Sector-Specific Tax Exemptions

Sector-Specific Tax Exemptions - SAH Blogpost 24 Seaports

A measure that covers a whole sector can be selective. Distortions caused by the policies of other Member States cannot justify the granting of State aid. The purpose of State aid is not to ensure equal conditions of competition across Member States.



On 31 May 2018, the General Court ruled in case T-160/16, Groningen Seaports v European Commission.[1] Groningen Seaports applied for the annulment of Commission Decision 2016/634 in which the Commission found that an exemption from corporation tax granted by the Netherlands to public undertakings, including Groningen Seaports, was incompatible with the internal market and had to be abolished.

The exemption initially applied to most public undertakings. Although, it was abolished in 2015, it was retained for certain seaports. The Commission decision requested the abolition of the exemption for seaports as well.

The Annex to this article explains why the Commission found the tax exemption for seaports to be selective and not justified by the logic of the Dutch system of corporate taxation.

The case before the General Court was a bit unusual because the applicant did not contest the Commission finding that the exemption constituted incompatible aid. However, it claimed that the Commission had to terminate all its investigations in State aid to ports in other Member States at the same time or to allow it to benefit from a transitional period so that its tax exemption would come to an end at the same time as those of competing ports in Belgium, France and Germany.

Indeed, the Commission had been carrying out simultaneous investigations on ports in several Member States. The Commission, in decisions 2017/2115 and 2017/2116, instructed Belgium and France, respectively, to abolish similar tax exemptions for their ports. Apparently, the investigation in German ports is still continuing.


Equal treatment

The first plea of the applicant was that the Commission had failed to explain why it treated Dutch seaports differently from competing seaports located in Belgium, France and Germany, which benefited from comparable aid measures.

The General Court first recalled that the analysis of the Commission must be appropriate to the nature of the act in question and must show clearly and unequivocally the reasoning of the institution responsible for the act so as to allow interested parties to know its motivation and enable EU courts to exercise their control. (Paragraph 78)

During the administrative procedure, the applicant argued that it was in direct competition with other EU seaports, in particular those located between Hamburg (Germany) and Le Havre (France). The fact that the Commission’s investigations were carried out at different speed, were at different stages and from different starting points was likely to confer a competitive advantage to the ports whose examination was at an early stage [or delayed]. The applicant contended that that situation was contrary to the principle of equal treatment and the prohibition of all discrimination on grounds of nationality.

Regarding the applicant’s argument that the tax exemption did not create a distortion of competition, the Courted noted that the Commission had replied in its decision that it was sufficient that the aid allowed the recipient to maintain a stronger position than it would have had in the absence of aid. The fact that some EU ports received State aid did not mean that the competition was not distorted by the tax exemption that was granted to the applicant. (82)

The Court also pointed out that the Commission had explained that, in the absence of harmonisation of direct taxation, the tax situation of ports of other Member States would always differ to a certain extent and that a Member State could not justify tax exemptions which constituted State aid by reference to other Member States. (83

In response to a request by the Netherlands for a transitional period, the Commission noted in its decision that since the aid was incompatible with the internal market, the exemption had to be abolished as soon as possible. It considered that there were no exceptional circumstances which could have justified the granting of a transitional period. (84)

The Court found that the Commission clearly explained in its decision why it considered that the situation of the applicant’s competitor ports was not relevant. Since, the situation of those ports was irrelevant, it was reasonable that it did not give any further explanation as to the investigations it was conducting. (86)


Relevant market and conditions of competition

Then the applicant argued that the Commission did not carry out any examination of the relevant geographic markets or products or the actual conditions of competition in the relevant markets. The Court noted that in fact the applicant was criticising the Commission for not taking into account the fact that the applicant was in competition with other public ports such as those located between Hamburg and Le Havre.

The Court rejected this plea as well. It found that the Commission did take into account the fact that the applicant was in competition with other ports which could receive aid, but considered that that fact was irrelevant. (90)

The Court also recalled that it was sufficient for the Commission to establish that the aid was capable of affecting trade between Member States and of threatening to distort competition, without being obliged to delimit the relevant market and to analyse its structure and the resulting competitive relations (cited case law at this point: T-226/09, British Telecommunications v Commission). (91)

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State aid as a remedy to competitive distortions?

The applicant went on to plead that the Commission had stated in several press releases that cross-border competition played an important role in the port sector and that it undertook to ensure a level playing field between all EU ports.

The Court replied that according to the case-law, the possible breach by a Member State of the prohibition of Article 107(1) TFEU could not be justified by the fact that other Member States were also in breach of that prohibition. The effect of several distortions of competition on trade between Member States is not to neutralize each other, but on the contrary it is cumulative in nature, which increases the harmful consequences for the internal market. (97)

Even if other Member States grant State aid to their ports, the fact remains that the Commission, declared the aid granted to the Dutch ports incompatible with the internal market and by ordering its abolition, it aimed to restore a level playing field in the port sector and thus to fulfil the objectives of State aid rules. (98) Indeed, a level playing field is necessarily a condition of competition without State aid, since it is that aid which creates distortions of competition. (99) The Court concluded that the applicant was wrong to claim that the Commission decision infringed the objectives of the State aid rules.

The Commission did not even examine in its decision, at the stage of the compatibility assessment, whether the Dutch aid could be justified by the fact that the policies of other Member States distorted competition. As already explained above, a firm principle in the case law is that a distortion caused by one Member State does not justify a distortion by another Member State. The Commission did not consider that Article 107(3)(c) was applicable because the aid was operating aid.


Joint investigations?

The applicant also claimed the principle of equal treatment was again infringed by the fact that the Commission should have joined the investigations.

The Court first recalled that Article 108(1) TFEU gives the Commission the power to monitor all State aid granted by Member States. As part of this review, the Commission can propose appropriate measures [for existing aid] which are required as a result of the progressive development or functioning of the internal market. In addition, if the Commission finds that aid is not compatible with the internal market it can decide that the state concerned must abolish it or amend it within the period it determines. (115)

But the Court emphasised that compliance with the principle of equal treatment must be reconciled with the principle of legality, which implies that one may not plead in favour of an unlawful act committed in favour of others. In order to obtain the annulment of the contested decision, the applicant cannot rely on the fact that the Commission did not wrongly request, at the same time, Belgium, France and Germany to abolish aid granted to their ports. (116-117)

The Court also noted that compliance with the principle of equal treatment or non-discrimination requires that comparable situations are not treated differently and that different situations are not treated equally unless such treatment is objectively justified. Breach of the principle of equal treatment as a result of differential treatment presupposes that the situations in question are comparable in the light of all the elements which characterize them. (118)

In the present case, there were objective reasons why the Commission ordered the abolition of the Dutch tax exemption before the exemptions granted to the applicant’s competitors were abolished. First, the investigation on the Dutch measure began before the other investigations. Second, the tax legislation applicable to the French, Belgian and German ports differed from that applicable to Dutch ports and it was more complex, which required more time for proper assessment.

The Court pointed out that to accept the applicant’s argument would lead the Commission to wait to complete all its investigations with regard to all Member States which grant aid to their ports in order to take its final decisions and request the abolition of the aid at the expense of Member States which do not grant aid to their ports. (132)

In conclusion, the General Court rejected all pleas of the applicant.


Annex: The selective nature of the tax exemption for Dutch ports

The Commission considered the normal Dutch corporate taxation to be the reference system. Since the Dutch tax exemption in favour of public undertakings deviated from that system, it was selective in nature. Port companies, however, argued that their exemption was not selective because all ports in the Netherlands were subject to the same treatment. The Commission rejected this argument. Its reasoning is laid down in paragraph 78 of its decision.[2]

“(78) The Commission does not agree with this argument. Selectivity in EU State aid law has to be assessed on the basis of an internal comparison within one Member State, between undertakings that are factually and legally in a similar situation in the light of the objectives of the tax law concerned. Undertakings with corporate income that benefit from a corporate tax exemption, like the interested seaports, clearly enjoy a selective advantage compared with undertakings active in the same sector and in other sectors. In the light of the objective of the corporate tax law, the two groups are in a similar factual and legal situation.”

The Commission also examined whether the exemption could be objectively justified. It concluded that

“(79) In the absence of harmonisation of direct taxation, the tax situation of ports in different Member States will always differ to some extent. For example, different corporate tax rates apply in different Member States. It is established case-law that a Member State cannot justify maintaining tax exemptions which constitute State aid by referring to other Member States that may have similar measures in place.”

“(81) The existence of similar exemptions for public undertakings in other Member States or the absence of a level playing field at European level does not justify a failure to implement the Commission decision proposing appropriate measures as regards public seaports. Under EU State aid law, undertakings that are legally and factually comparable in the light of the objective of the tax system of a Member State should be treated in the same manner within that Member State. The selectivity assessment under EU State aid law is thus based on an internal comparison within one Member State. In the absence of EU harmonisation of direct taxation, the tax situations of ports in different Member States will always differ to some extent.”

“(82) The rationale of the corporate tax system is to tax profits. Treating public undertakings, including public seaports, that are involved in economic activities more favourably than private undertakings does not fit into this rationale.”



The moral of the story is simple. Exemptions from corporate taxes cannot be justified on the grounds that other Member States offer similar privileges or advantages to their companies and, by doing so, they distort competition.

The purpose of State aid is not to remedy cross-border distortions of competition or to equalise conditions of competition. You do not cure a distortion by creating another one. The solution is the elimination of the first distortion.

And, Member States and competitors have the means to address that problem without granting or receiving State aid. They can initiate court proceedings or complain to the Commission.



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


[2] The full text of the Commission decision is published in OJ L113, 27/4/2016, and 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.


  1. von dr. José Antonio Rodríguez Miguez

    Thanks very much, Professor Nicolaides, for quoting and comment this very interesting case on taxation and cross-border effect. Indeed, many state ais scheme as designed as a reaction in from of other member states actions. S harmonization in taxation matter is a real problem beyond state aid control, but not, as Court clearly explains a justification for the infringement of competition. This case remember all of us the crucial problem in Eu common project: more European vision or more Member States vision. State Aid rules are not the solkution for this problem that, in such way, put in evidence.

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