On July 28, 2016 Advocate General Wathelet delivered an Opinion in the joined Cases C-20/15 P (European Commission versus World Duty Free Group, formerly Autogrill España SA) and C-21/15 P (European Commission versus Banco Santander SA and Santusa Holding SL) (ECLI:EU:C:2016:624).

By its appeal in Case C‑20/15 P, the Commission asks the Court to set aside the judgment of the General Court of the European Union of 7 November 2014 in Autogrill Es v Commission (T‑219/10, EU:T:2014:939), by which that Court annulled Article 1(1) and Article 4 of Commission Decision 2011/5/EC of 28 October 2009 on the tax amortisation of financial goodwill for foreign shareholding acquisitions C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain.

 

By its appeal in Case C‑21/15 P, the European Commission asks the Court to set aside the judgment of the General Court of the European Union of 7 November 2014 in Banco Santander and Santusa v Commission (T‑399/11, EU:T:2014:938), by which that Court annulled Article 1(1) and Article 4 of Commission Decision 2011/282/EU of 12 January 2011 on the tax amortisation of financial goodwill for foreign shareholding acquisitions C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain.

 

By the two contested decisions, the Commission declared incompatible with the common market a tax advantage allowing undertakings taxable in Spain to amortise the financial goodwill resulting from the acquisition of shareholdings in ‘foreign companies’ and ordered the Kingdom of Spain to recover the aid granted under that scheme.

 

It is settled case-law that, for a measure, as State aid, to come within Article 107(1) TFEU, first, there must be an intervention by the State or through State resources; second, the intervention must be liable to affect trade between Member States; third, it must confer an advantage on the recipient; and fourth, it must distort or threaten to distort competition. All those conditions must be fulfilled.

 

The two appeals are concerned only with the third of those conditions, that is to say selectivity. That criterion has long been one of the most controversial issues in the field of State aid. The appeals therefore offer the Court an opportunity to define the scope of that criterion, in particular with respect to tax measures.

 

More specifically, the Court will have to interpret the phrase ‘by favouring certain undertakings or the production of certain goods’, used in Article 107(1) TFEU, and determine whether selectivity may follow simply from the finding that a derogation from a common or ‘normal’ tax regime has been introduced or whether, as the General Court held in paragraph 45 of the judgment under appeal in Autogrill España v Commission and paragraph 49 of the judgment under appeal in Banco Santander and Santusa v Commission, a category of undertakings which are exclusively favoured by the measure derogating from the common regime at issue must also be identified in all cases.

 

The background to the disputes

·   On 10 October 2007, following several written questions raised by members of the European Parliament in 2005 and 2006 and a complaint which it had received from a private operator that same year, the Commission decided to open the formal investigation procedure against the measure at issue.

 

·   That measure provides that, in the event that an undertaking taxable in Spain acquires a shareholding in a ‘foreign company’ equal to at least 5% of that company’s capital and retains that shareholding for an uninterrupted period of at least one year, the goodwill resulting from that shareholding, as recorded in the undertaking’s accounts as a separate intangible asset, may be deducted, in the form of an amortisation, from the basis of assessment to the corporation tax for which the undertaking is liable.

 

·   Under Spanish tax law, the acquisition by an undertaking which is taxable in Spain of a shareholding in a company established in Spain, on the other hand, does not make it possible for the goodwill resulting from that acquisition to be accounted for separately for tax purposes. Spanish tax law also provides, however, that the goodwill can be amortised in the case of a business combination.

 

·   The Commission closed the procedure relating to the acquisition of shareholdings within the European Union by adopting the first decision at issue. In Article 1(1) of that decision, the Commission declared that the scheme at issue, consisting in a tax advantage enabling Spanish companies to amortise the financial goodwill resulting from the acquisition of shareholdings in foreign undertakings, was incompatible with the common market in so far as it applied to the acquisition of shareholdings in undertakings established within the European Union. In Article 4 of the same decision, it ordered the Kingdom of Spain to recover the aid granted under that scheme.

 

·   The Commission had not closed the procedure relating to the acquisition of shareholdings outside the European Union, since the Spanish authorities had undertaken to provide new information in relation to the obstacles to cross-border mergers outside the European Union.

 

·   By the second contested decision, the Commission also declared the scheme at issue, which consisted in a tax advantage enabling Spanish companies to amortise the financial goodwill resulting from the acquisition of shareholdings in foreign undertakings, to be incompatible with the common market in so far as it applied to the acquisition of shareholdings in undertakings established outside the European Union and ordered the Kingdom of Spain to recover the aid granted under that scheme.

 

Procedure before the General Court and the judgments under appeal

·   By application lodged at the Registry of the General Court on 14 May 2010, Autogrill España SA, now World Duty Free Group SA (‘WDFG’), brought an action for the annulment of the first contested decision. In support of its action, WDFG raised four pleas in law, the first of which was based on an error of law in the Commission’s application of the condition relating to selectivity.

 

·   By application lodged at the Registry of the General Court on 29 July 2011, Banco Santander SA and Santusa Holding SL (‘Banco Santander and Santusa’) brought an action for the annulment of the second contested decision. In support of their action, Banco Santander and Santusa raised five pleas in law the first of which was based on an error of law in the Commission’s application of the condition relating to selectivity.

 

·   By the judgments under appeal, the General Court, on the basis of largely identical grounds, upheld the first plea raised in the two actions, alleging that Article 107(1) TFEU had been misapplied in relation to the criterion of selectivity, and annulled Article 1(1) and Article 4 of the contested decisions at issue without examining the other pleas raised in those actions.

 

·   In the judgments under appeal, the General Court considers first of all that, ‘in order to classify a domestic tax measure as ‘selective’, it is necessary to begin by identifying and examining the common or ‘normal’ regime applicable in the Member State concerned. It is in relation to this common or ‘normal’ tax regime that it is necessary, secondly, to assess and determine whether any advantage granted by the tax measure at issue may be selective by demonstrating that the measure derogates from that common regime inasmuch as it differentiates between economic operators who, in the light of the objective assigned to the tax system of the Member State concerned, are in a comparable factual and legal situation … . Thirdly, if necessary, it is appropriate to examine whether the Member State in question has succeeded in establishing that the measure is justified by the nature or overall structure of the system of which it forms part …’.

 

·   The General Court held, however, that, ‘… where the measure at issue, even though it constitutes a derogation from the common or “normal” tax regime, is potentially available to all undertakings, it is not possible to compare, in the light of the objective pursued by the common or “normal” regime, the legal and factual situation of undertakings which are able to benefit from the measure with that of undertakings which cannot benefit from it. … [F]or the condition of selectivity to be satisfied, a category of undertakings which are exclusively favoured by the measure at issue must be identified in all cases … [T]he mere finding that a derogation from the common or “normal” tax regime has been provided for cannot give rise to selectivity’.

 

·   The General Court therefore held that the existence, even if it were established, of a derogation from or exception to the reference framework identified by the Commission cannot, in itself, establish that the measure at issue favours ‘certain undertakings or the production of certain goods’ within the meaning of Article 107(1) TFEU, since that measure is, a priori, available to any undertaking.

 

·   So far as concerns the measure at issue, the General Court found that it applied to all shareholdings of at least 5% in foreign companies which are held for an uninterrupted period of at least one year and that it was aimed not at any particular category of undertakings or production, but at a category of economic transactions.

 

·   The General Court stated that, to benefit from the measure at issue, an undertaking must purchase shares in a foreign company. It considered that such an operation, which is entirely financial, does not, a priori, require the acquiring undertaking to change its activity and also, in principle, involved for that undertaking only limited responsibility with regard to the investment made. The General Court took the view that, in accordance with paragraph 36 of the judgment of 8 November 2001 in Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke (C‑143/99, EU:C:2001:598), ‘a measure which is to be applied regardless of the nature of the activity of undertakings is not, in principle, selective’.

 

·   The General Court went on to say that the measure at issue did not set any minimum amount in respect of the minimum 5% shareholding threshold and therefore did not in fact restrict the undertakings which could take advantage of it to those which possessed sufficient financial resources to do so. Finally, the General Court pointed out that the measure at issue provided that a tax advantage was to be granted on the basis of a condition linked to the purchase of particular financial assets, that is to say shareholdings in foreign companies. ‘However, in [the judgment of 19 September 2000 in] Germany v Commission, … [(C‑156/98, EU:C:2000:467] (paragraph 22), the Court of Justice ruled that a tax concession in favour of taxpayers who sold certain financial assets and could offset the resulting profit in the case of shareholding acquisitions in capital companies having their registered office in certain regions conferred on those taxpayers an advantage which, as a general measure applicable without distinction to all economically active persons, did not constitute aid within the meaning of the relevant provisions of the Treaty. … The measure at issue therefore does not exclude, a priori, any category of undertakings from taking advantage of it. … As a consequence, even if the measure at issue constitutes a derogation from the reference framework used by the Commission, this would not, in any event, be a ground for establishing that that measure favours “certain undertakings or the production of certain goods” within the meaning of Article [107 TFEU]’.

 

·   Secondly, the General Court noted that, according to the Commission, the measure at issue was selective in that it only favoured certain groups of undertakings that carried out certain investments abroad and that, as the Commission further argued, a measure which favoured only undertakings satisfying the conditions on which its grant was subject was selective ‘by law’ and that it was not necessary to ensure that that measure was likely to have the effect of conferring an advantage only on certain undertakings or the production of certain goods.

 

·   According to the General Court, however, that other reason for the contested decisions did not make it possible to establish that the measure at issue was selective in nature. It considered that, according to settled case-law, Article 107(1) TFEU distinguished between State interventions on the basis of their effects and that the approach proposed by the Commission could lead to every tax measure the benefit of which was subject to certain conditions being found to be selective, even though the beneficiary undertakings did not share any specific characteristic distinguishing them from other undertakings, apart from the fact that they would be capable of satisfying the conditions to which the grant of the measure was subject.

 

·   Thirdly, the General Court noted that, according to the Commission, the measure at issue was aimed at favouring the export of capital out of Spain, in order to strengthen the position of Spanish companies abroad, thereby improving the competitiveness of the beneficiaries of the scheme.

 

·   According to the General Court, the finding that a measure is selective is based on a difference in treatment between categories of undertakings under the legislation of a single Member State and not a difference in treatment between the undertakings of one Member State and those of other Member States. The General Court further considered that the link between the export of capital and the export of goods would, if it were established, allow only a finding that there is an effect on competition and trade and not a finding that the measure at issue is selective, which had to be evaluated within a national framework.

 

·   Fourthly, the General Court held that the Commission’s argument that, in its case-law, the Court of Justice had already allowed a tax measure to be classified as selective without it being established that the measure at issue favoured a particular category of undertakings or the production of certain goods, to the exclusion of other undertakings or the production of other goods, should also be rejected.

 

·   In this regard, the General Court held, on the one hand, that, in the three judgments relied on by the Commission (judgments of 10 December 1969 in Commissionv France (6/69 and 11/69, EU:C:1969:68, paragraph 20); 7 June 1988 in Greece v Commission (57/86, EU:C:1988:284, paragraph 8); and 15 July 2004 in Spain v Commission (C‑501/00, EU:C:2004:438, paragraph 120), the category of recipient undertakings allowing a finding that the measure at issue was selective was made up of the category of ‘export undertakings’. This had to be regarded as a category which, even though extremely broad, was nonetheless particular, since it comprised undertakings that could be distinguished on account of common and specific characteristics linked to their export activity.

 

·   On the other hand, so far as concerns the judgment of 15 July 2004 in Spain v Commission (C‑501/00, EU:C:2004:438, paragraph 120), the General Court held that, while it was true that the tax advantage at issue in the case that gave rise to that judgment related to a number of export activities including the purchase of shares in foreign companies, the fact remained that, in order to benefit from the tax advantage at issue, undertakings had to acquire shareholdings in companies directly involved in the exportation of goods or services. That measure was therefore also aimed at the particular category of export undertakings.

 

Conclusion

The Advocate General proposes that the Court:

   set aside the judgment of the General Court of the European Union of 7 November 2014 in Autogrill España v Commission (T‑291/10, EU:T:2014:939), by which it annulled Article 1(1) and Article 4 of Commission Decision 2011/5/EC of 28 October 2009 on the tax amortisation of financial goodwill for foreign shareholding acquisitions C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain (OJ 2011 L 7, p. 48);

   set aside the judgment of the General Court of the European Union of 7 November 2014 in Banco Santander and Santusa v Commission (T‑399/11, EU:T:2014:938), by which it annulled Article 1(1) and Article 4 of Commission Decision 2011/282/EU of 12 January 2011 on the tax amortisation of financial goodwill for foreign shareholding acquisitions C 45/07 (ex NN 51/07, ex CP 9/07) implemented by Spain (OJ 2011 L 135, p. 1);

   refer the cases back to the General Court of the European Union; and

   reserve the costs.

 

For further information click here to be forwarded to the text of the opinion as published on the website of the CJEU, which will open in a new window.


Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

 

Copyright – internationaltaxplaza.info

 

 

Are you looking for a highly motivated new member for your tax team? Then place your Job Ad on International Tax Plaza!

 

and

 

Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!

 

 

 

Submit to FacebookSubmit to TwitterSubmit to LinkedIn
INTERESTING ARTICLES