It is incumbent on the Commission to carry out a global assessment of tax schemes. But it must take into account only those provisions of schemes that apply ex ante and do not depend on the circumstances of individual tax payers. Only when aid has to be recovered must the provisions that apply to the specific circumstances of individual tax payers be taken into account.
In order to determine whether a tax measure confers an advantage, it is first necessary to establish the burden or liability imposed by the reference system from which it deviates. When the reference system is made up several components, the comparison between the normal and the deviation is not so straightforward, especially if in relation to one component the treatment is favourable, but in relation to another it is unfavourable. On 4 March 2021, the Court of Justice, in its judgment in case C‑362/19 P, European Commission v Fútbol Club Barcelona, clarified that where the various components of a tax system form an indivisible whole and the effects they produce differ, some being positive and some being negative, these distinct effects must be added up in order to determine whether divergent treatment is more or less favourable.
However, the effects that must be added up are those produced by components which distinguish tax payers ex ante, not those that apply ex post depending on the circumstances and the economic turnout of each taxpayer. It is only when aid has to be recovered that the components that apply to the specific circumstances of individual tax payers must be taken into account.
The Commission asked the Court of Justice to set aside the judgment of the General Court, in case T-865/16, Fútbol Club Barcelona [FCB] v Commission, which annulled Commission decision 2016/2391 concerning State aid that had been granted to certain Spanish football clubs. The judgment of the General Court was reviewed here on 16 April 2019
The Commission had found that four Spanish football clubs [FCB, Club Atlético Osasuna, Athletic Club Bilbao and Real Madrid Club de Fútbol] retained their status as non-profit sports clubs when all other clubs were converted to companies paying normal corporate tax. The Commission considered that those four clubs enjoyed a selective advantage in the form of lower taxation.
The General Court annulled the Commission decision on the grounds that the Commission had failed to take into account that those four clubs, by having a different legal status, could benefit from a certain deduction which was available to corporate tax payers only at a lower rate. The deduction in question concerned the reinvestment of “extraordinary profits” [e.g. from sale of players]. In other words, the four clubs paid lower tax but they also derived lower benefits from lower deductions. According to the General Court, the Commission had failed to examine all of advantages and disadvantages, enjoyed and suffered, respectively, by the four clubs in relation to the other football clubs.
Presence of advantage?
The Commission argued that the General Court erred in its assessment of the concept of advantage.
The Court of Justice began its analysis by recalling the relevant case law.
“(58) As regards the condition that the measure in question must be regarded as conferring an advantage on its beneficiary, […] measures which, whatever their form, are likely directly or indirectly to benefit undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions are regarded as State aid”.
“(60) It follows that national measures that confer a tax advantage which, although not involving a transfer of State resources, place the recipients in a more favourable financial situation than other taxpayers, are capable of conferring a selective advantage on the recipients and therefore constitute State aid, within the meaning of Article 107(1) TFEU”.
“(61) It should also be borne in mind that the concept of ‘advantage’, which is intrinsic to the classification of a measure as State aid, is an objective one, irrespective of the motives of the persons responsible for the measure in question. Accordingly, the nature of the objectives pursued by State measures and their grounds of justification have no bearing whatsoever on whether such measures are to be classified as State aid. Article 107(1) TFEU does not distinguish between the causes or the objectives of State aid, but defines them in relation to their effects”.
“(62) It is for the Commission to prove the existence of ‘State aid’ within the meaning of Article 107(1) TFEU and thus also to prove that the condition of granting an advantage to the beneficiaries is fulfilled.”
Then the Court stressed that the Commission must examine a measure in its totality – what the Court called a “global” assessment.
“(63) For the purposes of examining the various constituent elements of a measure likely to constitute ‘State aid’, within the meaning of Article 107(1) TFEU, it is necessary to consider all points of law or fact which are attached to that measure, in particular, the profits and costs resulting therefrom […] and, therefore, to carry out an assessment of that measure as a whole, taking into account all its characteristics”.
“(64) When assessing the existence of an advantage in relation to Article 107(1) TFEU, the Commission has a duty to carry out a global assessment of the aid measure at issue”.
“(79) In so far as the Commission complains, in essence, that the General Court erred in law in its assessment of the link between the favourable elements, such as a reduced tax rate, and the unfavourable elements, such as a lower rate of deduction, of an aid scheme such as the measure at issue, for the purposes of determining whether that scheme confers on its beneficiaries an advantage falling within the scope of Article 107(1) TFEU, it should be recalled that the General Court held, […] that, in order to conclude that such an advantage existed, the Commission was required to carry out a global assessment of the aid scheme at issue, taking into account both the favourable and unfavourable consequences of that scheme for its beneficiaries.
“(80) Thus, […] the General Court held that, in order to be able to determine whether the measure at issue was capable of conferring an advantage on its beneficiaries by placing them in a more advantageous situation than they would have been had they had to operate in the form of SLCs [i.e. sports companies], it was necessary to examine the various components of the tax regime applicable to non-profit entities as a whole, since those components form an indivisible whole.”
“(82) It was apparent […], that the maximum share of profits that could be deducted was lower for non-profit entities than that applicable to SLCs [i.e. sports companies] and that that fact was of a specific significance in the professional football sector.”
“(83) In those circumstances, the General Court concluded […], that, […] the Commission, which had the burden of proving the existence of an advantage, had not demonstrated to the requisite legal standard that it could be ruled out that the slightest possibility of deduction would offset the advantage derived from the reduced tax rate”.
“(84) That reasoning is vitiated by errors in law.”
“(85) Admittedly, as the General Court rightly considered, […] the Commission, […] must nevertheless, […] carry out a global assessment of that scheme, taking into account all the components which constitute its specific features, both favourable to its beneficiaries and unfavourable to them.”
“(86) However, since, in the case of such an aid scheme, the examination which the Commission is required to carry out under Article 107(1) TFEU relates exclusively, […] to that scheme and not to aid subsequently granted on the basis of it, the question whether that scheme confers an advantage on its beneficiaries cannot depend on the financial situation of the beneficiaries at the time of the subsequent grant of that aid, but must necessarily be assessed, […] with reference to the time of adoption of the scheme in question, by carrying out an ex ante analysis”.
“(87) Thus, where the tax aid scheme applies on an annual or periodic basis, the Commission need only demonstrate, […] that the aid scheme is such as to favour its beneficiaries, by ascertaining that the scheme, taken as a whole, is, given its particular characteristics, capable of resulting, at the time of its adoption, in the tax liability being lower than it would have been if the general tax regime had been applied, irrespective of whether, in view of those characteristics, that institution is not in a position to determine, in advance for each tax year, the precise level of taxation for that tax year”.
“(88) It is at the stage of the possible recovery of the aid granted on the basis of that aid scheme that the Commission is required to determine whether that scheme has actually conferred an advantage on its beneficiaries taken individually, since such recovery requires the exact amount of aid actually enjoyed by the beneficiaries in each tax year to be established.”
“(89) It follows that the impossibility of determining, at the time of the adoption of an aid scheme, such an amount cannot prevent the Commission from finding that the scheme was likely, from that moment, to confer an advantage on those beneficiaries and cannot, accordingly, exempt the Member State concerned from notifying such a scheme under Article 108(3) TFEU.”
“(95) The aid scheme at issue was, from the moment of its adoption, liable to favour clubs operating as non-profit entities over clubs operating in the form of SLCs, thereby providing them with an advantage capable of falling within the scope of Article 107(1) TFEU.”
“(96) Admittedly, it is also common ground that, from that same moment, that scheme provided for a lower rate of deduction for reinvestment of extraordinary profits than that applicable to SLCs.”
However, “(98) the examination, for the purposes of the application of Article 107(1) TFEU, of the effect of the deduction in question, in respect of which it is common ground that it depends on the subsequent occurrence of random and variable circumstances, on the reduced tax rate provided for by the aid scheme at issue and, in particular, the assessment as to whether that reduced rate would be neutralised by that deduction, cannot, in the case of a tax aid scheme such as that at issue, which applies on an annual basis, be conducted at the time of the adoption of that scheme, that effect being only liable to materialise at the end of each of the subsequent tax years.”
“(101) It follows that, to demonstrate to the requisite legal standard that the aid scheme at issue confers on its beneficiaries an advantage falling within the scope of Article 107(1) TFEU, the Commission was not required to examine, in the decision at issue, the effect of the deduction for reinvestment of extraordinary profits or that of the possibilities of deferral in the form of a tax credit and, in particular, whether that deduction or those possibilities would neutralise the advantage resulting from the reduced tax rate. The possibility of such neutralisation cannot have the consequence that the Commission could not establish the existence of an aid scheme, or, moreover, that it could not order the recovery of individual aid in so far as that aid had been granted to beneficiary clubs on the basis of that scheme in respect of certain tax years, as from the adoption of the decision at issue. After all, it is precisely at the stage of any recovery of the aid granted on the basis of that aid scheme that the Commission must take those effects into account, where it is necessary to determine the exact amount of aid which the beneficiary has actually obtained.”
In view of the fact that the General Court was found to have erred in law, the Court of Justice proceeded to give itself final judgment by examining the initial pleas before the General Court.
With respect to whether the scheme in question conferred an advantage, the Court of Justice clarified, first, that “(114) the Commission was not required, in order to demonstrate to the requisite legal standard that the aid scheme resulting from the measure at issue confers on its beneficiaries an advantage falling within the scope of Article 107(1) TFEU, to examine, in the decision at issue, the effect of the deduction for reinvestment of extraordinary profits and, in particular, whether that deduction would neutralise the advantage resulting from the reduced tax rate.”
“(115) The Commission was therefore right to find, […] that the deduction for reinvestment of extraordinary profits applicable to non-profit entities ought not be taken into account in determining whether the measure at issue conferred an advantage on its beneficiaries, on the ground that, since it was granted only under certain conditions which were not always met, that deduction was not such as to neutralise systematically, for each tax year, the advantage conferred by the reduced tax rate, […] any effect of that deduction should, by contrast, be taken into account, on a case-by-case basis, in the context of the recovery procedure, for the purpose of determining, for each tax year, the exact amount of aid to be recovered.”
With respect to alleged breach of the principle of the protection of legitimate expectations, the Court of Justice noted that “(120) in view of the mandatory nature of the supervision of State aid by the Commission pursuant to Article 108 TFEU, undertakings to which aid has been granted may not, in principle, rely on a legitimate expectation that the aid is lawful unless it has been granted in compliance with the procedure laid down in that article, and furthermore, an economic operator exercising due care should normally be able to determine whether that procedure has been followed. In particular, where aid is implemented without prior notification to the Commission, with the result that it is unlawful under Article 108(3) TFEU, the recipient of the aid cannot rely at that time on a legitimate expectation that its grant is lawful”.
“(121) Consequently, in the absence, in the present case, of notification of the measure at issue by the Kingdom of Spain under Article 108(3) TFEU, FCB can under no circumstance invoke an infringement of the principle of the protection of legitimate expectations.”
Justification by the internal logic of the system?
With respect to the claim that the Commission did not take into account the fact that the measure at issue was justified by the internal logic of the tax system, the Court of Justice pointed out that the scheme in question “(127) consists not in the existence, in Spanish law, of different tax regimes for non-profit entities and for public limited companies, but in the narrowing, in the professional sports sector, of the scope ratione personae of the tax regime for non-profit entities, implying the existence, between professional football clubs, of a difference in treatment as regards access to that legal form and thus introducing a difference in the tax regime between those clubs, depending on whether they were obliged to convert into public limited companies or whether they could, by way of derogation, continue to operate as non-profit entities.”
FCB also claimed that the aid was existing as the relevant law was adopted before Spain acceded to the EU in 1986. The Court rejected that claim and agreed with the Commission that that law had been modified after Spain become an EU member. Modification of an existing aid scheme makes it a new aid scheme.
In conclusion, the Court of Justice set aside the judgment of the General Court.
 The full text of the judgment can be accessed at: