Taxes hypothecated to State aid measures fall within the scope of the assessment of the compatibility of those measures.
Operating aid is not normally allowed. Yet, in decision SA.48604 concerning horse-racing betting in Denmark the Commission appears to have authorised operating aid.
This measure was approved within six months. In the post-SAM, it must be one of the fastest decisions since 2014.
Currently, Danske Spil holds the right to a legal monopoly in betting on horse racing in Denmark. However, the turnover on horse race betting has declined steadily since 2007. The Danish authorities want to liberalise gambling on horse racing completely and mutualise the interests of the racing industry and betting operators.
The monopoly rights held by Danske Spil A/S allowed it to offer betting only as pool betting offline or online. Fixed-odds betting is not allowed. Under the intended liberalisation all gambling providers with a Danish betting license will be allowed to offer bets on horse races, and both fixed-odds and pool betting will be permitted, offline and online.
The horse-racing sector receives a share of the revenue of games regulated under the Danish gambling monopoly (lotteries and horse betting) operated by Danske Spil. This will gradually be reduced as of 2022 and will be completely abolished in 2026. It will be replaced by a new source of financing which will be in the form of an 8% levy on all betting companies’ turnover from horse-race betting. All undertakings operating racecourses in Denmark where bets on horse races can be placed will benefit from the proceeds of the levy.
The levy proceeds and the share of Danske Spil gambling revenues will be collected and administered by the Danish Gambling Authority, an independent government agency under the Ministry of Taxation. It will channel funds to the horse-racing sector through a committee representing professional interests called DTGU. The DTGU will distribute funds to each racecourse track on the basis of objective criteria.
The funding will cover costs which are considered to be of common interest to the horse-racing sector and betting operators [e.g. organisational costs, costs for recording and transmitting horse races, costs of anti-doping, courses for horse-racing trainers].
Existence of State aid
The Commission examined whether the measure contained State aid to horse-racing companies and to betting operators.
With respect to possible aid for horse-racing companies, the Commission found that all of the criteria of Article 107(1) TFEU were satisfied.
There was no doubt that horse racing and horse race betting were economic activities. They generated income from sale of tickets, broadcasting rights and provision of betting services.
There was transfer of state resources because, first, the measure was imputable to the state. “(26) A measure is imputable to the State in cases where a public authority grants an advantage to a beneficiary, even if the authority in question enjoys legal autonomy from other public authorities. This is also the case when a public authority designates a private or public body to administer a measure conferring an advantage. Indeed, Union law cannot allow the circumvention of State aid rules through the creation of autonomous institutions charged with allocating aid.”
“(27) In the present case, the measures are imputable to the State because they will be administered by the Gambling Authority, which is a public body responsible for securing a proper and regulated gambling market in Denmark. The Gambling Authority is directly involved in the administration of the measures, notably in collecting the amounts and distributing them, through the DTGU, to the final beneficiaries.”
Then the Commission examined whether the transferred resources belonged to the state. “(28) State resources include all resources of the public sector, including resources of intra-State entities (decentralised, federal or other). It is irrelevant whether or not an institution within the public sector is autonomous. As to the share of Danske Spil gambling revenues, it is to be noted that Danske Spil is a State company, and therefore its revenues are State resources. As to the levy proceeds, the fact that they remain constantly under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as State resources.” “(29) In the case of the levy proceeds, the originally private nature of the resources does not prevent them from being regarded as State resources within the meaning of Article 107(1) TFEU5. Subsidies financed through parafiscal charges or compulsory contributions imposed by the State and managed and apportioned in accordance with the provisions of public rules imply a transfer of State resources.”
With respect to the existence of advantage, the Commission noted that “(32) an advantage is present whenever the financial situation of an undertaking is improved as a result of State intervention on terms differing from normal market conditions.” “(33) Horse-racing companies are the final beneficiaries of the levy proceeds and a share of Danske Spil A/S gambling revenues, which constitute an economic benefit that they would not have obtained without State intervention and under normal market conditions.”
There was no doubt that the measure was selective. “(35) Funds from the notified measures are earmarked for the financing of horse races, the horse-racing industry being their ultimate beneficiary. Therefore, the measures favour a distinct group of undertakings, notably horse-racing companies.”
With respect to distortion of competition and affectation of trade, the Commission first recalled that “(36) the Court of Justice has consistently held that a measure is considered to distort or threaten to distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes.” “(37) The Danish authorities recognise the general competitive nature of the international horse-racing industry, and it is intended that the Danish horse-racing industry shall reach a level allowing it to compete with the horse-racing industries of other Member States, notably Sweden. In this light, the Danish authorities accept that the notified measures entail selective advantages for the Danish horse-racing industry which might potentially distort competition and affect intra-EU trade.”
Then the Commission considered whether the measure constituted State aid to betting operators. It stated rather tersely that “(40) no aid for undertakings in the gambling industry is involved as all providers of horse race betting services with a Danish license will be treated equally in relation to payment of the levy, and will therefore not receive any selective advantage.”
It seems that the Commission found no State aid was granted to betting companies because they would all be paying an amount that was proportional to their revenue from horse race betting. But the Commission decision is silent on any indirect benefits for betting companies as a result of subsidisation of costs of “common interest” such as the transmission of horse racing. There is a crucial difference between indirect benefits which are caught by Article 107(1) and secondary benefits which fall outside Article 107(1). Indirect benefits are those that go to specific companies. Subsidising costs of common interest could be classified as an indirect benefit to betting companies.
Compatibility of the aid with the internal market
The compatibility assessment first turned to the special nature of the levy and whether it was “hypothecated” to the aid in question. “(41) In the case of an aid financed by a tax or a levy assigned for a specified purpose, it may be necessary to take into account not only the aid measure itself, but also how it is financed. Indeed, if it is established that there is a compulsory hypothecation between the tax or levy revenue and the aid measure in question, then the underlying tax or levy is considered to be part of the aid measure, which must be taken into account for the compatibility assessment of the aid.” “(42) According to settled case law, for a tax to be regarded as forming an integral part of an aid measure, it must be hypothecated to the aid under the relevant national rules, in the sense that the revenue from the charge is (i) necessarily allocated for the financing of the aid and (ii) has a direct impact on the amount of the aid and, consequently, on the assessment of the compatibility of that aid with the common market.” “(43) In the present case, the revenue generated by the levy is earmarked for financing the organisation of horse races.” “(44) The revenues from the levy are therefore used wholly and exclusively to finance the organisation of horse races and have a direct impact on the amount of that aid. There is a link of compulsory hypothecation between the aid measure and the levy proceeds. Hence, the compatibility analysis has to take into account not only the financing of horse racing companies from the levy as an aid measure, but also the specificities of the levy itself.”
This conclusion meant that the Commission also had to examine the compatibility of the levy. Normally, the Commission may not assess taxes under State aid procedures.
The Commission found that the aid was compatible with the internal market under Article 107(3)(c) TFEU. Because there are no guidelines for this kind of aid, the assessment was performed directly on the basis of the Treaty and in accordance with the common assessment principles.
Objective in the common interest:
“(51) The measures support the liberalisation of the horserace betting sector currently operated under a monopoly and such liberalisation supports cross-border trade. In addition, the Commission has consistently declared compatible with the internal market tax measures applied to enterprises of a certain sector that aim at financing collective activities that would benefit the entire sector.” “(52) The organisation of horse races contributes to the improvement of the performance of horses and, therefore, supports national horse breeding activities. The notified measures finance areas of spending such as prize money, anti-doping activities and other costs related to the organisation of races that are linked to the development of equine production and breeding.
“(55) The horse-racing and betting industries both benefit from the organisation of horse races. The proposed levy aims at financing the organisation of horse races in a manner which reflects this mutual interest by ensuring a fair distribution of the financial burden between the betting and the racing industry. In addition, the levy will allow fair competition amongst operators in the market for horse-race betting, by distributing fairly the burden of funding horse races on which bets are placed between all betting operators registered in Denmark. Without a levy, betting operators could in a liberalised market benefit from the organisation of horse races by accepting bets on races without bearing a share of the financial burden related to the organisation of these races.”
“(60) The Danish authorities consider that without aid for the horse-racing sector, the long-term effect would be a decrease in horse-racing companies‘ resources, which would lead to the contraction and possibly even the total collapse of the sector.” “(61) It is an intrinsic effect of the envisaged future system that an increase in stakes on horse-race betting on Danish racecourses will lead to an increase in funding for the Danish horse-racing sector. Consequently, there is an incentive for horse-racing companies to maintain and develop their racing products so that more bets are placed on races.”
Proportionality of the aid:
“(63) An aid measure is considered to be proportionate only if the common interest objectives could not be reached with less aid and less distortion of competition. The amount of the aid must be limited to the minimum needed for the common- interest objectives to be attained. In the present case, the Commission considers that the Danish authorities have designed the measures in such a way as to diminish the possible amount of State aid involved and to minimise the distortions of competition arising from them.” “(64) The horse-racing sector’s own income (ticket sales, broadcasting rights, etc.) is duly taken into account in the calculation of the funding need: costs eligible for compensation are restricted to the net costs of common interest. [It is estimated] that annual funding of at least DKK 110 million would be required to maintain and develop the horse-racing sport in Denmark. That is more than what is expected to be raised by the notified measures. Considering the above, in the Danish authorities‘ view there is no real risk that the notified measures could result in overcompensation of the beneficiaries.” “(65) The Danish authorities have committed to monitoring the development of the proceeds of the levy in order to ensure proportionality between the levy rate and the objective pursued. In addition, the horse-racing sector is required to keep separate accounts of costs of common interest (the eligible costs) in order for the granting authorities to check whether overcompensation (revenues from the notified measures in excess of net costs of common interest) has occurred. This check will be carried out annually.” “(67) However, the aid granted (including overcompensation that has been carried forward) will not in any circumstances be allowed to exceed the net funding needs calculated over a fixed period of five years”.
Possible negative effects on competition and on trade between Member States:
“(70) The Danish authorities consider that the measures are not likely to adversely affect trade conditions to an extent contrary to the common interest, as they have been designed in such a way as to minimise both the amount of State aid involved and the potential distortion of competition arising from them. The Danish authorities note in particular that the total amount of aid granted to the horse-racing sector is expected to decrease over time.”
“(72) The notified measures might however distort competition in either the horse-racing market or the horse-race betting market and affect trade within the EU, although not, in the opinion of the Commission, to an extent contrary to the common interest, for the following reasons:
As regards the horseracing sector:
- The horse-racing sector will not be overcompensated and the total amount of aid granted to the horse-racing sector is expected to decrease over time.
- The race calendar is planned in coordination with Norway, Sweden and Finland, to further limit effects on trade and distortions to competition.
- The average level of prize money for Danish horse races, at approximately EUR 6900 per race in 2016, is significantly lower than e.g. in France (EUR 26 486) and Ireland (EUR 19 528).
As regards the horse-race betting sector:
- The measures ensure that betting operators contribute only to the costs of common interest to the betting-and horse-racing sectors, which limits the impact on the horserace betting sector to the minimum necessary.
- The levy applies equally to all betting operators, ensuring a lack of distortion of competition within that market.”
Compatibility with Articles 56 and 110 TFEU
“(74) Given the close link between the aid to horse racing and the collection of the levy, it is also necessary to ensure that the levy itself does not infringe the principles of the Treaty, more precisely the principle of freedom to provide services set out in Article 56 TFEU and the principle of non-discrimination in taxation matters as set out in Article 110 TFEU.”
“(75) The levy will apply to all betting operators taking bets on horse races organised in Denmark. They will all be subject to the same conditions, regardless of nationality, physical location, or place of registry. The aid therefore does not unduly restrict the freedom to provide horse-racing betting services under Article 56 TFEU and does not infringe the principle of non-discrimination in taxation matters as set out in Article 110 TFEU.”
The Commission concluded that both the aid and the levy were compatible with State aid rules and the principles of non-discrimination and freedom to provide services.
Despite references to the Commission’s past decision-making practice, this is an unusual case. It basically supports operating costs. There are no explicit investment plans. The measure and the Commission decision use the word “compensation” but this is not a service of general economic interest, nor is there any public service obligation. It is therefore surprising that the Commission did not ask for any efficiencies and was satisfied with Danish assurances that the aid will not be allowed to result in overcompensation.
 The full text of the decision can be accessed at: