Reduction of Property Taxes and Electricity Tariffs

calculator
Relief from property tax is State aid even when the user of the property is involved in defence contracts. Providing cheaper electricity to a few manufacturers cannot be considered to be an appropriate measure for regional development.

Introduction

This article summarises several judgments which were delivered in October 2014. They concern a tax exemption in Spain and reduction of electricity tariffs in Romania and Italy. In all cases, there was operating state aid. It is difficult for operating State aid to be found to be compatible with the internal market.

I. Exemption from property tax in Spain

On 9 October 2014, the Court of Justice examined, in case C‑522/13, Ministerio de Defensa, Navantia SA v Concello de Ferrol, an exemption from property tax relating to public land that was put at the disposal of Navantia in Spain.[1]

Navantia was an undertaking wholly owned by the Spanish state. It constructed naval vessels and manufactured and repaired various products for the private sector, principally in the maritime and energy fields. Navantia owned a shipyard located in the region of Concello de Ferrol. The land of the shipyard was owned by the Spanish state. The right to use the land was made available to Navantia on payment of EUR 1 per year.

Regional authorities, like Concello de Ferrol, levy property taxes. The property tax for the land used by Navantia was normally payable by the Spanish state, as the owner of that land. However, when the Spanish state gave Navantia the right to use the land, it also transferred to it the burden of bearing that tax.

Subsequently, the Spanish state and Navantia applied to the Concello de Ferrol for an exemption from the property tax, but the application was refused. The refusal was contested before a national court and it was that dispute which was the subject of the proceedings in case C-522/13. The question that was referred by the national court for preliminary ruling by the Court of Justice was whether the tax exemption could entail the granting of State aid to Navantia.


Do you know we also publish a journal on State aid?

EStAL banner
The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.


 

After reviewing the relevant tax provisions, the Court of Justice found that “27 … the property tax constitutes a tax normally payable by Navantia and that the exemption enjoyed by that undertaking has the effect of mitigating directly, without any other measure being necessary, the charges that would ordinarily be borne by an undertaking in the same situation. Consequently, it appears that a tax exemption of that nature confers an economic advantage on Navantia.”

The Spanish state contended that the objective of the exemption was not to confer a benefit to an undertaking such as Navantia, but exclusively to benefit the Spanish state in its capacity as owner of land and, moreover, that the land was used for national defence purposes. The Court replied that the aims of a measure were irrelevant in the context of Article 107(1) TFEU and that the exemption mitigated the charges that would normally be borne by Navantia. [paragraphs 28-29]

Then the Court turned its attention to the issue of the selectivity of the exemption. “35 It follows that, in order to categorise a domestic tax measure as ‘selective’, it is necessary to begin by identifying and examining the common or ‘normal’ regime applicable in the Member State concerned. It is in relation to that common or ‘normal’ tax regime that it is necessary, secondly, to assess and determine whether any advantage granted by the tax measure at issue may be selective, by demonstrating that the measure derogates from that common regime in as much as it differentiates between economic operators who, in the light of the objective attributed to the tax system of the Member State concerned, are in a comparable factual and legal situation”.

The Court acknowledged that according to Spanish law, ownership or use of land entailed liability to property tax. The regime to which that tax belonged was, therefore, taken to be the reference or normal regime and the exemption was obviously a deviation from that normal regime.

The last issue that remained to be examined by the Court was whether the differentiation caused by the tax exemption in favour of Navantia arose from the nature or the overall structure of the reference tax system.

“43 A measure which creates an exception to the application of the general tax system may be justified by the nature and overall structure of the tax system if the Member State concerned can show that that measure results directly from the basic or guiding principles of its tax system. In that connection, a distinction must be made between, on the one hand, the objectives attributed to a particular tax regime, which are extrinsic to it, and, on the other hand, the mechanisms inherent in the tax system itself, which are necessary for the achievement of such objectives”.

The Court concluded that “44 … in the present case, it does not appear from the information before the Court that the Spanish Government has adduced any arguments to show that the tax exemption sought results directly from the basic or guiding principles of the Spanish tax system or that it is necessary for the functioning and efficiency of that tax system. Moreover, as the European Commission pointed out, an exemption for immovable property owned by the State and used for the purposes of national defence does not appear to be directly related to the objectives of the property tax itself.”

In the rest of the judgment, the Court found that the other criteria of Article 107(1) could hold as well and concluded that the exemption from property tax could amount to State aid.

II. Reduction of electricity tariffs

On 16 October 2014, the General Court rendered its judgments in four related cases:

  1. T-129/13, Alpiq RomIndustries and Alpiq RomEnergie v Commission[2]
  2. T-517/12, Alro v Commission[3]
  3. T-308/11, Eurallumina v Commission[4]
  4. T-177/10, Alcoa Trasformazioni v Commission.[5]

The first two concerned preferential electricity tariffs in Romania and the other two preferential electricity tariffs in Italy.

The judgments in the Romanian cases dealt mostly with procedural issues. The judgments in the Italian cases also examined whether preferential electricity tariffs could be categorised as measures for regional development purposes.

With respect to the objective of regional development, the Court agreed with the Commission that subsidised electricity tariffs did not contribute to the overall regional economy [in this case, the economy of Sardinia] when such tariffs were only available to a few undertakings. On the contrary, the subsidisation of electricity strengthened the power of electricity producers.

Moreover, the Court agreed with the Commission that subsidisation of electricity amounted to operating aid. According to the regional aid guidelines, operating aid had to be temporary and declining. Italy argued that the amount of aid was linked to the price of electricity and, therefore, the beneficiaries never received excessive aid. The Court observed, however, that the fact that the amount of the subsidy fluctuated depending on electricity costs was not equivalent to reduction of operating aid over time.

 

 


 

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

http://curia.europa.eu/juris

[2] The text of the judgment can be accessed here:

http://curia.europa.eu/juris

[3] The text of the judgment can be accessed here:

http://curia.europa.eu/juri

[4] The text of the judgment can be accessed here:

http://curia.europa.eu/juris

[5] The text of the judgment can be accessed here:

http://curia.europa.eu/juris

Tags

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 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.

Related Posts

07. Nov 2023
State Aid Uncovered by Phedon Nicolaides
Whether a Tax Measure Grants New Aid Must also be Assessed in the Context of the Relevant National Case Law - Untitled design 11

Whether a Tax Measure Grants New Aid Must also be Assessed in the Context of the Relevant National Case Law

Introduction The application of the concept of selectivity to tax measures requires a comparison of undertakings or activities that are in a similar factual or legal situation. A tax measure that differentiates between similar undertakings or activities is selective in the meaning of Article 107(1) TFEU, unless the differentiation can be justified on objective reasons. It follows that the proper […]
17. Dec 2019
State Aid Uncovered by Phedon Nicolaides
Can a Tax (rather than a Tax Exemption) Confer a Selective Advantage? - StateAidHub blogpost52 Stateaid Lexxion TAX Water Spain European Commission

Can a Tax (rather than a Tax Exemption) Confer a Selective Advantage?

A tax that is levied at one level of government and does not apply to products and activities at a different level of government need not be selective. Introduction A tax exemption normally confers a selective advantage, unless it is justified by the logic of the tax. Counterintuitively, a tax itself can be selectively advantageous if its scope is too […]
10. Sep 2019
State Aid Uncovered by Phedon Nicolaides
Individually Notified Regional Aid -

Individually Notified Regional Aid

All individual awards of aid granted to the same project over a three-year period have to be counted together and remain below the maximum allowable aid intensity in relation to the sum of eligible costs. Introduction Hungary operates an aid scheme that offers tax credits to encourage regional investment. The scheme has been implemented on the basis of the GBER […]
30. Jul 2019
State Aid Uncovered by Phedon Nicolaides
The Problem with Turnover Taxes -

The Problem with Turnover Taxes

Economies of scale do not necessarily correlate with ability to pay. Introduction On Thursday, 11 July 2019, France became the first European country to adopt a tax on digital sales. At about the same time, President Donald Trump warned that the US would retaliate with punitive tariffs. The US believes that the tax is aimed at its internet giants such […]
28. May 2019
State Aid Uncovered by Phedon Nicolaides
What Happens when Internal Market Rules and State Aid Rules Clash? - StateAidHub blogpost21 Tax Refund

What Happens when Internal Market Rules and State Aid Rules Clash?

A tax refund may not be granted, if it constitutes non-notified State aid.   Introduction   It is a well-established principle that restrictions on internal market rights or freedoms may not be attached to a State aid measure. Indeed, current State aid rules [e.g. GBER, guidelines] explicitly exclude from their scope any aid measure which is inseparably linked to a […]
19. Mar 2019
State Aid Uncovered by Phedon Nicolaides
Many Tax Rulings Do Not Make a Single Aid Scheme - StateaidHub blogpost11 Lexxion 2019 Tax Commission EU judgement

Many Tax Rulings Do Not Make a Single Aid Scheme

The autonomy that Member States enjoy in the field of direct taxation must be exercised in compliance with EU State aid law. A State aid measure is considered to be a “scheme” when (a) no further implementing acts are necessary, (b) the granting authority has no discretion in how the measure is applied and (c) the measure defines the eligible […]
08. Jan 2019
State Aid Uncovered by Phedon Nicolaides
Justification of a Tax Exemption - StateAidHub blogpost23

Justification of a Tax Exemption

Prevention of excessive taxation may justify tax exemption. Prevention of abuse may justify limits to the tax exemption.   Introduction   A tax exemption may not constitute state aid if it is justified by reasons which are linked to the nature or general scheme of the tax system. This is what the Court of Justice said on 19 December 2018, […]
27. Dec 2016
State Aid Uncovered by Phedon Nicolaides
Funding of the Spanish Public Broadcaster and Hypothecation of Taxes - m 5 2

Funding of the Spanish Public Broadcaster and Hypothecation of Taxes

Tax payers have grounds to object to a tax on the basis of Article 107(1) TFEU only when the tax is “asymmetrical” or when it is “hypothecated” to an aid measure.   Introduction On 10 November 2016, the Court of Justice ruled in case C‑449/14 P, DTS v European Commission.[1] DTS, a Spanish television company, appealed against the judgment of the General […]
15. Dec 2016
Guest State Aid Blog by Dimitrios Kyriazis
Lexxion Seminar

Ever wondered how Lexxion Seminars are like? Read this Summary of “State Aid in Tax Measures”

The following is a summary of the main points that were presented and the issues that were discussed in the seminar on State Aid in Tax Measures that was held by Lexxion in Brussels on 7-8 November 2016. The summary has been prepared for information purposes only and it is not meant to be a precise record of the proceedings […]
05. Oct 2016
Guest State Aid Blog by Erika Szyszczak
gavel

Article 263(4) TFEU: Third Party Challenges to State Aid Decisions

We are happy to welcome back Prof Erika Szyszczak on the State Aid Blog today. She is Professor of Law and Fellow of the UK Trade Policy Observatory at University of Sussex and practising barrister and ADR mediator at Littleton Chambers, Temple, London. Today she shares her views on two cases that shed new light on third party rights to […]