Relief from Pension Contributions and Reduction of Taxes

Relief from Pension Contributions and Reduction of Taxes - StateAidHub blogpost38 saleofbank scaled

Compensation for structural disadvantages encumbering undertakings is still State aid. Compensation for structural disadvantages encumbering SGEI providers is not State aid only if it satisfies the Altmark criteria. Reductions of excise duties approved by the Council may still be subject to scrutiny by the Commission under State aid rules. Exception of fossil fuel from energy taxes when it is not used as a source of energy or heating is not State aid.



This article reviews four cases that have as a common feature the reduction of charges that undertakings should be paying to the state. The first case concerns a judgment of the General Court on relief from pension costs. The other three cases concern Commission decisions dealing with taxes. One of the decisions deals with corporate taxation while the other two decisions assess excise duties. These cases are not path breaking or unusual. But they address complex issues and demonstrate how the General Court and the Commission treat possible State aid in the form of reduced pension contributions or reduced tax rates.

Judgment of 26 February 2015, T-135/12, France v Commission.[1]

The judgment concerns a measure that partly relieved France Telecom from financing extra pension benefits for those of its staff who had civil servant status. [France Telecom has since then been renamed Orange]. When France Telecoms was privatised in the early 1990s, its staff retained the privileges they enjoyed as state employees, including pensions which differed from those of ordinary employees.

France sought the annulment of decision 2012/540 in which the Commission found that the measure of mitigating the pension costs borne by France Telecom constituted State aid. However, the Commission approved the measure on condition that it was adjusted so that what France Telecom had to pay as employer was equal to the employers’ pension contributions made by competing telecom undertakings.

The central issue in this case was whether France Telecom derived an advantage. The General Court noted in paragraph 37 of its judgment that a measure cannot be classified as State aid when it relieves an undertaking from a charge which in a normal situation it would not have to bear. This is an important statement of principle but it is not further elaborated by the Court. On the contrary, it seems that a few paragraphs later [please see below], the Court qualifies this statement by a reference to Altmark. But it is not possible to infer from the language used by the Court that the difference with Altmark was that Altmark did not concern a charge, but rather a public service obligation, or that relief from abnormal costs is possible only when a service is provided to the public, as was the case in Altmark.

Then the Court observed that the pension arrangements for civil servants formed a separate system from those that applied to pensions of employees of other, private companies. Therefore, the France Telecom system was not a derogation from another system. The pension system that covered, among others, France Telecom also defined the normal costs that had to be borne by France Telecom in its own budget. [Paragraph 40]

The Court also responded to the argument of the French authorities that the civil servant pension system imposed a structural disadvantage on France Telecom. The Court explained that compensation for structural disadvantages can still be State aid. More importantly, compensation for the extra costs of services provided to the public is not State aid only when the providers perform a service of general economic interest and the compensation satisfies the Altmark criteria, which was not the case for France Telecom. [Paragraphs 41 & 42]

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France also argued that the Commission should not have assessed the compatibility of the measure in question by setting as a reference the pension system that applied to other telecom companies. The General Court first reiterated the well-established principle in the case law that the Commission enjoys wide discretion in assessing compliance with Article 107(3). More specifically, the Court noted, aid is compatible with Article 107(3)(c) when it satisfies the criteria of necessity and proportionality. [Paragraphs 60 & 61]

In this context, the Commission is not required to use the same framework or criteria for the qualification of a measure as State aid under Article 107(1) TFEU and for the assessment of the aid under Article 107(3) TFEU. The reference system for establishing the existence of aid was the pension system of France Telecom itself, while the reference system for determining the proportionality of the aid was the system that applied to competitors. The latter was appropriate in light of the need to minimise distortion to competition. [Paragraphs 65-68]

On the basis of the above, the General Court dismissed the appeal [it also dismissed the appeal in the related case T-385/12, Orange v Commission].

Corporate taxation

Last October, the Commission adopted decision 2015/314 which was published in the Official Journal on 27 February 2015.[2] In this decision, the Commission finds that tax amortisation of financial goodwill arising from the acquisition of foreign companies constitutes State aid that is incompatible with the internal market. This is the third decision on basically the same theme: favourable tax treatment of acquisition of shares in non-resident companies.

As already noted, the Commission adopted the decision in October. About three weeks later, on 7 November 2014, the General Court ruled on two cases that challenged the previous Commission decisions. The cases were T-399/11, Banco Santander v European Commission and T-219/10, Autogrill Espana v Commission. In both cases, the General Court annulled the decisions of the Commission.

As explained in a previous article on the StateAidHub [Please view the post from December here], the reasoning of the Court was surprising. Even though the favourable tax treatment was a derogation from the normal system of corporate taxation, the General Court found that the Commission failed to prove that that treatment was reserved only for certain companies. In other words, the General Court considered that any company in Spain could possibly enjoy the benefits from the favourable tax treatment of acquiring non-resident companies.

It is likely that the new Commission decision will also be challenged before the General Court.

Reduction of excise duties

i) SA.38832, reduced rate of excise duty applied to liqueurs and eaux-de-vie produced and consumed in the Azores[3]

What makes this decision interesting is that the Commission examined a reduction of excise duty, which had been approved in June 2014 by the EU Council in decision 376/2014. The decision stipulated that the applicable excise duty “may be lower than the minimum rate of excise duty set by Council Directive 92/84/EEC2, but may not be more than 75% lower than the standard national excise duty on alcohol”. The Commission explained that the “present decision assesses the compatibility of the measure with Art. 107 and Art. 108 TFEU.”

Indeed, Portugal did notify the measure to the Commission for its approval. It follows that Council authorisation did not mean that Portugal was compelled to reduce its excise duty. For a national measure to be attributed to the EU, it must be imposed by the EU in a way that Member States are deprived of any discretion in whether to implement the measure or not. In fact, the Council decision explicitly states that it is without prejudice to Articles 107 and 108 TFEU.

There was no doubt that the excise reduction was State aid. The Commission approved it on the basis of the regional aid guidelines. As the Commission noted at the outset, the excise reduction was operating aid. This is because “(14) the measure is aimed at reducing the current expenses of the beneficiaries not linked to an initial investment. The Commission therefore considers that it constitutes operating aid. This type of aid may only be authorised to SMEs and large enterprises alike in the outermost regions, notably the Azores, insofar as it is awarded to compensate for additional costs linked to the permanent handicaps which severely restrain the development of these regions as set out in Article 349 TFEU.”

ii) SA.37320, exemption from excise duty for certain use of gas products in Poland[4]

Gas products in Poland are subject to an excise duty, as all other energy products which are used for heating or fuel purposes. In this case, the exemption from the excise duty applied to the use of gas products in mineralogical, electrolytic and metallurgical processes and for chemical reduction. That is, gas products were not used as fuel or for heating.

In order to determine whether the reduction constituted State aid, the Commission had to assess whether the measure was justified by the nature and logic of the reference system of taxation. The reference tax regime in this case was the Polish excise duty on energy products used for heating or fuel purposes.

The Commission accepted that it was within the logic and nature of the reference tax regime not to levy a tax on energy products used for non-heating or non-fuel purposes. This is also the position of the Energy Taxation Directive [Council Directive 2003/96].


[1] The full text of the judgment, in French, can be accessed at:

[2] OJ L56, 27 February 2015. The full text of the decision can be accessed at:

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

[4] The full text of the decision 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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