Member States may use different methods for determining the value of property as long as they produce similar results.
The base for property taxation is normally the value of the property, not size or location. The difficulty in determining the value of property is that land or buildings have no intrinsic value. It all depends on the purpose for which they are used. A plot of land is very valuable in a large urban area because expensive offices can be built on it, while a plot of equivalent size in a remote region may be worth hardly anything. Therefore, the value of property depends on expected revenue from their use.
However, the calculation of expected revenue is no easy task. In fact, the typical method used by land surveyors relies on simple comparative analysis. They compare rent rates or sale prices of similar buildings or plots of land in the same area. But, the comparative method is useless when the assessed property has unusual features or unusual size or no recent rent rate or sale prices can be obtained. Then other methods must be used, such as the addition of a margin to the purchase price [cost-plus method] or the calculation of the future stream of revenue.
On 7 July 2021, the General Court had to assess different methods of property valuation in case T‑680/19, Irish Wind Farmers’ Association [IWFA] and others v European Commission.
The applicants operated wind farms in Ireland. In February 2016, the IWFA lodged a complaint with the European Commission claiming that a certain method for determining property taxes in Ireland constituted incompatible State aid.
The tax at issue was the so-called “business rate”. This rate is an annual property tax levied on non-domestic and business properties in Ireland. It generates revenue to defray the cost of services provided by local authorities. The amount of the business rate is calculated on the basis of the net annual value [NAV] of property used for commercial purposes. The NAV of property is the annual amount of the rent which can be expected from letting that property.
The NAV is determined by the Valuation Office of Ireland [VOI] according to four different methods:
Rental method: It is used when there is direct evidence that the property actually generates rental income.
Tone of the list method: It calculates the NAV according to the NAV of other comparable properties when the rental method is not available.
Contractor’s method: It relies on the notional costs of constructing or providing the property for commercial purposes. In this case, the NAV is set at 5% of the replacement costs of the property.
Receipts and expenditure method: It applies to properties that are seldom let or are difficult to replicate. It estimates the NAV according to the expected profitability of a commercial venture involving the renting of a property. In essence, this method derives the maximum rent that a tenant would be prepared to pay.
In its complaint, the IWFA argued that, as a result of the choice of valuation method used by the VOI for the purposes of determining the NAV when calculating business rates in Ireland, facilities using fossil fuel to generate electricity, to which the “contractor’s method” was applied, were treated more favourably than wind farms, to which the “receipts and expenditure method” was applied. Allegedly, the former method resulted in an under-assessment of the NAV of electricity generation facilities using fossil fuel.
After examining the complaint, the Commission concluded that the different valuation methods did not confer a selective advantage and therefore did not constitute State aid.
The applicants’ position was that the Commission should have had serious doubts as to the presence of State aid and should have opened the formal investigation procedure. By not opening that procedure according to Article 4(4) of the procedural regulation [Regulation 2015/1589], the Commission infringed their rights as interested parties.
The responsibility of the Commission during the preliminary examination
The General Court, first, reiterated established case law on the powers and obligations of the Commission.
“(38)Article 108 TFEU restricts the Commission’s power to rule on the existence of aid at the end of the preliminary examination phase solely to aid measures that raise no serious difficulties; that criterion is thus exclusive. Accordingly, the Commission may not decline to initiate the formal investigation procedure in reliance on other circumstances, such as third-party interests, considerations of economy of procedure or any other ground of administrative or political convenience”.
Therefore, “(39) where it encounters serious difficulties, the Commission must initiate the formal procedure, having no discretion in this regard”.
The Court also recalled that “(40) the concept of serious difficulties is objective […] The existence of such difficulties must be sought both in the circumstances in which the contested measure was adopted and in its content, in an objective manner, comparing the grounds of the decision with the information which the Commission had or could have had at its disposal when it took a decision on the compatibility of the disputed aid with the internal market”.
The Court stressed that “(41) the Commission is required to examine carefully and impartially complaints which it receives concerning State aid, which may require it to investigate a complaint going beyond a mere examination of the facts and points of law brought to its attention by the complainant and to examine elements which have not been raised expressly by the complainant”.
Indeed, the Commission may not hide behind the possibly incomplete knowledge about the State aid measure to which a complaint refers. By definition, a competitor may have less than full picture of a measure whose aid element depends on individual assessment by the relevant authorities.
But “(44) the Commission may, in principle, limit itself to the information provided by a Member State, if necessary following a request for additional information, and that it is not required to conduct on its own initiative inquiries into all the circumstances, if the information provided by that State enables it to satisfy itself, after an initial examination, that the measure in question either does not constitute aid within the meaning of Article 107(1) TFEU or, if it is classified as aid, is compatible with the internal market”.
The duration of the preliminary examination phase
The applicants claimed that the long duration of the preliminary examination phase was evidence of that the Commission faced serious difficulties. The General Court rejected the claim on the grounds that the long duration was the result of multiple exchanges of letters between the applicants themselves and the Commission.
Description of the tax at issue
Then the applicants argued that the Commission erroneously described the contested measure as “one aspect of the calculation of the business tax rates”, whereas the IWFA had complained that the reduced business rates paid by producers of electricity from fossil fuels involved State aid. The General Court rejected that argument too. It found that the Commission had assessed the measure that was described by the applicants.
Detailed comparison of different valuation methods
The applicants contended that the Commission failed to examine in detail the results of the application of different valuation methods to wind farms and fossil fuel electricity producers. However, the General Court accepted the explanation of the Commission that the information that had been submitted to it by Ireland showed that the various methods would lead to similar results and that had a different valuation method been applied to wind farms “(80) 8 out of 10 of those wind farms would have had a slightly higher NAV and therefore a slightly higher property tax.”
The statement above raises three questions. First, how similar the results of different valuation methods must be so as not to confer an advantage in the meaning of Article 107(1) TFEU or, alternatively, how large the variation can be without conferring such an advantage? Second, if eight out of ten wind farms would have a “slightly higher NAV” with the “contractor’s method”, was that sufficient to show that the wind farms as a whole were not put at a disadvantage? Third, if alternative methods produced similar results for the majority of wind farms, what prompted the Irish authorities to use one method for producers of electricity from fossil fuel and another for producers of electricity from wind power? Was that an irrelevant consideration from a State aid perspective?
The explanation of the General Court a few paragraphs further on indicates that it is not sufficient to argue in theory that different valuation methods may lead to advantage or disadvantage. It must be proven that different methods actually result in different valuations. “(99) With regard to the argument that each method for assessing the NAV of property should lead to identical results […], it must be stated that neither the IWFA in its complaint nor the applicants demonstrate that the application of a different method to fossil fuel electricity generation facilities would lead to a valuation of their NAV which is higher than that obtained by applying the ‘contractor’s method’, but that they merely assert, in essence, that the application of different methods to electricity generating installations using different technologies, combined with the broad discretion enjoyed by the VOI when applying those different methods, would result in the grant of a tax advantage to the operators of fossil fuel electricity generating installations.”
“(100) It should be noted, however, that, […] for 10 wind turbines examined, the coefficient NAV/MW is slightly lower when the ‘receipts and expenditure method’ is applied compared with the result achieved by the ‘contractor’s method’. It follows therefore that, for those wind farms, the NVA obtained is slightly lower when the ‘receipts and expenditure method’ is applied, but that it remains extremely similar to that obtained by applying the ‘contractor’s method’, with the result that it cannot be argued that the application of one method in particular, compared with another, would entail, in one of the two cases, an underassessment.”
“(101) As regards the argument that the valuer is required, in accordance with the ‘stand back and look’ principle, to compare the assessment of an asset which he or she has reached with that of other comparable properties, suffice it to note, in order to reject that argument, first, that it is not supported by any evidence and, second, and in any event, that it has not been established or demonstrated that that principle should be applied in the context of a comparison between different electricity generating installations using different technologies.”
From the statements above, we can conclude that public authorities have discretion to apply different valuation methods as long as their results are similar.
Differences in tax burden
Next, the applicants argued that the application of different methods led to a different tax burden for the two groups of electricity producers when the tax was measured according to their electricity output.
This was a rather disingenuous argument because the property tax reflects the value of the output generated by the activity that takes place on each property. Therefore, there is bound to be variation in the overall property tax and the tax per unit of output paid by different properties with activities that generate different amounts of revenue.
Not surprisingly, the General Court noted that “(104) business rates are a tax on the value of their property, calculated on the basis of a rental value, and that it is not a tax on production. That tax normally applies to all business property and, consequently, to all electricity generating installations. It follows that the fact that that tax, based on the quantity of MW produced annually, is higher for wind farms than for fossil fuel electricity generation facilities, is irrelevant for the purposes of the present case and cannot, in any event, constitute a reliable indicator for the purpose of assessing the fairness of the system of business rates in Ireland. Similarly, the fact that that tax, in absolute terms, is different for wind farms and for fossil fuel electricity generation facilities does not permit, as such, any useful conclusion to be drawn, since those facilities have different NAVs.”
The Court repeated a few paragraphs later that “(114) as regards the argument concerning the need to use a metric to compare the tax paid by different producers of electricity […], it must be borne in mind that […] the comparison between electricity generating installations in terms of the amount of tax expressed in euros per megawatt of installed production capacity is not relevant, since business rates are not a tax levied on electricity produced, but on an undertaking’s property.”
Application of different methods
Lastly, the General Court considered the claim that the Irish authorities should have applied the different valuation methods according to a certain sequence.
“(111) With regard to the argument that there is an ‘accepted’ and ‘unwritten’ hierarchy between the different VAN assessment methods […], it should be noted that the existence of such a hierarchy is recognised by both the Irish authorities and by the Commission. The Irish authorities stated during the administrative procedure that it was correct that, when the two methods in question were applicable to a property or a specific category of property, there was a preference for the ‘receipts and expenditure method’. The Commission also considered, in recital 69 of the contested decision, that, in practice, it was only when the three other methods could not be applied that the ‘contractor’s method’ could be applied.”
Since none of the pleas of the applicants was successful, the General Court dismissed the appeal.
 The full text of the judgment can be accessed at: