Fiscal benefits to employees do not constitute State aid as long as they do not confer a direct or indirect advantage to their employers.
Update on Temporary Framework:
Number of approved and published Covid-19 measures, as of 16 October 2020: 302*
Legal basis: Article 107(2)(b): 32; Article 107(3)(b): 255; Article 107(3)(c): 23
- Average number of measures per Member State: 11
- Median number of measures per Member State: 12
- Mode number of measures per Member State: 7
* Excludes about 100 amendments of previously notified measures
4th amendment of Temporary Framework [13 October 2020]
I. The Temporary Framework has been extended to 30 June 2021 and to 30 September 2021 for recapitalisation measures.
II. A new section 3.12 has been added.
- It allows State aid for the purpose of covering losses caused by fixed costs.
- Eligible companies must have experienced more than 30% decline in their turnover in the period 1 March 2020 to 30 June 2020.
- The losses must be net of any other aid already provided in the form of grants under the Temporary Framework [section 3.1] or on the basis of Article 107(2)(b).
- The maximum amount of aid may not exceed EUR 3 million.
III. There are also new rules on the disposal of state shareholdings.
In the period between the outbreak of the Covid-19 pandemic and October 2020, Member States implemented 32 measures granting compensation for damage in accordance with Article 107(2)(b) TFEU. This kind of aid is designated by the Treaty as compatible with the internal market, implying that the discretion of the Commission is narrower than under Article 107(3). Nevertheless, the Commission always checks that the aid is directly linked to the natural disaster or exceptional occurrence and that it does not exceed the amount of the damage.
Recently, in a rather unusual case, the Court of Justice dealt with the issue of compensation for damage. The Court was asked by a French court to interpret Commission decision 2005/239 of July 2004 by which the Commission ordered France to recover incompatible aid that it had granted to fish farmers and fishermen. The request for a preliminary ruling arose out of a dispute between the French Ministry of Agriculture and Food and Compagnie des pêches de Saint-Malo which contested the measures with which France sought to recover the aid.
Following the oil pollution caused by the sinking of the tanker Erika in December 1999 in the Bay of Biscay and the damage caused in certain parts of France by a violent storm also in December 1999, the French government decided to compensate fish farmers and fishermen to make good the damage they suffered by those events. The compensation was not notified to the Commission. The Ministry of Agriculture granted to all undertakings in the fisheries sector a 50% reduction in social security contributions for certain periods in 2000. This reduction applied to employers’ and employees’ contributions.
After the Commission became aware of the measure, it assessed it and concluded that the compensation was incompatible aid because it was not proportional to the damage. Neither France, nor any of the beneficiaries challenged the legality of that decision by appealing against it.
In December 2009, the Commission brought an action against France for failure to recover the aid. In October 2011 the Court of Justice, in case C-549/09, Commission v France, confirmed that France failed to fulfil its obligations.
After the judgment of the Court of Justice, France began the recovery process which led to the dispute at hand. The question that was put to the Court of Justice by the referring national court was whether the incompatible aid in the Commission’s 2004 decision concerned only the employers’ contributions or whether it also included contributions by employees.
On 17 September 2020, the Court of Justice gave its answer in its ruling in case C-212/19, Ministre de l’Agriculture et de l’Alimentation v Compagnie des pêches de Saint-Malo.
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State aid to employees?
After addressing various arguments on the admissibility of the case, the Court of Justice turned its attention to the substance of the request which was whether the reduction of the contributions by employees was State aid.
The Court, first, noted that “(37) as can be seen from paragraph 42 of the judgment of 20 October 2011, Commission v France (C‑549/09, not published, EU:C:2011:672), in the decision at issue, the Commission classified the reduction in both employers’ and employees’ social security contributions as ‘State aid’ for the purposes of Article 107(1) TFEU. Although, in Article 3 of that decision, the Commission limited itself to referring to reductions in social security contributions, it is apparent from recitals 18 and 20 of that decision that the concept of ‘social security contributions’ covered both employers’ and employees’ contributions.”
Then the Court recalled that for a public measure to constitute State aid it must confer a direct or indirect advantage that is not available under normal market conditions.
It went on to reiterate that “(40) a partial reduction of social charges devolving upon undertakings of a specific industrial sector constitutes aid for the purposes of Article 107(1) TFEU if that measure is intended partially to exempt those undertakings from the financial charges arising from the normal application of the general social security system, without there being any justification for this exemption on the basis of the nature or general scheme of this system”.
Since it is well-established in the case law that the concept of State aid is objective and does not depend on the motives or policy aims of the granting authority, the Court went on to stress that “(41) the social character of State assistance is not sufficient to exclude it outright from being categorised as ‘aid’ for the purposes of Article 107 TFEU […] since Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects”.
It then applied these principles to the case at hand.
“(42) As regards the reductions in employees’ contributions granted by the French Republic to fishermen for the period from 15 April to 15 October 2000, it is common ground that those contributions are not borne by the fisheries undertakings, in their capacity as employers, but are payable by the employees, those employees being the actual beneficiaries of those reductions. […] Under the applicable provisions of national legislation, […] those undertakings, in their capacity as employers, are only required to deduct those contributions from the remunerations of their employees on each salary slip with a view to paying them to the competent social security bodies.”
“(43) The sums which a fisheries undertaking […] deducts from the salaries of its employees by way of employees’ contributions must correspond exactly to those which it pays to the social security bodies on behalf of its employees. Thus, in so far as the fisheries undertakings merely act as an intermediary between their employees and those social security bodies and, therefore, the measure reducing the employees’ contributions at issue in the main proceedings remains neutral in relation to them, it must be held that that measure does not relate to charges included in the budgets of those undertakings”.
“(44) As the Advocate General noted in point 69 of his Opinion, it must be held that the obligation to pay to the competent bodies sums corresponding to employees’ contributions does not, by itself, permit the inference that the reduction in those contributions confers on the undertakings concerned a direct advantage in an amount equivalent to the amount of that reduction.”
There may not be a direct advantage of the same amount as the reduction of contributions, but there may be an indirect advantage that I will explain later on.
“(45) Those considerations are not called into question by the reference made, by both the French Government and the Commission, to the judgment of 21 December 2016, Commission v Aer Lingus and Ryanair Designated Activity (C‑164/15 P and C‑165/15 P, EU:C:2016:990), since, as the Advocate General noted, in essence, in points 68 and 71 to 74 of his Opinion, unlike in this case, the measures at issue in the case giving rise to that judgment were considered by the Court to have an impact on the budgets of those air carriers.”
In the case of Aer Lingus and Ryanair the issue at hand was passenger taxes for which the airlines themselves were liable. Here, however, even if the measure itself did not have a direct impact of the budget of the undertakings concerned, it may have enabled them to derive an indirect advantage. This possibility must always be examined.
“(46) On the other hand, those considerations are corroborated by the fact that the measure reducing the employees’ contributions at issue in the main proceedings was addressed solely to the employees of the fisheries undertakings, who were the sole actual beneficiaries thereof, since that measure amounted, in essence, to imposing on those undertakings the obligation to increase the net salary of their employees in proportion to the exemptions from employees’ contributions normally paid by each of them.”
But at this point the Court did recognise the possibility that an indirect advantage could be obtained by the undertakings concerned.
“(47) It should be noted, as the Advocate General did in point 64 of his Opinion, that the fact that the reduction in employees’ contributions directly benefits the employees of the undertakings concerned and not those undertakings does not mean that aid the direct beneficiaries of which are the employees of an undertaking cannot constitute indirect aid granted to that undertaking.”
The indirect advantage can be that fisheries become an attractive sector of employment. If a worker has the choice of working on in fisheries or, say, construction, the worker may choose fisheries because of the exemption from social insurance contributions. Labour supply in that sector increases, enabling fishery undertakings to hire from a wider talent pool or not to offer higher salaries to attract workers. Of course, given the temporary nature of the French measure, there could have been no actual impact on the labour market in the fisheries sector. Perhaps, as a result of the damage that the aid recipients had suffered, they did not hire any new workers. But they could have reduced the gross salaries of their existing employees to share part of the reduction in their social insurance contributions. However, the Court did not pursue this issue in greater depth.
Instead it went on to “(48) note, in that regard, that neither the decision at issue nor the documents before the Court contain any indication that the undertakings concerned indirectly benefited from State aid. Moreover, it is clear from the decision at issue, in particular from recital 55 thereof, that, in this case, the advantage invoked by the Commission was not an indirect benefit for those undertakings, but a direct one.”
Since the concept of aid is objective, it is not clear why the label given to the aid by the Commission should matter at all.
“(49) It must be held that, by arguing, in recital 55 of the decision at issue, that the reductions in social security contributions were, as a whole, measures favouring fisheries undertakings in that they were relieved of certain charges which they would normally have had to bear, the Commission erred in law.”
“(50) That error is sufficient to find that the decision at issue is invalid in so far as it classifies the reduction in employees’ contributions at issue in the main proceedings as State aid incompatible with the common market, even though the condition relating to the existence of an advantage conferred on an undertaking, which is essential for that classification on the basis of the case-law cited in paragraphs 38 and 39 above, is not satisfied.”
“(51) Having regard to all of the foregoing, it must be held that the decision at issue is invalid in so far as it classifies the reduction in employees’ contributions granted by the French Republic to fishermen for the period from 15 April to 15 October 2000 as State aid incompatible with the common market.”
It is not clear why the Court did not examine the possible indirect effect of the aid on fishery undertakings more thoroughly, even if no documents had been presented to it, or why it did not ask the referring national court, as it normally does, to examine that possibility.
Given the many measures for compensation of damage caused by Covid-19, this judgment creates some uncertainty for Member States. Since in this context reduction of the contributions of employees does not constitute State aid, Member States may be tempted to implement reductions for employees that are not proportional to the damage suffered by the companies that employ them. However, Member States must be very careful in this respect because if a reduction of employees’ contributions enables employers to reduce gross salaries, then that would constitute indirectly an advantage in the meaning of Article 107(1) TFEU.
 The full text of the judgment can be accessed at: