Obligations Imposed by the State Cannot Justify Tax Exemptions

Obligations Imposed by the State Cannot Justify Tax Exemptions - State Aid Uncovered photos 18


Over the past decade or so, the European Commission has found that multiple port operators have benefitted from State aid in the form of tax exemptions. This aid was in all cases found to be incompatible with the internal market, despite the claims of the port operators that the state had imposed on the public service obligations or that some of their activities were not economic in nature.

On 30 May 2024,in case C-110/23 P, Autoridad Portuaria de Bilbao v Commission, the Court of Justice rejected another argument alleging that tax advantages did not constitute State aid.1 In this case, Autoridad Portuaria de Bilbao [the port authority of Bilbao, Spain (APB)] claimed that the tax exemption it enjoyed was intended to enable it to reach financial self-sufficiency so that the cost of its operations would not burden the state budget.

APB appealed against the judgment of the General Court of 14 December 2022 in case T-126/20, Autoridad Portuaria de Bilbao v Commission, by which the General Court rejected APB’s action for annulment of Commission decision SA.38397. In that decision, the Commission recorded that Spain accepted the appropriate measures the Commission had proposed to Spain to end the corporate tax exemptions in favour of ports. The aid was incompatible with the internal market but because it was existing aid no recovery was necessary.

Spanish ports are managed by port authorities, which are public bodies with a high degree of financial, functional and administrative autonomy. APB is a public body with legal personality and its own assets, independent of the state assets, having the full capacity to act for the achievement of its objectives. The tasks and powers of APB are defined in Decree 2/2011.

Under Article 104(3) of Decree 2/2011, the services provided in the main Spanish ports are classified as general services, port services, commercial services or maritime traffic services. Port authorities are authorized to entrust the management of general services to third parties, provided that security is ensured and that this does not involve the exercise of public powers. Private operators offer port services and commercial services.

Under Article 27 of Decree 2/1011, port authorities may generate revenue from port taxes and fees from provisions of services. They may also receive funding from the state budget.

Under Article 156 of Decree 2/2011, port authorities must respect the principle of economic self-sufficiency of the port system. This means that must cover, through their revenue from port taxes and other fees, the costs necessary for the exercise of their functions as well as a 2.5% return on the average value of their assets over the long term.

According to the Spanish tax law, corporate tax to all corporate entities on Spanish territory. However, the Basque Country is empowered to legislate on direct taxation, particularly on corporate tax. Basque law exempts completely port authorities from corporation tax.

As is well known, since 2013 the Commission has been investigating the tax treatment of ports in various Member States. It has already asked that favourable tax treatment be terminated in several Member States such as the Netherlands, Belgium, France and Spain.

When it was informed of the Commission decision, APB lodged an action for annulment and argued before the General Court that the tax exemption did not constitute an advantage. Even if it were an advantage, there was no distortion of competition and no affectation of trade between Member States. It also argued that the exemption was not selective. In the alternative, APB contended that if the exemption constituted State aid it would be compatible with the internal market under Article 107(3)(c) TFEU. However, the General Court rejected all of those arguments and dismissed the action in its entirety.

Advantage and self-sufficiency

APB held that the tax exemption should have been assessed in conjunction with the principle of self-sufficiency.

The Court of Justice disagreed. The Court explained in paragraph 47 of the present judgment that according to the judgment in case C-362/19 P, Commission v Football Club Barcelona, for the purposes of examining the various constituent elements of a measure likely to involve State aid, it is necessary to consider all the elements of law or fact with which the measure is related, in particular the benefits and burdens resulting therefrom, and, therefore, to carry out an assessment of the measure as a whole, taking into account all its specific characteristics.

Then the Court reviewed the main points of the reasoning of the General Court which dismissed the relevance of the principle of self-sufficiency in relation to the tax exemptions.

The General Court examined the APB’s argument according to which the objective pursued by the tax exemption was to compensate for the structural disadvantage linked to the obligation to finance investments of general interest. APB contended that the resulting revenues aimed to offset the cost of investments in essential infrastructure which would have to be financed by the Spanish state budget if another regime were applied.

However, the General Court rejected that argument on the grounds that Article 107 TFEU did not distinguish state interventions according to their causes or their objectives, but defined them according to their effects.

The General Court also rejected, as hypothetical, APB’s argument that, in the absence of a financial self-sufficiency regime, Spain would have to take charge of the major part of port infrastructure investments and, in such a scenario, this financing would not constitute State aid to the extent that it related to non-economic infrastructure.

Moreover, the General Court found that the tax exemption which established the principle of self-sufficiency made no distinction between the infrastructures intended for economic activities and those intended for non-economic activities. The General Court considered that the fact that ports could make investments in non-economic infrastructure was, therefore, irrelevant.

The Court of Justice concluded, in paragraph 55 of the present judgment, that the General Court correctly found that the tax exemption conferred an advantage and that the principle of self-sufficiency was not relevant in this respect.

Taking into account all features of an aid measure

APB argued that the Commission had failed to take into account all facts of the measure in question.

The Court of Justice recalled that the Commission may, in the case of an aid scheme, limit itself to studying the general characteristics of the scheme in question, without being required to examine each particular case of application in order to verify whether the scheme includes aid elements. [paragraph 63]

APB considered that the above principle was not automatically applicable to the present case, where it was known that the aid measure only benefitted a single entity.

First, the Court of Justice observed that the tax exemption was in fact a scheme, as defined in Article 1(d) of Regulation 2015/1589. The tax exemption defined in a “general and abstract manner” the beneficiaries of the exemption. [paragraphs 65-67].

Indeed, it is precisely the general and abstract definition of the beneficiaries of the aid scheme which justifies that the Commission can, in the case of a scheme, limit itself to examining, in a general and abstract manner, the characteristics of the scheme for the purposes of its classification as State aid, within the meaning of Article 107(1) TFEU. [paragraph 69]

Contrary to what APB claimed, the fact that there was only one entity benefiting from the scheme did not prevent the measure from being classified as a scheme. [paragraph 70].

If APB’s argument could succeed, it would amount to requiring the Commission to take into account varying circumstances linked to the granting of individual aid on the basis of the aid scheme which it is examining. Such a requirement would clash with the case law according to which, in the case of an aid scheme, a distinction must be made between the adoption of this scheme, on the one hand, and the granting of aid on the basis of that regime, on the other hand. The number of beneficiaries is in fact only the consequence of the automatic application of the same scheme and cannot, therefore, have any impact on the examination to which the Commission is required to carry out to determine the presence of an advantage. [paragraph 71]

The procedure for appropriate measures

APB claimed that neither the Commission, nor the General Court fully took into account the information provided by Spain during its discussions with the Commission on the appropriate measures which in the end required the abolition of the tax exemption.

First, the Court of Justice noted, in paragraph 84 of the present judgment, that the General Court concluded that the information in question was irrelevant, on the grounds that it related to the individual assessment of aid granted on the basis of a scheme aid and that, consequently, in accordance with the case law on the assessment of schemes, the Commission could ignore it.

Furthermore, the General Court considered that, in the absence of a mechanism for allocating the exempt amount to the financing of non-economic activities, APB’s argument was, in any event, irrelevant. [paragraph 85]


Given that the Court of Justice rejected all the pleas advanced by APB, it rejected the appeal in its entirety.

This judgment confirms four important issues:

First, tax measures are assessed from a State aid perspective by taking into account all the features which are indissolubly linked to them.

Second, tax exemptions are not selective only if they follow from the structure or logic of the reference system. Extraneous policy objectives or principles, such as financial self-sufficiency, regardless of their legitimacy or importance, are irrelevant.

Third, if tax exemptions are not to be found to confer a selective advantage, they must be explicitly linked to and limited to financing non-economic activities which are separate from economic activities.

Fourth, the Commission does not have to examine the specific circumstances of individual awards of aid when such awards are made in the context of aid schemes.



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 is professor at the University of Maastricht and the University of Nicosia. 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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