should have similarly considered compatible with
    between the islands is also reflected in that type of                    the common market the tax reductions applicable to
    activity, since much of the equipment which banking and                  undertakings which operate in the financial sector, just as
    insurance activities require is not available on the local               it did in respect of undertakings not operating in the
    market and must be imported and, in certain cases,                       financial sector and in the same terms.
    transported between various islands. Furthermore, in
    view of the dearth of specialists and qualified staff in the
    Azores and the problems facing the educational system
    there, certain specialised services which banks need are
    not available in the region. They therefore have to
    be provided by specialists from continental Portugal
    (maintenance of equipment, auditing, consulting, trainers
    for courses, etc.) In such cases, it is clear that anyone
    employing such specialists ends up bearing air transport,          Action brought on 28 February 2003 by the Commission
    accommodation and subsistence costs. Likewise, short-              of the European Communities against the Portuguese
    comings in the education system and the lack of special-                                        Republic
    ists and qualified staff in the region results in a lack of
    specific training being offered, the alternative being to
    send staff to continental Portugal. However, undertakings                                    (Case C-92/03)
    operating outside the financial sector are, in the main,
    small- and medium-sized enterprises operating in or for
                                                                                                (2003/C 112/21)
    the local market, with establishments or installations on
    only one island. Consequently, the additional costs arising
    from ‘the effect of the special circumstances of the
    Azores’ affect them much less than banking or insurance
    institutions which have offices spread out across various          An action against the Portuguese Republic was brought
    islands. Moreover, the region’s economic underdevelop-             before the Court of Justice of the European Communities on
    ment and the lower income and purchasing power of its              28 February 2003 by the Commission of the European
    population penalise, to a greater extent, that kind of             Communities, represented by A. Caeiros and M. Konstantinidis,
    activity.                                                          acting as Agents, with an address for service in Luxembourg.
                                                                       The applicant claims that the Court should:
                                                                       1.    Declare that, by failing to adopt the provisions necessary
                                                                             to attribute priority to the treatment of waste oils by
                                                                             regeneration, irrespective of whether technical, economic
    By failing to take account of studies previously submitted               or administrative constraints make it possible, the Portu-
    in State aid cases relating to the Autonomous Region of                  guese Republic has failed to fulfil its obligations under
    Madeira and the correlation with all the additional costs                Article 3(1) of Council Directive 75/439/EEC ( 1) of
    quantified and set out and which arise directly from the                 16 June 1975 on the disposal of waste oils (as amended
    structural deficiencies of the Autonomous Region of the                  by Directive 87/101/EEC), as amended by Directive 87/
    Azores so far as concern also those undertakings which                   101/EEC (2) of 22 December 1986;
    operate in the financial sector, the defendant manifestly
    infringed the principle of sound administration.                   2.    Order the Portuguese Republic to pay the costs.
                                                                       Pleas in law and main arguments
                                                                       None of the legislative or regulatory provisions referred to by
    By the same token, the contested decision further                  the Portuguese authorities as having been adopted in order to
    infringes the principle of equality, since it flagrantly           implement Directive 75/439/EEC attributes priority to the
    discriminates against undertakings operating in the finan-         treatment of waste oils by regeneration. The Portuguese
    cial sector, which are affected just as much as or more            authorities themselves confirm that, 12 years after the date set
    than others by the ‘the effect of the special circumstances        by Directive 87/101/EEC, they have still not adopted the
    of the Azores’.                                                    necessary measures to attribute such priority.