Introduction
In November 2014, the General Court in case T-219/10, Autogrill v Commission, held that a tax exemption for the acquisition of foreign undertakings did not constitute State aid because it did not exclude any undertaking from benefitting from it. This was because the beneficiaries could not be identified beforehand. However, on appeal, in December 2016, the Court of Justice of the EU [CJEU] in the landmark case C-20/15 P, Commission v World Duty Free, annulled the judgment of the General Court on the ground that acquisitions of domestic and foreign companies were subject to different tax treatment in the Spanish tax law and therefore, the more favourable treatment of foreign acquisitions was a selective measure that constituted incompatible State aid, regardless of the fact that on an ex ante basis no particular undertaking appeared to be favoured
Now, almost ten years later, the CJEU ruled on 29 April 2025, in case C-453/23, Company E v Prezydent Miasta Mielca [mayor of the Polish city of Mielca], that an exemption that formed part of the reference tax system was not selective. Its reasoning is surprising similar to that of the General Court of November 2014.[1] No undertaking appeared to be excluded as the exemption was framed in general terms that did not refer to the specific characteristics of any particular sector or class of undertakings.
Background
Under Polish law, immovable property [e.g. land, buildings] is subject to property tax. However, the land & buildings of railway infrastructure are exempt from property tax on condition that that infrastructure is made available to rail carriers.
Company E owns a rail line and related infrastructure located on land belonging to it. In 2021, Company E decided to make that rail line available to a rail carrier. A dispute arose between Company E and the municipality of Mielca when the latter refused to grant exemption from property taxes to Company E.
The municipality refused on the ground that the exemption would be equivalent to granting unlawful State aid. Consequently, after Company E initiated legal proceedings against the decision of the mayor, the referring Polish court asked the Court of Justice of the EU [CJEU] for a preliminary ruling on whether the tax exemption would indeed constitute State aid.
First, the CJEU, after recalling in paragraph 36 of the judgment the constituent components of the concept of State aid, explained that in essence the question referred by the Polish court was whether the exemption of rail infrastructure from property tax, on condition that that infrastructure was made available to rail carriers, conferred a selective advantage on its beneficiaries; i.e. the owners of the infrastructure. [paragraphs 37 & 40]
The CJEU also noted that Member States’ interventions in areas which have not been harmonised in EU law, such as direct taxation, are not excluded from the scope of the provisions of the TFEU on the control of State aid. [para 41]
The concept of selectivity
The CJEU began its analysis by, first, observing that the relevant Polish law defined only in a “general and abstract way” the beneficiaries of the exemption. [para 42]
Then it recalled the definition of selectivity in Article 107(1) TFEU. “(43) In order to determine whether a national measure is capable of conferring a selective advantage for the purposes of Article 107(1) TFEU, it is necessary to examine whether, under a particular legal regime, that measure is such as to favour ‘certain undertakings or the production of certain goods’ over other undertakings which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation and which accordingly suffer different treatment that can, in essence, be classified as discriminatory”.
“(44) Accordingly, in order to classify a tax measure […] as ‘selective’, it is necessary to identify, initially, the reference framework, that is to say, the ‘normal’ tax regime applicable in the Member State concerned, and to demonstrate, thereafter, that the tax measure at issue is a derogation from that reference framework, in so far as it differentiates between operators who, in the light of the objective pursued by that reference framework, are in a comparable factual and legal situation. The concept of ‘State aid’ does not, however, cover measures that differentiate between undertakings which, in the light of the objective pursued by the legal regime concerned, are in a comparable factual and legal situation, and that are, therefore, a priori selective, where the Member State concerned is able to demonstrate, subsequently, that that differentiation is justified, in the sense that it flows from the nature or general structure of the system of which those measures form part”.
The CJEU stressed that “(45) the determination of the reference framework is of particular importance in the case of tax measures, because the existence of an economic advantage for the purposes of Article 107(1) TFEU may be established only when compared with ‘normal’ taxation”.
In other words, in the case of tax measures the comparison with the normal taxation demonstrates both the conferment of an advantage and the presence of selective treatment.
The reference framework
The CJEU explained that “(46) the determination of the reference framework must follow from an objective examination of the content, the structure and the specific effects of the applicable rules under the law of that State. The selectivity of a tax measure cannot be assessed in the light of a reference framework consisting of some provisions of the law of the Member State concerned that have been artificially taken from a broader legislative framework.”
“(47) Consequently, where the tax measure in question is inseparable from the general tax system of the Member State concerned, reference must be made to that system. On the other hand, where it appears that such a measure is clearly severable from that general system, it cannot be ruled out that the reference framework to be taken into account may be more limited than the general system concerned, or even that it may equate to the measure itself, where the latter appears as a rule having its own legal logic and it is not possible to identify a consistent body of rules external to that measure”.
The CJEU also reiterated the well-established principle that “(48) outside the spheres in which EU tax law has been harmonised, it is the Member State concerned which determines, by exercising its own competence in the matter of direct taxation and with due regard for its fiscal autonomy, the characteristics constituting the tax, which define, in principle, the reference framework or the ‘normal’ tax regime, on the basis of which it is necessary to analyse the condition relating to selectivity”.
“(49) That determination of the characteristics constituting the tax includes the basis of assessment and the taxable event, but also any exemptions to which that tax is subject”.
Then the CJEU made a statement that is difficult to understand, given past landmark judgments such as C-106/09 P, Commission v Gibraltar and UK.
“(50) Given that, in principle, the characteristics constituting the tax define the reference framework in the light of which the examination of the condition of selectivity must be carried out, a general and abstract exemption to which a direct tax is subject, such as the exemption at issue in the main proceedings, is normally not to be classified as ‘State aid’. In so far as that exemption is presumed to be inherent in the ‘normal’ tax regime, it cannot, as a general rule, confer a selective advantage for the purposes of Article 107(1) TFEU.”
It is possible for a Member State to design a tax measure that taxes differently certain undertakings or certain economic activities, without that differential tax treatment being an exemption. For example, in the case of turnover taxes in retail sectors in Hungary and Poland, the CJEU found that the lower tax rates were not selective because they were not exemptions from the higher rates, since no benchmark rate was established by national law from which the lower rates could have formed an exemption. But when a measure is an “exemption” from something else, then how can it not be conceived as a selective differentiation? The only conceivable answer is that the exemption must have general application [i.e. it must be open to anyone liable to pay the tax] and, following the judgment in World Duty Free, it must not discriminate between similar activities or situations.
“(51) Such a finding is derived from the autonomy which the Member States are recognised as having in the area of direct taxation, as has been recalled in paragraph 48 of the present judgment, as that autonomy means that those States have the possibility of making use of the tax classifications, and in particular of the tax exemptions, which they consider the most suitable for achieving the objectives of general interest pursued by those States, whether or not those objectives are tax-related. […], in the context of their fiscal autonomy, Member States may legitimately pursue, through direct taxation, in addition to a purely budgetary objective, one or more other objectives which, as the case may be, constitute, when taken together, the objective of the relevant reference framework.”
Indeed, Member States are free to tax harmful activities or not to tax beneficial activities in pursuit of their public policies. But as stated in paragraph 41 of the judgment, tax measures have to conform with State aid rules. Until now the case law of the CJEU says that only exemptions which flow from the nature or structure of the tax system are not selective. In other words, the exemptions must be justified by reasons which are intrinsic to the logic of the reference framework. Exemptions that are considered “the most suitable for achieving the objectives of general interest” have until now been found to be external [i.e. non-intrinsic] to the tax system. However, it is also possible that a tax measure that appears to be an exemption by being different from other normal tax measures, is in fact a self-standing measure which forms its own reference system. Then such a measure is not selective. We have many examples of such measures which have a sectoral or product-based scope: landing charges for aircraft, excise taxes on fuel, alcohol or tobacco, insurance taxes, etc. A general reduction of such taxes would confer an advantage, but would not be selective.
“(52) The Commission has a broad discretion to regard certain aid as compatible with the internal market under Article 107(3) TFEU. […] If the exercise of that discretion were required to cover any general and abstract tax exemption, there would therefore be a risk of the Commission’s assessment systematically replacing the Member States’ assessment in the matter, thereby encroaching on their fiscal autonomy.”
It is difficult to infer from the above statement whether and to which extent the discretion of the Commission is now circumscribed. Moreover, the issue at hand is the existence or not of State aid under Article 107(1) TFEU for which the Commission has limited discretion.
Then the CJEU qualified the statement in paragraph 50 in two ways. First, it clarified that “(53) the finding set out in paragraph 50 of the present judgment is, however, without prejudice to the possibility of finding, as in the cases which gave rise to the judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom [C‑106/09 P] that the reference framework itself, as it results from national law, is incompatible with the EU law on State aid, because the tax system at issue has been configured according to manifestly discriminatory parameters intended to circumvent that law”.
Second, “(54) by way of derogation from what has been set out in paragraph 50 of the present judgment, a general and abstract exemption to which a direct tax is subject cannot be regarded as falling within the ‘normal’ tax regime where the conditions established by the relevant legislation for benefiting from that exemption are connected, in law or in fact, with one or more specific characteristics of the only category of undertakings capable of benefiting therefrom, those characteristics being inextricably linked to the nature of those undertakings or the nature of their activities. Thus a consistent category of undertakings is formed. The fact that only such a consistent category of undertakings is capable of benefiting from a tax exemption is such as to substantiate the potentially discriminatory and anticompetitive nature of that exemption, even if the reference framework itself has not been configured according to manifestly discriminatory parameters as referred to in the case-law cited in paragraph 53 of the present judgment.”
“(55) This is the case, inter alia, for general and abstract tax exemptions which are reserved, in law or in fact, for undertakings which have a certain capital structure, which are active in a particular geographical or economic sector, which are smaller or which, on the contrary, have significant financial resources, or which do not employ any staff in the national territory”.
Given the examples cited above, it is not clear why ownership of rail infrastructure is different from having a “certain capital structure” or “significant financial resources”, especially bearing in mind that rail lines cannot be built on any kind of immovable property
“(56) By contrast, where the conditions laid down by a tax exemption regime are not connected, in law or in fact, with specific characteristics of the only category of undertakings capable of benefiting therefrom which are inextricably linked to the nature of those undertakings or the nature of their activities, that regime falls within the ‘normal’ tax regime. The conditions for granting such a tax exemption appear to be neutral from the point of view of competition, as the fact that some undertakings satisfy those conditions, while others do not, is not relevant in the light of the rules on State aid.”
It is also not clear what happens when there are several categories of beneficiary undertakings, instead of only one? And should the number of categories make any difference? More importantly, it is not obvious why ownership of a specific asset [i.e. rail infrastructure] is different from other specific characteristics that identify particular undertakings.
“(57) In that regard, it should be specified that, admittedly, making a tax exemption subject to satisfying certain conditions necessarily means that that exemption will benefit only the group of undertakings which is in a position to satisfy them. However, the Court has already had occasion to find that the fact that only undertakings satisfying the conditions of a measure can benefit from that measure cannot, in itself, make the measure into a selective measure”.
“(58) This means, inter alia, that a tax exemption the application of which is dependent on undertakings’ results does not appear, as such, to be selective […] Provided that the conditions set out in paragraph 56 of the present judgment are satisfied, the same is true, in principle, as regards tax exemptions the application of which is subject to, for example, a certain recruitment policy or certain environmental measures.”
Indeed, the fact that beneficiaries have to satisfy certain conditions does not in itself make a measure selective as long as such conditions do not formally or in practice exclude or privilege any undertaking that can be identified in advance. This would be the case, for example, of extra tax credit for any undertaking that supports through financial donations non-economic entities such as charitable organisations. This kind of extra tax credit is not conditional on beneficiaries having any pre-determined characteristic. But the owners of rail infrastructure are in the same situation as the owners of any other immovable property from the perspective of property tax. Whether the owners of rail infrastructure are not pre-defined and the fact that any such owner can decide to make the infrastructure available to rail carriers do not eliminate the differential treatment between owners of infrastructure and owners of other immovable property.
“(59) Furthermore, the fact that a tax exemption is granted irrespective of whether or not the persons subject to the tax to which it relates carry out an economic activity is an indicator that that exemption falls within the reference framework.”
“(60) It should also be added that, even where it has to be regarded as not falling within the reference framework, a general and abstract exemption to which a direct tax is subject does not automatically become selective as a result. In such a situation, it is necessary to verify, […], and as is apparent from paragraph 44 of the present judgment, whether the undertakings benefiting from that exemption are, in the light of the objective pursued by that reference framework, in a factual and legal situation comparable to that of undertakings not benefiting therefrom. If that is the case, the exemption will be regarded as selective, unless it can be shown that the differentiation between undertakings deriving therefrom flows from the nature or general structure of the system of which that exemption forms part.”
The Polish tax measure
Next the CJEU applied the approach it elaborated above to the case at hand.
“(61) It is in the light of the foregoing considerations that the referring court must examine whether [the relevant Polish law], which exempts from property tax land, buildings and structures forming part of railway infrastructure where that infrastructure is made available to rail carriers, is such as to confer a selective advantage on the undertakings benefiting from that exemption for the purposes of Article 107(1) TFEU.”
“(62) In that regard, first, it is apparent from the documents before the Court that the legal property tax regime, as derived from that law, constitutes the ‘normal’ tax regime and, consequently, the reference framework applicable in this instance.”
“(63) That regime comprises a system of rules applicable to all entities which own or hold immovable property, defining, inter alia, the purpose of the tax, tax base, taxpayers and tax rate. In particular, Article 2(1) of the Law on local taxes and charges lays down the rule that land, buildings or parts thereof, and structures or parts thereof which are connected with carrying on an economic activity are subject to property tax.”
“(64) Secondly, it follows from paragraph 54 of the present judgment that the exemption provided for in Article 7(1)(1)(a) of that law forms part of that reference framework unless the conditions for granting that exemption are connected, in law or in fact, with one or more specific characteristics of the only category of undertakings capable of benefiting therefrom, those characteristics being inextricably linked to the nature of those undertakings or the nature of their activities and thus permitting the consideration that those undertakings are part of a consistent category.”
“(65) The exemption at issue in the main proceedings is granted to persons subject to property tax on the condition that they own land, a building or a structure forming part of railway infrastructure which is made available to rail carriers.”
“(66) Subject to verification by the referring court, that condition does not appear to be connected, in law or in fact, with one or more specific characteristics of the undertakings benefiting from that exemption, which would enable all of those undertakings to be grouped together within a single consistent category as referred to in paragraphs 54 and 64 of the present judgment.”
“(67) On the contrary, it appears that that exemption may be obtained by any taxpayer who owns land, a building, or a structure forming part of railway infrastructure which is made available to rail carriers, regardless of whether or not the taxpayer concerned carries out an economic activity and, if so, regardless of the nature of that activity. Thus, the category of beneficiaries of the tax exemption at issue in the main proceedings appears to resemble a disparate whole, comprising both non-economic operators and undertakings, it being possible, moreover, for the latter to have very different legal forms, to be of very different sizes, and to operate in very diverse sectors.”
“(68) As is indicated by the referring court, that exemption thus appears to be based on a neutral criterion which applies irrespective of, inter alia, the beneficiary undertakings’ sectors, economic activities, or legal forms.”
“(69) It follows that, subject to verification by that court, that exemption must be regarded as forming part of the reference framework applicable in this instance.”
In effect, the CJEU held that the exemption did not seem to be limited to any particular sector or type of undertaking. Any owner of rail infrastructure could benefit. So far, however, the CJEU did not ask whether in practice the owners of rail infrastructure were only rail undertakings. Consider, for example, the case of an exemption from a tax on motor vehicles for owners of any vehicle that is made available [rented out] to companies that transport old persons. In principle, no owner of a motor vehicle is excluded. But in practice only owners of suitable vehicles for this purpose [e.g. larger vehicles] would be able to take advantage of the exemption.
Moreover, despite the repeated statements that the exemption formed part of the reference framework, it is not clear how that exemption could actually form part of the reference system, in the sense that it was intrinsic to that system. This is, of course, the case of exemptions that flow from the nature or structure of the system [e.g. exemption of natural gas from energy tax when it is used an input in a manufacturing process, rather than as source of energy]. But it does not appear that the exemption of rail infrastructure flowed from the nature of the Polish property tax.
“(70) Thirdly, that reference framework appears to have its own legal logic, with its own objectives. It also appears to be incapable of being associated with a consistent body of rules external to it.”
“(71) In addition to what has been stated in paragraphs 62 and 63 of the present judgment, it is apparent from the request for a preliminary ruling that the property tax regime not only pursues a budgetary purpose, which is essential to the very function of that tax, but also, through the tax exemption at issue in the main proceedings, pursues an objective of an environmental nature, intended to encourage the undertakings concerned to restore disused railway sidings and to use rail transport, which does not entail carbon dioxide (CO2) emissions and provides greater safety than road transport.”
It is not clear why the considerations in paragraph 71 are relevant to whether a tax measure forms part of the system of reference. On the contrary, those considerations suggest that the Polish exemption was divorced from the logic of the system of property tax. This does not mean that it did not pursue a legitimate policy objective. But the legitimacy of the policy objective pursued by an exemption is irrelevant for the classification of that exemption as intrinsic to the reference system, given that the concept of State aid is objective, and, at any rate, it is taken into account during the assessment of the compatibility of State aid with the internal market.
“(72) As has been stated in paragraph 51 of the present judgment, in the context of its fiscal autonomy, a Member State may legitimately pursue, through direct taxation, in addition to a purely budgetary objective, one or more other objectives which, as the case may be, constitute, when taken together, the objective of the relevant reference framework.”
“(73) Lastly, it is not apparent from any of the documents before the Court that that reference framework has been configured according to manifestly discriminatory parameters intended to circumvent the EU law on State aid for the purposes of the case-law cited in paragraph 53 of the present judgment.”
Therefore, the CJEU concluded that “(74) it follows from all of the foregoing that the exemption from property tax provided for in Article 7(1)(1)(a) of the Law on local taxes and charges does not confer a selective advantage on the undertakings benefiting from that exemption.”
Indirect beneficiaries
Missing from the judgment is any consideration of whether the Polish measure conferred a selective advantage to rail carriers. According to points 115-116 of the Commission’s Notice on the Notion of State Aid, “an advantage can be conferred on undertakings other than those to which State resources are directly transferred (indirect advantage) […] the foreseeable effects of the measure should be examined from an ex ante point of view. An indirect advantage is present if the measure is designed in such a way as to channel its secondary effects towards identifiable undertakings or groups of undertakings.”
The Polish measure granted an exemption from property tax on condition that the rail infrastructure was made available to rail carriers. There was an identifiable group of undertakings who would benefit from the tax incentive provided to owners of rail infrastructure to make available to third parties more of that infrastructure. The fact that the measure was not selective at the level of the direct beneficiaries does not mean that it was not selective for the indirect beneficiaries. For example, extra tax credit for any undertaking that donates to a cultural organisations is a selective measure for the indirect beneficiaries and such a measure falls within the scope of Article 107(1) TFEU if the indirect beneficiaries carry out economic activities and can be classified as undertakings.
[1] The full text of the judgment can be accessed at:
