EUROPEAN UNION LAW SUMMARY, ALL JUDGMENTS AND LITERATURE summarized (Grade: 8)
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Module
European Union Law (RR218)
Institution
Erasmus Universiteit Rotterdam (EUR)
Book
Law of the European Union
All learning objectives of all eight problems + judgments detailed. The E-Lessons were also included in the summary as well as the lectures/webcasts.
NOTE: This summary also includes literature that was not discussed in the lectures/teaching groups but were exam material (hence the length of th...
Problem 1: Italy’s Aid Policy
In the EU, Member States are, in principle, not allowed to provide any kind of state aid to companies or sectors. Article 107
TFEU sets out criteria for when a public intervention constitutes State aid that is incompatible with the internal market and
Article 108 TFEU provides the procedural framework for the control of State aid within the EU.
1. What are the rules regarding the offering by states of State aid in EU competition law?
• State aid (article 107(1) TFEU): assumes the existence of aid, a positive contribution/benefit. The concept
embraces positive benefits (subsidies), but also interventions which mitigate the charges which are normally
included in the budget of an undertaking. This article can be separated into a number of elements, prohibiting:
→ The CJEU focuses more on the effect of the aid rather than the form in which it is granted.
a. any aid granted by a MS or through state resources in any form whatsoever;
b. that distorts or threatens to distort competition;
c. by favouring certain undertakings or the production of certain goods (selectivity);
d. in so far as it affects trades between MS.
A | Any aid granted by a MS or through state resources in any form whatsoever:
According to the CJEU a benefit does not include the granting of a subsidy to a public undertaking that does not
exceed the costs arising from the performance by that undertaking of a task of general economic interest, within
the meaning of article 106(2) TFEU: public transportation.
→ Note: there is no advantage for the recipient undertaking if the state acts like a market economy operator.
→ How do we assess whether there is an advantage? ‘Market Economy Operator Test: would a private party also take the
same measure/would they do the same? (but not tax measures).
How must the benefit be granted? Either directly, such as a ministry or municipality, or indirectly by a third party.
In Stardust Marine (aid through private resources), the CJEU decided that a benefit granted by such a body (which is
often a public undertaking) must be imputable to the state. However, the mere fact that a public undertaking is
under state control is not sufficient for a benefit granted by that undertaking to be imputed to the state. Only in
cases where the government was involved, in one way or another, in the adoption of the measure concerned can
a benefit be imputed to the state and potentially classified as state aid.
→ The “or” in Article 107 TFEU must be read as “and”.
→ In short: there is only aid if it's paid by the state and through state resources. Is it imputable to the state?
The CJEU’s judgement in PreussenElektra (aid through state resources) suggests that MS can circumvent the
prohibition of state aid by ensuring that benefits are not funded from taxation. This case concerned the statutory
obligation of regional energy distribution companies in Germany to purchase all electricity produced from
renewable sources in their area of supply at fixed prices that exceeded their marked value. Despite holding that
this arrangement conferred an economic advantage on renewable energy producers, since it guaranteed them,
with no risk, higher profits than they would make in its absence; this did not amount to state aid. Because the
German government had reallocated resources towards renewable energy producers without placing itself in
the middle by levying taxes and distributing the proceeds to renewable energy the above-mentioned
arrangement did not involve the transfer of “state resources”. Later judgements have restricted this exception.
B & C | That distorts or threatens to distort competition by favouring certain undertakings or the production
of certain goods
The second (competitive link) and third (selectivity) conditions in Article 107(1) TFEU are closely related to one
another. A distortion of competition as a result of state only arises in situations where certain undertakings in a
MS receive such aid and others do not: selectivity test. For most state aid measures selectivity is easily proven
simply because most of these measures will be specifically directed at one recipient. The selectivity test plays a
key role in connection with the granting of certain tax exemptions and the determination of the tax liability of
undertakings in specific cases. Such as the Adria-Wien Pipeline.
In this case, Austria had restricted the reimbursement of an energy tax to undertakings that manufactured goods.
According to the CJEU, such reimbursements were not selective and therefore did not amount to state aid in
cases where they were justified by the nature or general scheme of the system in which they were part. However,
the CJEU observed that the fact that a large number and wide range of undertakings were able to benefit from
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3
the measure did not provide any grounds for concluding that it amounted to a general measure of economic
policy. In addition, it held that the measure was not justified by the nature or general scheme of the system, since
the underlying ecological considerations did not justify the differential treatment of undertakings that
manufactured goods and undertakings that provided services as regards their consumption of energy.
In other words: Article 107 TFEU allows MS to differentiate between undertakings on the basis of objective
justifications when establishing a system of charges that is in the general interest.
Besides specific measures, entire tax systems may also be classified as selective. This was the issue in the
Gibraltar Tax Reform-case that is about the Gibraltar tax reform concerning its corporate tax regime, which
made it very attractive for shell companies to register in Gibraltar. The mere fact that a general tax system
differentiates between different types of undertakings does not mean that it is inherently selective. However,
when the general rules ensure that shell companies are required to pay little or no tax, it can indeed be classified
as such. The case at hand focused on the introduction of a business property occupation tax and a payroll tax,
which obviously favoured shell companies given that they typically take up very little office space and employ
very few people. In this context, the issue is not whether the tax measure in question is designed to favour such
undertakings but rather whether the advantage they enjoy is an inevitable consequence of this measure.
The European courts have developed a three-part test to determine whether a tax measure is selective:
I. Identifying the common or normal tax system applicable in the Member State concerned
II. Prima-facie selectivity: Favouring certain undertakings or the production of certain goods in comparison
with other undertakings which are in a legal and factual situation that is comparable in the light of the
objective pursued by the measure in question
III. Justification ‘in the light of the nature or overall structure of the tax system’
● by objectives that are inherent to the general tax system (such as e.g. the criterion of ‘ability to pay’)
● by legitimate objectives without a link to the general tax system (such as ‘protection of environment’,
refused by CJEU, Case C-143/99, Adria-Wien)
* To determine whether the tax ruling is selective, there needs to be a comparison of the taxes payable by the company in
question with those payable by companies that are in a legal and factual situation comparable to that of the recipient in the light
of the objective of the reference framework. Much turns on identifying comparable companies and then calculating the
difference in taxes.
D | In so far as it affects trades between MS
Although the CJEU has never accepted a de minimis exception, the Commission has provided that aid granted to
a single undertaking which does not exceed €200.000 over a period of three fiscal years is deemed to fall outside
the scope of article 107(1) TFEU. This was never officially accepted by the CJEU.
Article 107(2) and (3) TFEU (exemptions)
State aid measures that fall within the scope of article 107(1) TFEU are prohibited, unless they are compatible
with the internal market pursuant to (2) and (3).
• Article 107(2) TFEU: lists the type of aid considered to be in line with the internal market. These are types of aid
that have a social character granted to individual consumers, aid to make up for the damage caused by natural
disasters or exceptional occurrences, and aid granted to certain areas of Germany affected by the division of that
country. In this case, the measure is considered an aid but it is exempted in the sense that it is not considered as
incompatible with the internal market. This list is exhaustive (shall).
• Article 107(3) TFEU: under this paragraph some measures may be considered to be compatible with the
internal market. This means that those measures are not automatically exempted as in the case of (2), but their
exemption lies in the discretion of the European Commission. The Commission has adopted guidelines on how it
is going to use its discretionary powers. It is up to the Court to control the exercise of the discretion of the
Commission, but only to the extent of checking whether the Commission has exceeded the scope of its discretion
by a distortion or manifest error of assessment of the facts or by misuse of powers or abuse of process (meaning
that the Court will not remake the assessment of the Commission). The Commission may decide to structure its
discretion through the adoption of formal or informal regulatory acts.
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State aid procedures
State aid is subject to special procedures that are conducted outside the framework of regular infringement
proceedings. These procedures are described in article 108 TFEU and Regulation 2015/1589 and jurisprudence.
• Existing aid: is aid that existed prior to the entry into force of the TFEU or aid that has been authorised/deemed
as by the Commission or the Council. The MS and the Commission keep existing aid under constant review. If
the Commission concludes that it is no longer compatible with the internal market, it can propose appropriate
measures after obtaining all necessary information from the MS concerned (article 108(1) TFEU). In cases where
the MS concerned does not accept the proposed measures, the Commission can initiate a formal investigation
procedure that may result in a decision to prohibit the aid (article 21 and 22 Regulation).
• New aid: not existing aid, including alterations to existing aid (article 1 Regulation). Pursuant to article 108(3)
and article 2 Regulation, any plans to grant new aid must be notified to the Commission. Any aid that has been
notified in this manner may not be put into effect until it has been authorised or is deemed to have authorised,
due to the expiry of the relevant deadline, by the Commission (also article 6 Regulation). This standstill clause
has direct effect and also applies to the financing of the aid.
The preliminary examination of the notification obligation begins as soon as the plan to grant the aid has been notified to the
Commission. The Commission then has two months to arrive at three conclusions: I) the notified measure does not constitute
ai, II) the notified aid constitutes aid that is compatible with the internal market and III) there are doubts whether it is compatible
with the internal market (article 108(2) TFEU, article 9(6) Regulation).
• Unlawful aid: is aid that is put into effect without notification. The Commission may, on its own initiative, examine
whether such aid is compatible with the internal market (article 12 Regulation).
→ The difference between article 107 TFEU and article 108 TFEU is that the former talks about prohibiting state
aid (content) and the latter talks about unlawful aid which can become lawful (procedure).
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