Aid that seeks to neutralise a structural disadvantage still confers an advantage. Aid that seeks to remedy market failure is selective. State aid that is compatible with the internal market must be necessary to achieve an objective of the Treaty and be capable of incentivising a change in the behaviour of the recipient undertakings.
On 13 December 2017, the General Court delivered its judgment in case T-314/15, Greece v European Commission. Greece applied for annulment of Commission Decision 2015/1827 concerning State aid that had been granted to Piraeus Container Terminal and Cosco Pacific.
This is a rich and wide-ranging judgment because it deals both with the concept of State aid in situations where Member States try to remedy alleged market failure and with the issue of compatibility of State aid.
The port of Piraeus is divided into two parts: the commercial port and the passenger port. The commercial port has three terminals: the container terminal, the conventional freight terminal and the car terminal. The Piraeus Post Authority [PPA] decided to expand and refurbish the container terminal.
After a competitive tender procedure, Cosco was selected to modernise and operate the container terminal. For this purpose Cosco created a subsidiary, the Piraeus Container Terminal [PCT]. The concession agreement between PPA and PCT was ratified by law. That law exempted PCT from income tax, VAT and stamp duty. PCT was also given the option to carry forward losses and set them against future profits without any time limitation.
Following a complaint and a formal investigation, the Commission adopted decision 2015/1827 in which it found that PCT and Cosco received incompatible aid that had to be recovered.
Rights of defence
Greece’s first plea was that its rights of defence had been infringed because the final Commission decision diverged from the decision to open the formal investigation procedure. The General Court recalled that before the Commission adopts a decision, Member States have the right to make their views known to the Commission concerning the relevance and validity of the facts of the case. But, as a result of the information it receives, the position of the Commission may change after the opening of the formal investigation.
The General Court also observed that the Commission is not required to inform the Member State concerned that its position has changed before adopting its final decision. This is because the Member State has already had the opportunity to submit its views during the investigation procedure.
In addition, the General Court noted that in order for an alleged infringement of the rights of the defence to lead to the annulment of a Commission decision, it is necessary to show that in the absence of the infringement, the outcome of the investigation procedure would have led to a different result. Greece failed to prove that the result would have been different. Therefore, the General Court rejected the first plea.
Offsetting structural disadvantages
In its second plea, Greece contented that PCT obtained no advantage in the meaning of Article 107(1) TFEU. The tax exemptions were intended to offset “structural disadvantages” and to adapt the normal tax provisions to the specific characteristics of long-term concessions for the construction and operation of infrastructure.
The General Court reiterated the established principles that tax reductions or exemptions can constitute State aid and that the concept of advantage is objective, regardless of the aims of the measure in question. The aims of public measures and their justification have no bearing on their classification as State aid.
The General Court agreed with the Commission that, by granting to PCT tax exemptions and postponing the payment of taxes which it would normally have to pay, Greece provided a benefit to PCT [paragraph 47].
With respect to Greece’s argument relating to compensation for a structural disadvantage, relying on the judgment in case T-157/01, Danske Busvognmænd v Commission (“Combus”), the Court noted that, even assuming that such a disadvantage existed, the alleged compensatory nature of the advantage granted to PCT did not prevent the classification of that advantage as State aid [paragraph 48].
The General Court repeated the point made by the Court of Justice in its judgment in case C-211/15P, Orange v Commission, that compliance with the Altmark conditions is the only instance recognised in the case law whereby the granting of an economic advantage does not involve State aid. But compliance with the Altmark conditions entails that the beneficiary is entrusted with the task of providing a service of general economic interest. This was not the case with PCT or Cosco. The General Court also rejected the argument that the normal tax provisions had to be adjusted to the characteristics of long-term concessions. [Paragraph 49]
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Greece alleged that the Commission misinterpreted the criterion of selectivity and the definition of the reference tax system.
The General Court first explained that the criterion of selectivity had to be clearly distinguished from that of economic advantage. When the Commission detects the presence of an advantage it is further required to establish that the advantage specifically benefits one or more undertakings. In order to do so, it must demonstrate that the measure in question differentiates between undertakings which, in the light of the objective pursued by that measure, are in a comparable situation. [Paragraph 78]
The Court also noted that a distinction must be made between measures in the form of a scheme and measures providing individual aid. In the latter case, the identification of the economic advantage leads, in principle, to the presumption that it is selective. By contrast, when considering a scheme, it is necessary to determine whether the measure in question provides an advantage to certain undertakings. [Paragraph 79]
In this case the measure was individual and applied solely to PCT. However, the Commission did not rely only on this finding in order to arrive at the conclusion that the measure was selective. It also applied the standard test of determining the selectivity of tax measures.
That standard test of selectivity of tax measures consists of three steps: identification of the reference or normal tax system [reference]; assessment of whether the tax measure derogates or deviates from that system, in light of the objective of the system [derogation]; assessment of whether the derogation is justified by the nature or logic of the system [justification].
The General Court found that the Commission correctly defined as the reference system the Greek income tax code, the Greek VAT code and the Greek stamp duty code. This is because they applied to all businesses or taxpayers in Greece. The Court rejected Greece’s argument that the contested measures themselves constituted the reference system for undertakings carrying out public infrastructure works. The Court noted that it was difficult to consider an ad hoc law as being the reference system when it is adopted each time a new concession is granted. At any rate, the Court further noted that Greece failed to demonstrate that there existed a framework with common rules for infrastructure constructors. [Paragraph 93]
Moreover, the Court pointed out that if the pursuit of an economic or industrial policy objective, such as the encouragement of investment, were capable of excluding a selective measure from Article 107(1) TFEU, that provision would lose its effectiveness. The purpose of the measure is irrelevant to its classification as State aid. [Paragraph 94]
The Court also agreed with the Commission that the tax concessions constituted a derogation because they differentiated between undertakings which, in light of the objectives of the reference tax system, were in a comparable factual and legal situation. There was a derogation because the treatment of PCT deviated from the general system of corporate taxation in Greece. Even if all companies carrying out public infrastructure works were subject to special treatment, such treatment would still be a derogation from the general system of corporate taxation. [Paragraph 95]
The General Court stressed that the selective nature of a measure is assessed in relation to all undertakings, and not in relation to the undertakings benefiting from the same advantage within the same group. [Paragraph 97]
Greece argued that the special features of the concession agreements for public infrastructure work placed the undertakings concerned in an objectively different situation from that of other undertakings. The Court observed that that argument presupposed that there was a distinct or special tax framework for undertakings engaged in public infrastructure works, which was not the case. Even assuming the existence of such a special tax framework, it would nonetheless constitute a derogation from the general tax system. According to the Court, a contrary conclusion would reduce the analysis to the first step relating to the definition of the reference system, since it would make the different taxation of the undertakings with the special features as the reference system. [Paragraphs 98-100]
As regards the third step of the test of selectivity, the Court also agreed with the Commission that tax concessions in favour of PCT could not be justified by the nature and logic of the reference tax system, because they were based on objectives extrinsic to the tax system. [Paragraph 101]
The Court rejected the argument advanced by Greece that the tax measures in question complied with the principle of proportionality and that they pursued objectives inherent in the tax system. Greece referred to objectives such as legal certainty and broadening of the tax base. The Court did not agree that they could be regarded as inherent in the reference tax system. Objectives which would be inherent, according to the Court, would be, for example, collection of revenue or tax progressivity that was justified by the redistributive logic of the tax system. [Paragraphs 102-105]
The irrelevance of precedents
In another plea, Greece argued that the Commission had already assessed similar provisions in other infrastructure projects and had not classified them as State aid. Greece referred, in particular, to the construction of the new Athens international airport, the Rio-Antirrio bridge and the Attiki motorway.
The General Court recalled that, according to settled case-law, an argument based on the Commission’s decision-making practice cannot succeed, since the concept of State aid is objective and depends on the facts of each case. Whether a public measure constitutes State aid is determined on the date on which the Commission makes its decision and depends solely on whether the measure confers or not an advantage to one or more undertakings. [Paragraph 141]
Affectation of trade and distortion of competition
Then Greece claimed that the Commission did not apply correctly the concept of affectation of trade because it did not define the relevant geographic market and did not explain how the port of Piraeus competed with other ports. Moreover, Greece argued that the Commission failed to demonstrate that the tax measures in question generated additional revenue for PCT and that the revenue reinforced its competitive position on the market.
The General Court reiterated that the case law does not require the Commission to establish the existence of an actual distortion of competition and of a real impact of the aid on trade between Member States, but only to examine whether such aid is likely to distort competition and affect trade. A brief statement of the facts and their legal relevance is sufficient. [Paragraph 146]
Moreover, the Commission is not required to carry out an economic analysis of the actual situation of the relevant market, the market share of the recipient undertaking, the position of the competing undertakings and the trade flows of the products and services between the Member States when it explains how the aid is likely to distort competition and affect trade. That meant that the Commission was not required to prove that the tax measures in question had indeed reinforced PCT’s competitive position in the relevant market. In addition, when aid is granted illegally, as in the present case, the Commission does not have to demonstrate the actual effect that the aid has on competition and trade. If that were the case, it would favour the Member States which granted illegal aid. The Court went on to find that the Commission set out clearly and unequivocally how the tax measures were capable of distorting competition and affecting trade between Member States. [Paragraphs 148-153]
With respect to how trade could be affected, the Commission referred to the international invitation to tender, the expansion of the capacity of the port of Piraeus through the tax measures, the fact that Piraeus competed with other ports in the Union, and the strengthening of PCT’s competitive position in the EU market for port services.
Compatibility of the aid
In its fourth plea, Greece alleged misinterpretation and misapplication of Article 107(3) TFEU, as regards the compatibility of the aid and of the applicability of the guidelines on regional State aid.
The General Court, first, observed that Article 107(3) TFEU states that the Commission “may” consider aid to be compatible with the internal market. The Commission has the option and not the obligation to exempt an aid measure from the prohibition of State aid in Article 107(1) TFEU. For the application of Article 107(3) TFEU, the Commission enjoys wide discretion whose exercise involves complex assessment of economic and social nature and which must be carried out in the context of the Union. However, the Commission, in the exercise of that discretionary power, cannot deviate from its own guidelines because it would breach general principles of law, such as equal treatment or the protection of legitimate expectations. [Paragraphs 161-162]
In the present case, the Commission found that the aid measures in question consisted of uncapped tax advantages which could not be regarded as investment aid but as operating aid. Operating aid releases undertakings from the costs which they should normally incur. Operating aid does not, in principle, fall within the scope of Article 107(3) TFEU because it distorts the conditions of competition without being able to achieve any of the purposes of that Article. [Paragraphs 163-165]
However, the guidelines on regional State aid for the period 2007-2013, exceptionally and in very limited circumstances, allowed operating aid for regions eligible under Article 107(3)(a) TFEU. Indeed, the port of Piraeus was in such a region. Operating aid could be authorised if it contributed to regional development and was proportional to the handicaps it aimed to overcome. In addition, operating aid had to be granted in compliance with the conditions laid down in the guidelines [such as that the measure was temporary and degressive]. The General Court agreed with the Commission’s findings that the measure in question did not satisfy any of the conditions in the guidelines. [Paragraphs 167-168]
The Court also agreed with the Commission that the granting of ad hoc aid to a single undertaking was highly unlikely to overcome regional handicaps in a relatively uniform way for the entire region concerned. Then the Court observed that in order for operating aid to contribute to regional development, it is at minimum necessary for all operators in the same sector to have access to the aid, which is not the case with respect to an ad hoc measure. [Paragraph 170]
While it is true that it is more appropriate and effective to open the aid to any operator, it cannot be empirically correct that ad hoc aid never contributes to regional development unless it is provided to all operators.
The Court also examined whether the measure in question could benefit from the derogation in Article 107(3)(c). It recalled that the Commission can declare aid compatible with the internal market on the basis of Article 107(3) TFEU only if the aid contributes to the achievement of one of the objectives of that Article, which the aid recipient could not achieve on its own under normal market conditions. In other words, the aid must not only promote one of the objectives in Article 107(3)(a), (b), (c) or (d) TFEU, but it must also be necessary to achieve those objectives. The aid must induce the beneficiary to contribute to the attainment of those objectives. If the aid only improves the financial situation of the recipient without contributing to the achievement of the objectives of Article 107(3) TFEU, it cannot be considered compatible with the internal market. Aid is not necessary when the assisted project has already started before the application for the aid is made. Then the aid lacks incentive effect. It follows that, in order for the aid to be compatible, it must have an incentive effect and be necessary to facilitate the development of certain activities or regions. [Paragraphs 180-182]
The General Court observed that in the present case the tender procedure and the concession agreement provided that the concessionaire would have to realise the entire investment at its own expense and that it would not receive any public funds. Moreover, the quantification of the aid, which was essential to establish its necessity, was carried out by PCT only after the opening of the formal investigation procedure by the Commission. The Court concluded that the aid had no incentive effect. [Paragraphs 184-185]
Lastly, the General Court considered the Greek arguments concerning recovery of the incompatible aid. The Court first noted that the purpose of recovering incompatible aid is to restore the previous competitive situation, thereby depriving the beneficiary of the advantage which it enjoyed in relation to its competitors. The Commission is not required to
fix the exact amount of the aid that has to be recovered. It is sufficient that the Commission decision includes guidance that enables the Member State concerned to determine that amount. If that Member State encounters difficulty in quantifying or recovering the aid, it has to inform the Commission and cooperate with it in good faith to overcome those difficulties. However, in the present case Greece did not inform the Commission that it had encountered any difficulties.
Therefore, the General Court dismissed the appeal in its entirety.
 The full text of the judgment, in French and Greek, can be accessed at: