Introduction
Member States may design their tax system as they wish, as long as they conform with State aid rules. Tax systems do not only contain taxes but also exceptions from taxes or tax bases. Exceptions that apply to any tax payer are not selective in the meaning of Article 107(1) TFEU. For example, deduction from taxable income of the cost incurred to generate that income is a normal practice and is not selective.
In the area of taxation, it is not only exceptions or deductions that can be selective in the meaning of Article 107(1) TFEU but also taxes with narrow base that exclude certain comparable products, sources of income or companies.
On 25 June 2025, the General Court, in case T-510/20 RENV, Fachverband Spielhallen v Commission, had to consider whether a German special tax or levy on casino profits that was a derogation from the normal system of taxation and, therefore, constituted State aid.[1]
Fachverband Spielhallen, an association of private halls of games of chance, had appealed against Commission decision SA.44944 concerning the tax treatment of public casino operators in Germany. In October 2021, the General Court rejected the appeal. However, in September 2023, the Court of Justice of the EU, in case C-831/21 P, Fachverband Spielhallen v Commission, held that the analysis of the General Court was faulty and referred the case back to the General Court.
The obligations of the Commission
In this case, the Commission had concluded that the deductibility of the special levy was not State aid without opening the formal investigation procedure. Therefore, the General Court, first, explained the difference between the preliminary examination of a public measure by the Commission which can decide that the measure does not constitute State aid or, if it is aid, to authorise the aid. In case either of absence of aid or compatibility of aid, the Commission should have no doubts or should have no difficulty in reaching its decision. If it has any doubts, then it must initiate the formal investigation procedure. Failure of the Commission to initiate that procedure, in the face of doubts, deprives interested parties of their procedural rights to submit their comments.
When an interested party challenges a Commission decision not to open the formal investigation procedure, the task of EU Courts is to determine whether the assessment of the information and evidence which the Commission had at its disposal during the preliminary investigation should have objectively raised doubts as to the classification of that measure as aid or as to its compatibility and should have led to the launch of a formal investigation. The existence of doubts is reflected in the existence of serious difficulties encountered by the Commission. As is well-established in the case law, the concept of serious difficulties is objective. Therefore, the aim of the General Court was to determine whether the Commission encountered any serious difficulties.
The methodology for determining the selectivity of a tax measure
The General Court began its analysis by recalling the three-step test for determining whether a tax measure is selective in the meaning of Article 107(1) TFEU. The first step is to identify the normal or reference system of taxation which forms the benchmark against which any deviation can be established.
“(30) For the purposes of assessing the selective nature of a tax measure, it is, therefore, necessary that the common tax regime or the reference system applicable in the Member State concerned be correctly identified in the Commission decision and examined by the court hearing a dispute concerning that identification. Since the determination of the reference system constitutes the starting point for the comparative examination to be carried out in the context of the assessment of selectivity, an error made in that determination necessarily vitiates the whole of the analysis of the condition relating to selectivity”.
“(32) In that regard, the selectivity of a tax measure cannot be assessed on the basis of a reference framework consisting of some provisions of the national law of the Member State concerned that have been artificially taken from a broader legislative framework”.
“(33) Moreover, 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 that general system, 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 General Court also stressed that it falls within the autonomy of Member States to determine their tax systems. In this respect, the Commission is bound by the national interpretation of the national tax law. However, “(36) the Commission may depart from that interpretation only if it is able to establish, on the basis of reliable and consistent evidence that has been the subject of that exchange of arguments, that another interpretation prevails in the case-law or the administrative practice of that Member State”. In other words, the national authorities are themselves bound by the case law of their own courts.
Then the General Court proceeded to identify the reference system in which a levy by the German Länder on public casino profits was embedded. The issue was whether the levy could be deducted from the tax base or not. In other words, was the levy part of the reference system or was it a derogation not provided by the reference system? The levy was a tax on non-gambling profits [e.g. from sales of drinks and food].
The reference system
First, the general Court recalled that “(40) the reference system consists of the relevant taxes applicable to all undertakings, namely trade tax and income or corporation tax.”
“(41) The tax bases for those taxes are determined by taking into account the principle of taxation of net income (‘net income principle’), in the sense that, according to the general rules on the taxation of income, ‘costs associated with commercial transactions’ are deductible from those tax bases.”
Then the General Court noted that “(47) the distribution of profits, in so far as it constitutes a form of allocation of profits, cannot constitute a cost associated with commercial transactions capable of reducing the taxable income of a company, for the purpose of determining the tax base for corporation tax”.
“(48) Furthermore, in accordance with the provisions of German tax law, there are exceptions to the rule on the deductibility of costs associated with commercial transactions. There are taxes whose non-deductibility is expressly provided for in [the relevant German law]”.
In its decision, the Commission had considered that the basic rule in the German system was that costs associated with commercial transactions were deductible and it was only where there was an explicit derogation from the net income principle that an undertaking’s expenses were not deductible for the purpose of determining the tax base. Consequently, the Commission found that a specific tax on profits was also deductible.
Accordingly, the General Court noted that “(50) the applicants have not demonstrated that the Commission should have determined the reference system as consisting of the non-deductibility of the levy on the profits as a derogation from the net income principle. First, […], the Commission did not overlook the existence of exceptions or limitations to the rule on the deductibility of costs associated with commercial transactions. Second, […] the selectivity of a tax measure cannot be assessed on the basis of a reference framework consisting of some provisions of the national law of the Member State concerned that have been artificially taken from a broader legislative framework. 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 […] That is the case here, given that the Commission defined the reference system as consisting, in particular, of the net income principle, and not merely of the exceptions to that principle.”
Furthermore, “(51) in order to determine the reference system, the Commission did not depart from the interpretation of the relevant provisions of tax law provided by the Federal Republic of Germany in the exchange of arguments. Furthermore, it should be pointed out that the applicants have not demonstrated that the Commission erred in adopting the interpretation provided by that Member State.”
“(54) It follows from the foregoing considerations that the Commission was entitled to accept the interpretation provided by the Federal Republic of Germany as regards the identification of the reference system and to identify the measure at issue as being the deductibility from the tax bases for income or corporation tax and trade tax, for the operators of public casinos, of sums paid to the Land of North-Rhine Westphalia by way of the levy on the profits provided for in Paragraph 14 of the Law on Casinos as regards non-gambling related income.”
The existence of a derogation from the reference system
The applicants argued that a public casino, Westspiel, operating in North-Rhine Westphalia, by benefiting from the levy on the profits being deductible from the tax base for income or corporation tax and trade tax, was given an advantage as compared to undertakings which distributed profits or, in the alternative, as compared to undertakings which were subject to non-deductible taxes under the relevant provisions of German law. In essence, the applicants contested the classification of the levy on the profits as a specific tax that could be deducted. Instead, they claimed that that levy was comparable to a distribution of profits and, in the alternative, that, even if it were to be classified as tax, it would be comparable to the taxes whose non-deductibility was expressly provided for in the relevant German law.
The General Court, first, observed that “(61) the measure at issue is based on the interpretation of German tax law according to which the levy on the profits is deducted from the tax bases for income or corporation tax and trade tax as a cost associated with commercial transactions, in accordance with the net income principle.”
Indeed, the Commission considered that the levy on the profits could be regarded as deductible, for being a specific tax on profits. According to the Commission, the relevant German law precluded the deduction only of trade tax, and not of all taxes on profits or the specific tax on profits in question.
The General Court also observed that “(63) the levy on the profits was paid to the Land of North Rhine-Westphalia, which was not a shareholder in the public casinos […] the Commission also observed that the legal form of the public casino operators would not permit the distribution of profits.”
“(66) In the present case, it should be pointed out that […] the Commission adopted the interpretation of the relevant provisions of national law given by the Federal Republic of Germany in the exchange of arguments.” “(68) In that respect, the applicants have not established that the interpretation adopted by the Commission is incompatible with the wording of the relevant provisions of German law. Nor have they put forward any argument concerning the existence of a contrary administrative practice on the part of the German authorities.”
“(73) Consequently, it must be ascertained whether the measure at issue constitutes a derogation from the reference system, inasmuch as it differentiates between operators who, in the light of the objective assigned to the German tax system, are in a comparable factual and legal situation, that is to say, in particular, between operators subject to the levy on the profits and those subject to taxes whose non-deductibility is expressly provided for [in the relevant German law].”
“(75) As a preliminary point, it should be noted that the present case is limited to casinos’ non-gambling related income. In that regard, […], although the levy on the profits is calculated on all sources of income of public casinos, including those from gambling, only the part of the payment which is related to non-gambling income is deductible from the tax bases for trade tax and income or corporation tax.”
“(77) Public casinos are in a legal and factual situation comparable to that of other undertakings required to pay trade tax and income or corporation tax, it being understood that, […], all undertakings may deduct from the taxable bases costs associated with commercial transactions.”
“(78) Thus, […], the Commission found that the sums paid to the Land of North Rhine-Westphalia by the public casinos by way of the levy on the profits constituted costs associated with commercial transactions, which were therefore deductible for the purpose of determining the tax bases for trade tax and income or corporation tax.”
“(80) It must be noted that, in the contested decision, in the alternative […], the Commission found that the levy on the profits, first, was not comparable to the non-deductible taxes provided for in [the relevant German law], second, that that levy did not constitute a distribution or transfer of profits.”
“(82) It should be stated that, […], the Commission classified the levy on the profits as a ‘special tax on the income of public casinos’, which, […], cannot be regarded as being comparable to a ‘general tax’ on income or profits that is not deductible under that provision.”
“(84) In addition, […] the levy on the profits constituted a ‘special tax’ on gaming establishments […], so that it could not be a ‘general tax’ on income or profits”.
“(85) In the second place, the applicants’ arguments directed against the finding that the levy on the profits is not a distribution of profits and is not comparable to such a distribution must also be rejected.”
“(86) It should be noted, […] that the levy on the profits involves a payment of money to the Land of North Rhine-Westphalia, that it is set unilaterally by a public authority in a law, and that it is levied automatically and is mandatory. […] It follows that, contrary to what the applicants claim, that levy constitutes a ‘tax’ within the meaning of Paragraph 3(1) of the Tax Code, which cannot be regarded as being comparable to a distribution of profits.”
“(89) Therefore, the Commission was entitled to find, […], that the deductibility of the levy on the profits amounted to an application, […], of the general rules on taxation under the normal tax system constituting the reference system.”
“(90) It follows from the foregoing considerations that the Commission was correct to conclude, […], that the deductibility of the levy on the profits did not derogate from the general rules on taxation under the normal tax system constituting the reference framework, with the result that the measure at issue did not involve the grant of a selective advantage as provided for in Article 107(1) TFEU.”
On the basis of the above reasoning, the General Court dismissed the appeal in its entirety.
[1] The full text of the judgment can be accessed at:
