Levying Taxes to Fund Public Broadcasters

broadcast tower
Taxes may not be examined by the Commission in the context of Article 107 even if they finance State aid measures. By contrast, the Commission may examine a tax in the context of its assessment of the compatibility of aid with the internal market when the tax is inseparable from an aid measure. A tax is inseparable from an aid measure when it is used exclusively to fund the aid and the amount of the aid depends exclusively on the amount raised by the tax. The method of raising revenue to fund a service of general economic interest [SGEI] does not affect the designation of a service as an SGEI. In the field of broadcasting, Member States may include in the public service mission commercial content such as films and sports so that public broadcasters can provide balanced and varied programming.

On 11 July 2014, the General Court rendered two judgments both of which concerned the funding of RTVE, a public broadcaster in Spain. These judgments are interesting because the funding of RTVE was partly based on a public subsidy provided directly by the state and partly on revenue from a tax that was imposed on competitors of RTVE. Although the parties to the two cases inevitably raised questions concerning the definition of the public service mission, the main issue at hand was the partial funding of the subsidy through the tax and the compatibility of that tax with internal market principles. Since the background of the two cases is identical while the text of each judgment is very similar, in the main part of this article I examine only one case and at the end I cover the novel elements raised in the other case. [The judgments have been published in several languages but not in English.]
T-151/11, Telefonica v Commission[1]
Telefonica appealed against Commission decision 2011/1 which had found State aid granted to Spanish public broadcaster RTVE to be compatible with the internal market on the basis of Article 106(2) TFEU.[2] The aid was intended to compensate RTVE for the extra costs of public service obligations [PSO].The case arose from a law that was adopted by Spain in 2009 to regulate the funding of RTVE. Until then, RTVE financed its activities primarily through advertising revenue, revenue from the sale of its own programming and a subsidy from the state. It should be noted that a previous Commission decision found that system of (mixed) public funding to be compatible with the internal market.The new law prohibited revenue from advertising and made the public subsidy or the public service compensation [PSC] dependent on revenue that was to be generated by special taxes on the turnover of undertakings providing either free or subscription-based television programmes. As a result, RTVE was left with only two sources of funding and, therefore, the amount of the subsidy was increased to cover the loss of advertising revenue.Spain changed the method of funding of RTVE in order to reduce distortions in the market for television services. By preventing RTVE from broadcasting advertisements, Spain in effect conferred an advantage to private broadcasters which could expand their services to companies which bought advertising time.

The judgment

Existing v new aid

Telefonica’s first plea on the substance of the measure was that the aid was new and that the Commission had failed to assess all of its aspects and in its totality. The General Court recalled that, according to Regulation 659/1999, new aid is also considered to be any amendment to an existing aid measure. But Regulation 794/2004 clarifies that not every amendment of an existing measure results in new aid. Procedural or administrative changes are not deemed to result in new aid. Only substantial changes turn existing aid into new aid. A substantial change is a new element that can be separated from the existing measure, such as the extension of an existing measure to new categories of beneficiaries. Member States are only obliged to notify the new element rather than the whole measure. [paragraphs 61-65]

The next step in the General Court’s analysis was to determine whether the Commission considered the Spanish law of 2009 as an existing or new measure. Indeed the Commission found the new method of financing to be new aid but argued that that method did not alter the substance of the measure which was the nature and extent of the PSO. Therefore, it did not have to assess them too. The Court agreed with the Commission.

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Hypothecation of the tax to the aid measure

Then the Court examined the compatibility of the tax measures with the internal market. This is because the revenue from the taxes affected the amount of the PSC. Established case law stipulates that where a tax or charge specifically intended to finance aid proves to be contrary to other provisions of the Treaty, the Commission may not declare the aid measure of which the tax forms part to be compatible with the internal market. The tax forms part of the aid measure when the tax is hypothecated to the aid. Consequently, the method by which an aid measure is financed may render the entire aid measure incompatible with the internal market.

The Court recalled that the TFEU distinguishes between the rules on State aid in Articles 107-109 and the rules on distortions caused by regulatory or administrative measures and especially tax measures in Articles 116 and 117. Tax measures that finance State aid do not fall within the scope of State aid provisions. However, when tax measures constitute an inseparable component of the aid measure, the Commission cannot distinguish between the assessment of the compatibility of the aid and the consequences of the method of funding of the measure because in such an eventuality non-compatibility of the funding method can affect the compatibility of the aid measure. [paragraphs 98-100]

The method of funding is inseparable from the aid measure when the revenue from the tax is destined exclusively for the aid and affects directly its amount. It is necessary that there must be a legal act that requires the tax to be dedicated to the funding of the aid. Although this is a necessary condition, it is not sufficient for the tax to be inseparable from the aid measure. It is also necessary that the revenue from the tax affects directly the amount of the aid [paragraphs 101-102]. In other words, the aid may not be financed by other means or with revenue from other sources.

On the basis of the above reasoning, the Court accepted that the Commission had correctly found that the tax measures were not inseparable from the aid measure. This is because the aid measure had to be equal to the amount of the PSC. But the PSC was equal to the net costs of the PSO, not the amount of tax revenue. If the tax revenue exceeded the net costs of the PSO, it would have to be turned over to the Spanish state and if the tax revenue fell short of the net costs of the PSO, then the Spanish state would have to cover the deficit with an extra subsidy.

Article 106(2) and avoidance of overcompensation

Then the Court examined a plea of Telefonica concerning the application of Article 106(2). The Commission declared the PSC to be compatible with the internal market on the basis of Article 106(2). Although Telefonica did not doubt that RTVE was entrusted with a service of general economic interest, it claimed that the Commission did not check correctly that the tax revenue would not lead to overcompensation.

Indeed in its decision, the Commission dealt with the issue of the proportionality of the aid in just two paragraphs, stating that the loss of advertising revenue would have an impact not just on the revenue of RTVE but also on its costs, as its broadcasting system would have to change, and accepting that Spain had put in place mechanisms to prevent overcompensation.

The General Court began its assessment of this plea by recalling that because the TFEU recognises that Member States have wide discretion in the definition and funding of SGEI, the powers of the Commission in determining the proportionality of aid are limited. [paragraph 159]

Then the Court observed that the relevant Spanish law concerning the operation and funding of RTVE stipulated that the subsidy from the state would take into account the other sources of revenue of RTVE, that any excess subsidy would be deducted from the subsidy for the following year and that there would separate ex post control. The Court accepted that these mechanisms provided effective safeguards against overcompensation and remarked that Telefonica did not offer any tangible indication that those mechanisms were insufficient.

T‑533/10, DTS Distribuidora de Televisión Digital, v Commission[3]

The pleas of DTS were to a large extent the same as those of Telefonica and therefore the findings of the General Court were the same as in the previous judgment. But DTS also raised a number of novel issues.

Does non-liability for a tax constitute State aid?

DTS argued that the tax in question was linked to the aid in favour of RTVE not just because the amount of subsidy depended on the revenue generated by the tax but also because it affected the market position of other broadcasters. RTVE which was excluded from the tax was indeed competing with other undertakings. It was claimed that this exclusion conferred to RTVE an advantage.

The General Court recalled that according to established case law, those who are subject to a tax cannot escape from that tax by claiming that an exemption from the tax that benefits other undertakings constitutes State aid. [paragraph 93]

However, the Court also acknowledged that DTS correctly pointed out that the Court of Justice, in case C‑526/04, Laboratoires Boiron, determined that if a charge contains State aid, those subject to the charge can object to it on account of its State aid content. Yet the General Court thought that it could not be deduced from that case that it was sufficient that the undertaking that paid the tax was in competition with the aid recipient so that the tax was inseparable from the aid and the tax payer could object to it. This is because, according to the General Court, in the Laboratoires Boiron case there were two competing networks for the distribution of medicines in France: direct sales from producing companies and sales via wholesalers. The tax was imposed only on direct sales from producers for the purpose of remedying the distortion of competition which was caused by the imposition of a PSO only on wholesalers. The Court of Justice had acknowledged that in that case there was asymmetric levying of a tax on some undertakings while their direct competitors were not lumbered with the tax. Moreover, the tax had the explicit objective of restoring competitive balance. [paragraphs 94-98]

The General Court proceeded to find that, for the following reasons, the French tax on medicines was not the same as the Spanish broadcasting tax. First, the Spanish tax did not intend to restore competitive balance between private broadcasters and RTVE but to fund RTVE [paragraph 100]. It should be noted that this argument is weak. It focuses on the formal aim of the measure without considering its impact which was exactly the same as in the French measure: transfer of resources belonging to one group of competitors to finance certain costs borne by another group of competitors or in the Spanish context, just RTVE.

Second, the link between the tax and the aid was less close in the Spanish than in the French case. In the French case, the aid was inseparable from the tax. If the tax were not imposed, there would be no aid for the wholesalers. By contrast, in the Spanish case, the public subsidy, whose amount could be varied, could in principle make up for any loss of tax revenue. [paragraph 101]

Third, the case law [see especially C‑266/04, Distribution Casino France] explicitly rejects that the non-imposition of a tax on the aid beneficiary is sufficient to conclude that the tax and the aid are inseparable. [paragraph 102]

Article 106(2) and distortion of competition

DTS also argued that the Commission did not consider the distortion of competition between private broadcasters and RTVE which was caused by the fact that the latter showed commercial films and sports and competed in acquiring rights for such films and sport events. The response of the General Court was that Member States had discretion in defining the public service mission of broadcasters. It was within their prerogatives to determine that PSO covered balanced and varied programming including films and sports. Moreover, Article 106(2) did not preclude providers of SGEI from competing with other undertakings which were under no PSO, nor did it prohibit them from obtaining valuable commercial content. [paragraphs 130 & 136]

DTS then argued that the public broadcasting mission was disproportional because it obstructed services offered by competitors of RTVE. The General Court rejected it on the grounds that State aid is contrary to the common interest only if it makes it impossible or very difficult for competitors to offer their services. In the case of RTVE, there were safeguards to ensure that the supply of competing services did not become impossible: The budget of RTVE was subject to a ceiling [of EUR 1200 million]; RTVE could not show more than 52 films per year; there were other limitations on the kind of sports events that RTVE could broadcast.

This conclusion of the General Court has not solved the problem of how much obstruction of competing services can be tolerated for being in the common interest. More fundamentally, it runs counter to recent developments which confine the SGEI to services not provided by the market. However, as has been starkly demonstrated by another recent judgment [case T‑79/10, Colt Télécommunications v Commission (Hauts‑de‑Seine)], Member States can bundle together services offered by the market [i.e. profitable] and services not offered by the market [i.e. unprofitable]. Whether Member States should be allowed to designate such bundles as SGEI is an open question and will probably remain an issue of contention as Member States test the limits of what mix is compatible with EU law.


Taxes do affect competitive relations between undertakings. But just because your competitor does not pay a tax, it does not mean that Article 107(1) can help you to escape from the obligation to pay the tax [on the grounds that the tax, that perhaps received no prior authorisation from the Commission, constitutes illegal State aid]. Only taxes which are hypothecated to State aid measures can come under the scrutiny of the Commission when it exercises its powers to determine the compatibility of State aid.


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

[2] The full text of the decision is published in OJ L1, 4/1/2011 and can be accessed at:

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



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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