Exclusive Rights and State Aid

Exclusive rights may constitute State aid if they mandate payments with resources over which the state can exercise control. Compensation for the cost of public service obligations may be granted only if the obligations are clear and define a service that is different from market services.

Introduction

Article 106(1) TFEU requires Member States not to distort competition when they grant special or exclusive rights to undertakings. If Article 106(1) is found to be infringed it is normally because the undertaking with the exclusive right abuses its dominant market position. It is rare for exclusive rights to be contrary to Article 107(1) TFEU because the granting of those rights does not normally involve transfer of state resources.

On 3 March 2021, the Court of Justice, in joined cases C‑434/19 and C‑435/19, Poste Italiane, had to determine whether indeed a certain exclusive right conferred on Poste Italiane resulted in transfer of state resources and, as a consequence, it constituted State aid.[1] The cases before the Court of Justice were referred by an Italian court in a request for a preliminary ruling.

Italian law required that the municipal property tax known as “ICI” was paid to agents of the state responsible for collecting that tax. The agents would then transfer it to the municipality levying the tax. However, the agents were obliged to open accounts at Poste Italiane in order for tax payers to pay into those accounts the tax due. It was thought that in this way the collection of the tax would be facilitated because it would be easier for tax payers to pay at their local post office.

In a recent Commission decision on the public compensation paid to Poste Italiane for the cost of its universal service obligations, it is mentioned that Poste Italiane operates about 12,800 post offices across Italy [see case SA.55270].

The reference for preliminary ruling was in connection to disputes that arose from demands by Poste Italiane for the payment of fees by two agents responsible for collecting the ICI. The two agents were Riscossione Sicilia and the Collection Agency. The fees were in connection to the management by Post Italiane, from 1997 to 2011, of the current accounts of those agents for the purpose of collecting the ICI tax. The fee per pay-in slip was initially EUR 0.05 and later was raised to EUR 0.23.

The referring Italian court asked whether the requirement for ICI agents to open a current account with Poste Italiane to enable tax payers to pay that tax, and to pay a fee for the management of that current account, constituted State aid for Poste Italiane.

We will see below that the answer depends on whether the resources of the agents could be considered to be state resources.

In addition, the referring court asked whether the obligation imposed on Post Italiane to provide these services to ICI agents could be classified as a service of general economic interest [SGEI]. The answer on this issue was a clear no.

The role of the Commission and national courts

The Court began its analysis by reiterating, in paragraphs 33-34 of the judgment, established case law on the respective roles of the Commission and national court in the EU’s system of State aid control. Only the Commission can determine the compatibility of State aid, while national courts can determine the existence of State aid and whether the obligation for prior notification has been complied with regardless of whether the aid recipient may be a provider of a service of general economic interest.

Transfer of state resources?

Then the Court turned its attention to the criteria of Article 107(1) TFEU and in particular control of resources by the state and attribution to the state. “(40) As regards, first, the condition that a measure of aid be attributable to the State, that condition renders it necessary to examine whether the public authorities were involved in the adoption of that measure”.

Indeed the measure was attributed to the state. “(41) In the present case, […] the provisions at issue in the main proceedings were established by legislative and regulatory provisions. The obligation on the agents to hold a current account with Poste Italiane for the collection of the ICI was established by Legislative Decree No 504/1992, while the right for that undertaking to collect a fee for the management of that account was provided for by Law No 662/1996. Against that background, while it is for the referring court to verify, the provisions requiring the agents to hold a current account in their name with Poste Italiane to enable taxpayers to pay the ICI and requiring them to pay a fee for the management of that current account can be considered to be attributable to the State.”

With respect to control of resources by the state, the Court stressed that “(42) it is important to clarify that the concept of ‘State resources’ covers all the financial means by which the public authorities may actually support undertakings, irrespective of whether or not those means are permanent assets of the public sector. Even if the sums corresponding to the aid measure are not permanently held by the Treasury, the fact that they constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as State resources”.

Then the Court clarified that “(43) a measure under which undertakings, whether public or private, are bound to an obligation to purchase or acquire services by means of their own financial resources does not constitute State aid. That obligation does not, in principle, involve the use of State resources, for the purposes of Article 107 TFEU. The opposite would be true, however, if those undertakings were considered to be appointed by the State to manage a State resource, which would be the case if it was prescribed that those extra costs incurred as a result of that obligation to purchase or acquire services were to be passed on entirely to end users, or that they were to be financed by a compulsory contribution imposed by the State or by a full offset mechanism”.

This is the critical issue in the present case. The ICI agents were, of course, managing tax receipts – state resources. But was the fee they paid to Poste Italiane also state resource or was the cost they incurred for the collection of the tax offset by some arrangement defined by the state [e.g. could they debit the authorities which had levied the ICI tax]?

With respect to public undertakings, the Court added that “(44) resources of public undertakings may be regarded as State resources where the State is capable, by exercising its dominant influence over such undertakings, of directing the use of their resources in order to finance, where appropriate, advantages to the benefit of other undertakings”.

“(45) In the present case, […] the measure at issue in the main proceedings may be regarded as involving an obligation to purchase services, since, under Article 10(3) of Legislative Decree No 504/1992, the agents are obliged to open a current account in their name with Poste Italiane for the collection of the ICI from taxpayers and, under Article 2(18) of Law No 662/1996, Poste Italiane may collect a fee for the management of that account from those agents.”

“(48) It is, […] necessary to determine, […] whether the agents responsible for collecting the ICI constitute undertakings appointed by the State to manage a State resource, which would be the case, inter alia, if there was a full offset mechanism for the extra costs resulting from that obligation.”

“(49) It is not clear from the information available to the Court that such a mechanism exists.”

“(50) Under Article 10(3) of Legislative Decree No 504/1992, the taxing municipalities are obliged to pay their agents a commission for their activity of collecting the ICI. However, although those sums are clearly of public origin, there is no evidence that they are intended to cover the extra costs which the agents are liable to incur as a result of their obligation to open a current account with Poste Italiane and that the State thus ensures that those extra costs are covered in full. It is for the referring court to determine whether that is the case.”

“(51) It should be noted, moreover, that it is not apparent […] that any extra costs incurred as a result of the obligation to acquire services from Poste Italiane, which is at issue in the main proceedings, should be borne in full by the tax payers or that they would be financed by another form of compulsory contribution imposed by the State.”

“(52) However, even if it does not seem, prima facie, that the fees paid by the agents to Poste Italiane in connection with the opening and management of the accounts which they are required to hold with Poste Italiane may be regarded as being granted directly or indirectly through State resources, this must be verified by the referring court as the Court may not carry out a direct examination of the facts in the main proceedings.”

I suppose that the fee that municipalities paid to ICI agents covered all the costs they incurred in managing the ICI tax. If the ICI agents were compensated in full, it is likely that Poste Italiane received state resources. [The judgment mentions that ICI agents received from the municipalities a fee of 1% of the tax they collected, while the fee they paid to Poste Italiane was EUR 0.23 per pay-in slip. This means that if the minimum amount of tax was above EUR 23, then the 1% fee covered completely the charge that the agents paid to Poste Italiane.]

It also possible that the ICI agents benefitted from State aid too, depending on how they were selected and how their fee was established. But the judgment contains no information on this issue apart from a mention in paragraph 60 of the judgment [see below] that the municipalities and the agents were linked through a “procurement procedure”. Perhaps that meant that they had been selected competitively, which implies no abnormal advantage for them.

Presence of selective advantage?

Next, the Court examined whether Poste Italiane obtained a selective advantage that it would not have been available to it under normal market conditions, i.e. in the absence of state intervention.

“(54) In that regard, the right conferred by national regulation on an undertaking to levy fees for managing a service in respect of which it holds the statutory monopoly is liable in principle to be regarded as a selective advantage for the sole benefit of that undertaking.”

“(55) It is Legislative Decree No 504/1992, which established a statutory monopoly in favour of Poste Italiane, that provided for the obligation on the agents to open a current account in their name with Poste Italiane for receiving payments of the ICI from tax payers. Until Decree-Law No 70/2011, Poste Italiane was the only beneficiary of that advantage, which had been justified by the very wide distribution of post offices across the national territory, allowing the tax payer to be reached more easily.”

SGEI conforming with Altmark?

The referring Italian court also wanted to know whether the obligation imposed on Poste Italiane to open accounts for ICI agents could be classified as an SGEI and whether it conformed with the Altmark conditions.

The Court of Justice, first, recalled the four well-known Altmark conditions.

Then, “(59) as regards the first condition […], the Court held that that condition is designed to ensure transparency and legal certainty, and thus requires that minimum criteria be met in relation to the existence of one or more acts of public authority defining, in a sufficiently precise manner, at least the nature, duration and scope of the public service obligations imposed on the undertakings entrusted with the performance of those obligations. In the absence of a clear definition of such objective criteria, it is not possible to verify whether a particular activity may be covered by the concept of a service of general economic interest”.

“(60) The current case, […] [does] not concern the postal services offered by Poste Italiane and that, as regards the collection of the ICI, the referring court distinguishes between, on the one hand, the relationship which, by means of an administrative concession, using a procurement procedure, connects the municipality (the taxing authority) and the agent responsible for that collection and, on the other hand, the private relationship which connects that agent and Poste Italiane through the obligation to hold a post-office current account for that collection and to pay a fee for the management of that account. The cases in the main proceedings concern only the second of those two relationships.”

“(61) There is nothing to indicate that, in its relationship with those agents, Poste Italiane is formally obliged to provide certain services pursuant to a public service obligation in a way that defines the nature and scope of that obligation with sufficient precision.”

“(62) On the contrary, even if the opening and the management of the post-office current accounts in the name of the agents are among the activities establishing methods for organising and implementing the public service of collecting the ICI, which is entrusted to the agents, […] outside the obligation to contract with all the agents, Poste Italiane is not subject to additional obligations to those which apply to the banking services sector.”

“(63) In particular, Poste Italiane remains free to set its fees and, aside from the obligation to contract with the agents, no other specific factor differentiates its relationship with those agents from the relationship it has with its other post-office current account clients. Poste Italiane stated that it has a normal current account relationship with the agents and that it has always offered a single post-office current account with a basic service which is the same for all its clients. The Collection Agency also confirmed that Poste Italiane applied the same economic conditions to the current accounts of the agents as it applies generally to all other legal persons.”

As the Court of Justice has stressed in numerous cases, an SGEI has “special characteristics” that differentiate it from other services offered by the market. If Poste Italiane offered the same service to all its clients, then the service to ICI agents cannot be classified as an SGEI.

“(64) Accordingly, the first [Altmark] condition […] is not satisfied in the present case and there is no need to examine the other conditions laid down in that judgment, since those conditions are cumulative.”

“(65) It follows that Poste Italiane’s right, granted by the relevant national regulation, to collect fees for the management of the post-office current accounts which the agents were legally required to open in their name in order to receive payments of the ICI from tax payers may be regarded as a selective advantage, which is a matter for the referring court to verify.”

Affectation of trade?

Next the Court examined whether the measure in question affected trade.

“(67) First, it is necessary to bear in mind that, for the purpose of categorising a national measure as ‘State aid’, it is necessary not to establish that the aid has a real effect on trade between Member States and that competition is actually being distorted but merely to examine whether that aid is liable to affect such trade and to distort competition”.

“(68) Moreover, when aid granted by a Member State strengthens the position of certain undertakings as compared with that of other undertakings competing in trade between Member States, such trade must be regarded as being affected by the aid. In that regard, it is not necessary that the beneficiary undertakings themselves be involved in trade between Member States. Where a Member State grants aid to undertakings, internal activity may be maintained or increased as a result, so that the opportunities for undertakings established in other Member States to penetrate the market in that Member State are thereby reduced”.

“(69) However, it cannot be ruled out, in the present case, that, by obliging the agents to each hold a post-office current account for collecting the ICI from tax payers and to pay a fee to Poste Italiane for the management of that account, the Italian legislation at issue in the main proceedings is capable of strengthening the position of that public undertaking compared to competing undertakings in the banking and financial services sector and that it is also capable of affect trade between Member States.”

“(70) It is, however, for the referring court to assess the effect of the measure at issue in the main proceedings on the activity of Poste Italiane and of other banking institutions which, at least until the adoption of Decree-Law No 70/2011, reserved for Poste Italiane the advantage arising from the obligation on the agents to open a current account in their name with that undertaking in order to receive payment of the ICI from tax payers, in addition to the possibility of making the payment of that tax directly to those agents.”

Implications

The Court of Justice also provided guidance to the referring national court on what to do in case the national court concluded that the measure constituted State aid.

“(71) It should be noted that it is apparent from the orders for reference that the measure established by Legislative Decree No 504/1992, giving Poste Italiane the monopoly on the management of the current accounts opened in the name of the agents responsible for collecting the ICI, was not notified to the Commission under Article 108 TFEU.”

“(72) It follows that, should the referring court come to the conclusion, […] that the measure at issue in the main proceedings constitutes State aid, it is for that court, in accordance with the case-law […], to draw all necessary inferences from the infringement, in the present case, of Article 108(3) TFEU.”

“(73) As to the remainder, it should be noted that, since the first [Altmark] condition – that the beneficiary undertaking must have public service obligations to discharge which must be clearly defined – also applies where the derogation laid down in Article 106(2) TFEU has been invoked […] Article 106(2) TFEU cannot apply in the cases in the main proceedings, since it was held, […] that that condition is not satisfied in this instance. In any event, since the Commission has exclusive jurisdiction to assess the compatibility of aid with the internal market, […] the referring court does not have jurisdiction to examine whether the conditions for the application of Article 106(2) TFEU are satisfied.”

Conclusions

On the basis of the above analysis, the Court of Justice concluded that “(74) Article 107 TFEU must be interpreted as meaning that a national measure under which the agents responsible for collecting the ICI are required to hold a current account in their name with Poste Italiane, to enable tax payers to pay that tax, and to pay a fee for the management of that current account, constitutes ‘State aid’ provided that that measure (i) can be attributed to the State, (ii) provides a selective advantage to Poste Italiane through State resources and (iii) is liable to distort competition and trade between the Member States, which are matters for the referring court to ascertain.”


[1] The full text of the judgment can be accessed at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=238444&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=8271175


Photo by Myfanwy Owen on Unsplash

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About

Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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