Federal Republic of Germany v Commission of the European Communities.
Date: 2000-09-19
22 It should first be stressed that it is not disputed that the tax concession in favour of taxpayers who sell certain financial assets and can offset the resulting profit when they acquire other financial assets confers on them an advantage which, as a general measure applicable without distinction to all economically active persons, does not constitute aid to those taxpayers within the meaning of the relevant provisions of the Treaty.
23 It should also be noted that the contested decision classifies the tax concession under Paragraph 52(8) of the EStG as State aid only in so far as it favours certain undertakings situated in the new Länder or West Berlin, which prevents its being a general measure of tax or economic policy.
25 Second, it is important to bear in mind that Article 92(1) of the Treaty provides that any aid granted by a Member State, or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the common market. In particular, measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect are considered to constitute aid (Case C-387/92 Banco Exterior de España [1994] ECR I-877, paragraph 13, and Case C-75/97 Belgium v Commission [1999] ECR I-3671, paragraph 23).
26 In the present case it must be observed that the origin of the advantage indirectly conferred on the undertakings referred to by Paragraph 52(8) of the EStG is the renunciation by the Member State of tax revenue which it would normally have received, inasmuch as it is this renunciation which has enabled investors to take up holdings in those undertakings on conditions which are in tax terms more advantageous.
27 The fact that investors then take independent decisions does not mean that the connection between the tax concession and the advantage given to the undertakings in question has been eliminated since, in economic terms, the alteration of the market conditions which gives rise to the advantage is the consequence of the public authorities' loss of tax revenue.
28 It follows that the Commission was right to consider that the tax concession entailed a transfer of State resources.
30 In principle, operating aid, that is to say aid which, like that provided for by Paragraph 52(8) of the EStG, 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 (see Case C-301/87 France v Commission [1990] (Boussac Saint Frères) ECR I-307, and Case C-86/89 Italy v Commission [1990] ECR I-3891).
32 As regards the effects of the provision in question on trade between Member States, the Court has consistently held that the relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that intra-Community trade might be affected (Case C-142/87 Belgium v Commission [1990] (Tubemeuse) ECR I-959, paragraph 43, and Joined Cases C-278/92, C-279/92 and C-280/92 Spain v Commission [1994] ECR I-4103, paragraphs 40 to 42).
33 When aid granted by the State or through State resources strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade the latter must be regarded as affected by that aid (Case 730/79 Philip Morris Holland v Commission [1980] ECR 2671, paragraph 11, and Case C-303/88 Italy v Commission [1991] ECR I-1433, paragraph 17).
47 After the reunification of Germany that provision was not repealed either by the Treaty on European Union or by the Treaty of Amsterdam.
48 In the light of the objective scope of the rules of Community law, the authority and effectiveness of which must be safeguarded, it cannot be presumed that that provision has been devoid of purpose since the reunification of Germany.
49 It should, however, be noted that since it constitutes a derogation from the general principle, laid down in Article 92(1) of the Treaty, that State aid is incompatible with the common market, Article 92(2)(c) must be construed narrowly.
50 Furthermore, as the Court has held in previous decisions, in interpreting a provision of Community law it is necessary to consider not only its wording but also the context in which it occurs and the objects of the rules of which it forms part (Case 292/82 Merck [1983] ECR 3781, paragraph 12, and Case 337/82 St Nikolaus Brennerei und Likörfabrik v Hauptzollamt Krefeld [1984] ECR 1051, paragraph 10).
51 In addition, although, following the reunification of Germany, Article 92(2)(c) of the Treaty falls to be applied to the new Länder, such application is conceivable only on the same conditions as those applicable in the old Länder during the period preceding the date of that reunification.
52 In this case, the phrase division of Germany refers historically to the establishment of the dividing line between the two occupied zones in 1948. Therefore, the economic disadvantages caused by that division can only mean the economic disadvantages caused in certain areas of Germany by the isolation which the establishment of that physical frontier entailed, such as the breaking of communication links or the loss of markets as a result of the breaking off of commercial relations between the two parts of German territory.
53 By contrast, the conception advanced by the German Government, according to which Article 92(2)(c) of the Treaty permits full compensation for the undeniable economic backwardness suffered by the new Länder, disregards both the nature of that provision as a derogation and its context and aims.
54 The economic disadvantages suffered by the new Länder as a whole have not been directly caused by the geographical division of Germany within the meaning of Article 92(2)(c) of the Treaty.
55 It follows that the differences in development between the original and the new Länder are explained by causes other than the geographical rift caused by the division of Germany and in particular by the different politico-economic systems set up in each part of Germany.
59 It points out that the Commission, while acknowledging that the five new Länder of Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia were designated as assisted areas pursuant to Article 92(3)(a) of the Treaty until the end of 1999, considers that the contested measure is not compatible with the common market. By so doing, the Commission misinterprets the requirements of that provision.
67 So far as concerns the other areas covered by the aid scheme in issue, it should be noted that the Court has consistently held that as regards the application of Article 92(3) of the Treaty the Commission enjoys a wide discretion, the exercise of which involves assessments of an economic and social nature which must be made within a Community context (Case C-303/88 Italy v Commission, cited above, paragraph 34).
78 As the Court has consistently held, it is clear from the general scheme of the Treaty that the procedure under Article 93 must never produce a result which is contrary to the specific provisions of the Treaty. State aid, certain conditions of which contravene other provisions of the Treaty, cannot therefore be declared by the Commission to be compatible with the common market (see, to that effect, Case 73/79 Commission v Italy [1980] ECR 1533, paragraph 11, and Case C-225/91 Matra v Commission [1993] ECR I-3203, paragraph 41).
80 It must be borne in mind in this regard that, although direct taxation is a matter for the Member States, they must nevertheless exercise their direct taxation powers consistently with Community law (see Case C-107/94 Asscher v Staatssecretaris van Financiën [1996] ECR I-3089, paragraph 36, and Case C-264/96 ICI v Colmer (HMIT) [1998] ECR I-4695, paragraph 19).
81 According to established case-law, the freedom of establishment which Article 52 grants to nationals of the Member States and which entails the right for them to take up and pursue activities as self-employed persons under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected includes, pursuant to Article 58 of the Treaty, the right of companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community to pursue their activities in the Member States concerned through a subsidiary, branch or agency (see ICI, cited above, paragraph 20; Case C-254/97 Baxter and Others [1999] ECR I-4809, paragraph 9, and Case C-307/97 Saint-Gobain ZN v Finanzamt Aachen-Innenstadt [1999] ECR I-6161, paragraph 35).
82 As far as companies or firms are concerned, their registered office, as indicated above, serves to determine, like nationality for natural persons, their connection to a Member State's legal order (Case C-307/97 Saint-Gobain, cited above, paragraph 36).
83 It also follows from the case-law of the Court (see Case C-330/91 The Queen v Inland Revenue Commissioners, ex parte Commerzbank [1993] ECR I-4017, paragraph 14, and Case C-254/97 Baxter and Others, cited above, paragraph 10) that the rules regarding equal treatment prohibit not only overt discrimination by reason of nationality or, in the case of a company, its registered office, but all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result.
84 It is admittedly true that, according to the Court's case-law, discrimination can arise only through the application of different rules to comparable situations or the application of the same rule to different situations and that, in relation to direct taxes, the situations of residents and non-residents are not, as a rule, comparable (Case C-279/93 Schumacker [1995] ECR I-225, paragraphs 30 and 31).
85 It follows that if a Member State grants, even indirectly, a tax advantage to undertakings having their registered office on its territory, refusing to allow the undertakings having their registered office in another Member State to benefit from that advantage, the difference in treatment between the two categories will in principle be prohibited by the Treaty, provided that there is no objective difference in situation (Asscher, cited above, paragraph 42).
96 According to settled case-law, the reasoning required by Article 190 of the Treaty must show clearly and unequivocally the reasoning of the Community authority which adopted the contested measure so as to enable the persons concerned to ascertain the reasons for the measure and to enable the Court to exercise its power of review (Joined Cases 43/82 and 63/82 VBVB and VBBB v Commission [1984] ECR 19, paragraph 22).
97 However, the reasoning is not required to go into every relevant point of fact and law, inasmuch as the question whether a statement of reasons satisfies those requirements must be assessed with reference not only to its wording but also to its context and the whole body of legal rules governing the matter in question (Case C-56/93 Belgium v Commission [1996] ECR I-723, paragraph 86, and Case C-278/95 P Siemens v Commission [1997] ECR I-2507, paragraph 17).
98 That principle, applied to the categorisation of a measure as State aid, requires the Commission to state the reasons for which the measure in question falls within the ambit of Article 92(1) of the Treaty. Even where the very circumstances in which the aid has been granted show that it is liable to affect trade between Member States and to distort or threaten to distort competition, the Commission must at least set out those circumstances in the statement of reasons for its decision (Case 57/86 Greece v Commission [1988] ECR 2855, paragraph 15, and Joined Cases C-329/93, C-62/95 and C-63/95 Germany and Others v Commission [1996] ECR I-5151, paragraph 52).
104 As regards the third part of the plea, the contested decision contains admittedly only a brief résumé of the grounds on which the Commission refused to apply the derogation provided for by Article 92(2)(c) of the Treaty to the facts of the case.
105 It should, however, be pointed out that the contested decision was adopted in a context well known to the German Government and that it fits into a well-established line of decisions, particularly in relation to that Government. In those circumstances, such a decision may be reasoned in a summary manner (Case 73/74 Groupement des Fabricants de Papiers Peints de Belgique and Others v Commission [1975] ECR 1491, paragraph 31).
106 In its relations with the Commission, the German Government has referred to Article 92(2)(c) of the Treaty on various occasions since 1990, insisting on the importance of that provision to the revival of the new Länder.
107 The arguments put forward in this connection by the German Government have been rejected by various decisions of the Commission, such as inter alia Commission Decision 94/266/EC of 21 December 1993 on the proposal to award aid to SST-Garngesellschaft mbH, Thüringen (OJ 1994 L 114, p. 21) and Commission Decision 94/1074/EC of 5 December 1994 on the German authorities' proposal to award aid to Textilwerke Deggendorf GmbH, Thüringen (OJ 1994 L 386, p. 13).
108 It follows that the German Government is not justified in maintaining that the statement of reasons for the contested decision did not enable it to comprehend why Paragraph 52(8) of the EStG was not covered by the derogation provided for by Article 92(2)(c) of the Treaty and that, in the absence of any specific argument put forward by the German authorities, the Commission was not required to supply a more ample statement of the reasons for its contested decision.
116 Since none of the pleas put forward by the German Government is well founded, the application must in consequence be dismissed.