An official’s statement can be imputed to his authority if it can be reasonably assumed that the official speaks on behalf of the authority.
It is often asked by national officials how much credence they should give to assurances by Commission officials in the absence of a formal Commission decision and what is the legal value of such assurances.
On 23 September 2020, the General Court gave a useful answer to these questions in a ruling that ostensibly was about the concept of selectivity. See the judgment in joined cases T-515/13 RENV, Spain v Commission and T-719/13 RENV, Lico Leasing and PYMAR v Commission. All they applicants sought annulment of Commission decision 2014/200 concerning the so-called “Spanish tax lease” [STL].
After an investigation, the Commission concluded in July 2013 that the STL regime involved incompatible State aid and ordered Spain to recover it from those investors that had benefitted from it.
In December 2015, the General Court annulled the decision of the Commission. The Commission appealed and in December 2018, the Court of Justice set aside the judgment of the General Court and referred the case back to the General Court. The Court of Justice, taking into account its ruling in case C-20/15 P, World Duty Free, concluded that the General Court erred in law by finding that the STL regime was not selective on the grounds that anyone could set up an “economic interest grouping” and any investor could participate in an EIG. With its new judgment on 23 September 2020, the General Court held that the STL regime did constitute State aid and dismissed the appeals of Spain and Lico Leasing and others.
The STL regime allowed shipping companies to purchase new vessels with a 20-30% discount on the price normally charged by the shipyards. In order to obtain the discount, a shipping company did not buy the vessel directly from the shipyard but from an economic interest grouping [EIG] incorporated under Spanish law.
The EIG was normally established by a bank in order to generate tax benefits for investors who invested in tax transparent EIGs. Part of these tax benefits were transferred to the shipping company in the form of a rebate on the price of the vessel. The rest of the benefits were kept by the investors in the EIG as remuneration for their investment.
The EIG leased the vessel from a leasing company which obtained it from the shipyard. Then the EIG chartered out the vessel to the shipping company, which operated the vessel. The EIG undertook to buy the vessel at the end of the leasing contract and the shipping company undertook to buy the vessel at the end of the charter contract. For a short period of time, while ownership of the vessel went from the leasing company to the EIG and then to the shipping company, the EIG came under the tonnage tax system regime. Investors in EIGs derived tax benefits from the tonnage tax regime which was more favourable than the normal system of corporate taxation, from accelerated depreciation of assets subject to lease contracts and from exemption from corporate tax on capital gains resulting from the sale of assets.
Was the STL selective?
The applicants claimed that the STL regime was not selective as it was open to all investors and was based on objective criteria.
The General Court began its analysis by recalling the definitions of the concepts of advantage and selectivity. [para 81] Then it reiterated that the selectivity of tax measures is to be determined according to the well-known three-step test: reference system; deviation or derogation from the reference system; no objective justification of the deviation or derogation. [paras 82-83]
Next, it proceeded to examine, using the principles established by the case law, the case at hand.
The General Court, first, observed that, although the Commission had not carried out the three-step test, it established the selectivity of the STL on the grounds that Spanish tax authorities had discretionary power to authorise accelerated depreciation on the basis of vague criteria and the authorisation was granted only for operations aimed at financing vessels. [para 87]
The General Court pointed out that the existence of an authorisation system does not in itself imply a selective measure. This is the case where the discretionary power of the competent authority is limited to verifying the conditions which are established for an identifiable tax purpose and the criteria to be applied by the authority are inherent in the nature of the tax regime. By contrast, discretionary power allowing the competent authority to adjust the financial intervention according to various considerations such as the choice of beneficiaries, the amount of the intervention or the conditions of the measure granted cannot be considered to be of a general nature. Therefore, if the competent authorities have a wide discretionary power to determine the beneficiaries and the conditions of the application of the measure in question, the exercise of this power favours certain companies or certain products, which are, in the light of the objective pursued, in a comparable factual and legal situation. [para 88]
The STL required prior authorisation of the accelerated depreciation, rather than simple notification, on the basis of vague criteria, requiring assessment by the tax administration, which had not published any guidelines. [para 89]
The Court rejected the claim that the STL was not selective.
Breach of the principle of equal treatment?
Spain argued that the Commission had violated the principle of equal treatment because it had treated the STL regime differently from other similar cases.
The General Court, first, recalled that the principle of equal treatment, as a general principle of EU law, requires that comparable situations must not be treated differently and that different situations must not be treated equally unless such differentiation is objectively justified. The burden of proof of the comparability of the situations falls on the party invoking it. [para 139]
Because the other cases cited by the applicants were different and because the Commission is not bound by precedent, the General Court rejected Spain’s argument.
Breach of the principle of the protection of legitimate expectations?
According to the General Court, a legitimate expectation that State aid is lawful can in principle, and save in exceptional circumstances, be relied on only if that aid has been granted in accordance with the procedure provided for in Article 108 TFEU. [para 155]
The case-law does not exclude the possibility for the beneficiaries of aid which is unlawful, because it was not notified to the Commission, to invoke exceptional circumstances on which to base their legitimate expectation in the legality of the aid. [para 156]
It appears from the case-law that the principle of the protection of legitimate expectations can be invoked when three conditions are met.
First, the right to rely on this principle can be invoked by any litigant to whom an institution of the EU has given precise assurances about the legality of the aid. These assurances, regardless of the form in which they are communicated, must provide precise, unconditional and consistent information. In addition, these assurances must come from authorised and reliable sources.
Second, when a prudent and informed economic operator is able to foresee the adoption of an EU measure liable to affect his interests, he cannot invoke the benefit of the principle of the protection of legitimate expectations when that measure is adopted.
Third, when the institutions of the EU have created a situation liable to give rise to a legitimate expectation for the litigant, this may nevertheless be set aside when the institution in question demonstrates that there is an overriding public interest prevailing over the affected private interests. [paras 157-160]
Then, the General Court applied the above principles to the case at hand. It found, first, that other similar cases assessed by the Commission did not constitute unconditional and consistent assurances to Spain or the other applicants. [para 163]
Second, requests for information by the Commission and subsequent inaction by that institution did not to constitute precise, unconditional and consistent assurances. [para 164]
Third, the argument based on the Commission notice on the application of the rules on State aid to measures relating to direct business taxation, which states that the rules of depreciation and amortization do not constitute State aid when they apply to all undertakings and all products, cannot give rise to a legitimate expectation since the STL does not apply to all companies and all products. [para 165]
The value of informal Commission communication
In the judgment, there is also an interesting analysis of the value of administrative letters sent by DG Competition. The General Court agreed with the applicants that it is not decisive that such letters are not a formal act of the Commission. [para 170]
The imputability of an official’s statement to his authority depended, in particular, on the perception that the public may have had of those statements. The determining factor for an official’s statement to be imputed to his authority is whether the addressees of those statement can reasonably assume that it is a position that the official takes with the authority of his function. In this regard, it is necessary to assess, in particular, whether the official is generally competent in the sector in question; if he distributes his written statements using the official letterhead of the competent service; if he grants televised interviews in the premises of his department; if he does not indicate that the views are personal; and if the relevant authorities do not act to reverse the false impression that those views are not official. [para 171]
Consequently, it cannot be ruled out that a letter sent by the highest official of the Commission’s competition services in that capacity, as is apparent both from the letterhead of the letter and from the signature, to the competent national authority, is in principle likely to give rise to a legitimate expectation for economic operators. [para 172]
In addition, the General Court added, the fact that the letter in question was not addressed to the economic operators relying on it was not decisive, provided that its content had been communicated to them. [para 173]
In the present case, it appeared that the contents of such a letter were known to the economic operators participating in the STL.
However, in order for a letter from the Commissioner responsible for DG Competition to be able to give rise to legitimate expectations, it is still necessary that, having regard to its content, it provides precise, unconditional and consistent assurances. The Court concluded that that was not the case here. [para 174] [At another point in the judgment, it is revealed that that letter was limited to indicating that the STL did not discriminate against shipyards in other Member States, adding that the Commission did not consider additional measures “at this stage”.]
In view of the foregoing, the plea alleging infringement of the principle of the protection of legitimate expectations was rejected.
Breach of the principle of legal certainty?
The General Court, first, recalled that the logical consequence of a finding that aid is illegal is its abolition by way of recovery in order to restore the previous situation. It is only if exceptional circumstances arise that it might be inappropriate to order repayment of the aid. In particular, the case-law does not exclude the possibility for the beneficiaries of aid which is unlawful, because it has not been notified, to invoke exceptional circumstances, such as the violation of the principle of legal certainty, to oppose its repayment. [para 193]
In addition, the principle of legal certainty implies that the application of EU legislation must be predictable for litigants so that they can unambiguously know their rights and obligations and take their measures accordingly. This requirement of legal certainty is particularly stringent when it comes to legislation likely to have financial consequences. [para 194]
It should be noted that, in the field of State aid, actions aimed at opposing the obligation to recover aid on the basis of an infringement of the principle of legal certainty are only accepted in circumstances which are entirely exceptional. One of the rare examples of an appeal of this type that was accepted was case T-308/00, Salzgitter v Commission. However, that judgment was set aside on appeal by the judgment in case C-408/04, Commission v Salzgitter [see also case T-308/00 RENV, Salzgitter v Commission]. [para 195].
On the basis of the above, the General Court considered that it was necessary to examine several elements in order to determine the existence of a breach of the principle of legal certainty; in particular the lack of clarity of the applicable legal regime and / or inaction by the Commission for a prolonged period without justification. With regard to this last element, the Commission is required to act within a reasonable time in the context of a State aid review procedure and that it is not allowed to perpetuate a state of inaction during the preliminary examination phase. It should be added that the reasonableness of the time limit for the procedure must be assessed according to the specific circumstances of each case, such as its complexity and the behaviour of the parties. [para 196]
The General Court went on to find that Commission decisions on similar schemes had concluded that they constituted State aid. Therefore, the applicants could not claim breach of the principle of legal certainty, even if the Commission did not appear to act quickly in the case of the STL. [para 198]
Wrong method for calculating the amount of the incompatible aid?
Lastly, the applicants contested the method of calculating the amount of the incompatible aid. According to them, that method could lead to the recovery of an amount greater than the aid actually received by the investors. This was because, allegedly, a part of the aid had been passed on to shipping companies.
The General Court recalled that the elimination of incompatible aid by way of recovery is the logical consequence of the finding of its incompatibility and aims at re-establishing the previous situation. This objective is achieved as soon as the aid in question, plus interest, has been returned by the beneficiaries. By this refund, the beneficiaries lose the advantage which they had enjoyed on the market over their competitors and the situation prior to the payment of the aid is re-established. [para 217]
The General Court concluded that, in view of the fact that the Commission had decided that the shipping companies were not the beneficiaries of the aid, the recovery order was correctly aimed solely and entirely at investors who were the sole beneficiaries of all the aid because of the transparency of the EIGs. [para 219]
 The full text of the judgment, in languages other than English, can be accessed at: