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Published online by Cambridge University Press: 27 October 2017
In 2001, the Irish carrier Ryanair and the Walloon regional government reached an agreement the terms of which appeared to be attractive for both sides. Ryanair would commit towards operating a number of its flights from Charleroi airport. In return it would receive a 50 per cent reduction in the amount of landing charges charged by the Walloon regional government, the owner of Charleroi airport. As a result, Ryanair would decrease its operating costs and gain an advantage vis-à-vis its competitors, while the airport and its owner would benefit directly and indirectly from the effects of an increase in passenger traffic. When the agreement was examined by the Commission, the Walloon Region sought to defend the measure by arguing that it had acted in its capacity as owner of the airport and that, viewed in this light, the agreement was not an infringement of the state aid rules, but an economically sound transaction. The Commission rejected this point, holding instead that, in entering into the agreement, the regional government had ‘placed itself in a situation of confusion of powers’, as the commercial need to attract Ryanair to its jurisdiction had caused it to derogate from the generally applicable regulatory framework. Given that the regional government had exercised a power of a regulatory nature, it could not invoke commercial rationality to justify its actions.
1 Commission Decision of 12 Feb 2004 concerning advantages granted by the Walloon Region and Brussels South Charleroi Airport to the airline Ryanair in connection with its establishment at Charleroi, OJ 2004 L 137/1, pt 153. An action for annulment has been brought before the CFI by Ryanair: Case T–196/04, Ryanair v Commission, OJ 2004 C 228/42 (pending at the time of writing).
2 See Ross, MG ‘State Aids and National Courts: Definitions and other Problems—a Case of Premature Emancipation?’ (2000) 37 CML Rev 401 Google Scholar.
3 Case C–280/00, Altmark Trans and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I–7747, para 75.
4 Laid down by Art 88(3) EC. The rules governing procedure are codified in Council Regulation 659/1999/EC establishing detailed rules for the application of Art 93 of the Treaty, OJ 1999 L 83/1.
5 The policy justifications contained in Art 87(2) and (3) EC.
6 If the measure falls outside Art 87(1) EC the Member State in question may implement it without further ado; if—instead—it falls within that definition, the power to give effect to the measure is conditional upon the Commission’s authorisation.
7 Case C–342/96, Spain v Commission [1999] ECR I–2459, para 41.
8 Case 30/59, De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961] ECR 1.
9 The first formulation of the principle appeared in Commission Decision 81/2320/ECSC of 7 Aug 1981 establishing Community rules for aid to the steel industry, OJ 1981 L 228/14. Since then, the principle has been sanctioned and further developed in numerous judgments of both Courts.
10 Being regarded as an application of Art 295 EC, which declares the neutrality of Community law towards national systems of property ownership.
11 The initial terminology refers to ‘market economy investor’. However, the term ‘operator’ is used here to reflect a wider variety of roles in which the state may become involved, such as acting as a creditor.
12 Case C–483/99, France v Commission (‘Stardust Marine’) [2002] ECR I–4397.
13 Case T–98/00, Linde v Commission [2002] ECR II–3961.
14 Joined Cases C–83, 93 and 94/01P, Chronopost v Ufex [1993] ECR I–6993.
15 Ibid, para 75.
16 Case 30/59, De Gezamenlijke Steenkolenmijnen, above n 8.
17 Commission Decision, above n 1, point 142.
18 Case C–75/97, Belgium v Commission [1999] ECR I–3671, para 33.
19 Case C–409/00, Spain v Commission [2003] ECR I–1487, para 48.
20 Case C–256/97, DMT [1999] ECR I–3913.
21 Case C–88/03, Portugal v Commission [2006] ECR I–7165.
22 Opinion in Case C–237/04, Enirisorse [2006] ECR I–2843, para 52 (emphasis added).
23 Case 173/73, Italy v Commission [1974] ECR 709, para 33.
24 Case C–308/01, GIL Insurance [2004] ECR I–4777.
25 Ibid, para 75. Although the Court referred to the AG’s Opinion, the latter took a different approach to the issue. AG Geelhoed concluded that the mere introduction under a general provision of a higher rate restricted ratione materiae or personae could not be regarded as constituting state aid, in that such an interpretation would extend the scope of Art 87 EC to matters that should fall under Arts 96 and 97 EC.
26 Case C–387/92, Banco Exterior de España v Ayuntamiento de Valencia [1994] ECR I–877; Case T–106/95, Fédération française des sociétés d’assurances (FFSA) v Commission of the European Communities [1997] ECR II–229.
27 Case 240/83, Procureur de la République v Association de défense des brûleurs d’huiles usagées [1985] ECR 531; Case C–53/00, Ferring SA v ACOSS [2001] ECR I–9067.
28 Case C–126/01, Ministre de l’économie, des finances et de l’industrie v GEMO SA [2003] ECR I–13769; Case 280/00, Altmark Trans GmbH, Regierungspräsidium Magdeburg v Nahverkergesellschaft Altmark GmbH [2003] ECR I–7747.
29 The AG was therefore in favour of retaining the approach adopted in Banco Exterior de España, and in FFSA, above n 26.
30 See Ross, MG ‘The Europeanization of Public Services Supervision: Harnessing Competition and Citizenship?’ (2004) 23 YEL 303 Google Scholar.
31 Case C–126/97, Eco Swiss China Time v Benetton international [1999] ECR I–3055, para 36.
32 Case C–225/91, Matra v Commission [1993] ECR I–3203, para 42; Case T–49/93, Société Internationale de Diffusion et d’Edition (SIDE) v Commission of the European Communities [1995] ECR II–2501, para 72; Case T–156/98, RJB Mining v Commission [2001] ECR II–337, para 113.
33 Case C–234/89, Delimitis v Henninger Bräu [1991] ECR I–935. For a recent application of the Delimitis approach see Case T–328/03, O2 (Germany) GmbH & Co. v Commission [2006] ECR II–1231.
34 Whish, R Competition Law 5th edn (Oxford, OUP, 2005) 108 Google Scholar.
35 However, this applies to agreements that have the effect of preventing, restricting or distorting competition. It does not apply to agreements the object of which is to restrict competition. In assessing the latter the effect is not taken into account (although these agreements still need to be assessed in their context).
36 The terms ‘prevention’, ‘restriction’ and ‘distortion’ used in Art 81(1) EC are generally understood to be interchangeable.
37 However, the extent to which market analysis is required under Art 81(1) is somewhat uncertain. See Faull, J and Nikpay, A EC Law of Competition 2nd edn (Oxford, OUP, 2007)Google Scholar especially paras 3.283–3.288.
38 Case 730/79, Philip Morris [1980] ECR 2671.
39 Ibid, para 14. The proposition regularly reappears in the Court’s case law, eg Case T–55/99 CETM v Commission [2000] ECR II–3207.
40 Ahlborn, C and Berg, C ‘Can State Aid Control Learn from Antitrust? The Need for a Greater Role for Competition Analysis under the State Aid Rules’ in Biondi, A. Eeckhout, P and Flynn, J (eds) The Law of State Aid in the European Union (Oxford, OUP, 2003)Google Scholar.
41 Fox, E ‘State Aids Control and the Distortion of Competition—Unbundling “Distortion”, 28 Fordham Corporate Law Institute (New York, Kluwer, 2001) 91-9Google Scholar.
42 Ahlborn, C and Berg, C, above n 40.
43 See in that respect Case C–483/99, France v Commission (‘Stardust Marine’) and Case T–98/00, Linde v Commission, above n 12 and 13.
44 Case T–155/98, SIDE v Commission [2002] ECR II–1179.
45 That is, aid which relieves an undertaking of its normal costs.
46 Case T–459/93, Siemens v Commission [1995] ECR II–1675, para 48, confirmed in Case C–278/95 P, Siemens v Commission [1997] ECR I–2507, para 20; Case C–288/96, Germany v Commission [2000] ECR I–8237, para 49.
47 Plainly, this presupposes that there are regulatory constraints that are normally associated with an undertaking’s costs, which do not need to be compensated. See Nicolaides, P ‘Distortive Effects of Compensatory Aid Measures: A Note on the Economics of the Ferring Judgment’ (2002) 6 European Competition Law Review 313 Google Scholar.
48 For an analysis of the problems deriving from the Court’s fourth Altmark condition see Ross, MG ‘The Europeanization of Public Services Supervision: Harnessing Competition and Citizenship?’ (2004) 23 YEL 303 Google Scholar; Prosser, T ‘Competition Law and Public Services: From Single Market to Citizenship Rights?’ (2005) 11 European Public Law 553 Google Scholar.
49 Case C–88/03, Portugal v Commission, above n 21.
50 As explained by Ahlborn, C and Berg, C, above n 40, the effect of state aid law on con sumer welfare is only indirect and long-term. State aid control prevents inefficient undertakings from being kept artificially alive or from driving more efficient competitors out of the market.
51 That is, in the long term, as state aid may produce short-term benefits for consumers even if its beneficiaries are inefficient.
52 The economic literature on ‘strategic trade policy’ studies such effects. See Brander, J and Spencer, B ‘Export Subsidies and International Market Share Rivalry’ (1985) 18 Journal of International Economics 83 CrossRefGoogle Scholar.
53 Commission of the European Communities First Report on Competition Policy (Luxembourg, Office for Official Publications of the European Communities, 1972).
54 Ibid, point 133.
55 Ibid.
56 Case 173/73, Italy v Commission, above n 23.
57 Ibid, para 17.
58 See also Denkavit, in which the Court defined Art 87(1) as referring to the advantages granted by Member States on undertakings ‘by unilateral and autonomous decisions’: Case 61/79, Amministrazione delle Finanze dello Stato v Denkavit [1980] ECR 1205.
59 Since the Court interprets the expression used in Art 87(1), which refers to advantages given ‘by a Member State or through state resources’, as requiring the existence of public expenditure or a loss of revenue directly linked to the measure of regulatory intervention. Thus, relaxing labour law standards in favour of a specific economic sector does not amount to state aid: Joined Cases C–72 and 73/91, Firma Sloman Neptun Schiffahrts [1993] ECR I–887; Case C–189/91, Kirsammer-Hack [1993] ECR I–6185; Joined Cases C–52, 53 and 54/97, Epifanio Viscido, Mauro Terragnolo and others v Ente Poste Italiane [1998] ECR I–2629; Case C–237/04, Enirisorse v Sotacarbo [2006] ECR I–2843. In his Opinion in the latter, AG Maduro proposed to abandon this line of interpretation; the Court did not rule on the matter.
60 Besley, T and Seabright, P ‘The Effects and Policy Implications of State Aids to Industry: an Economic Analysis’ (1999) 14 Economic Policy 13 CrossRefGoogle Scholar.
61 Because of the effects on state finances of extending aid to all economic actors in every economic sector and because of the significant differences that exist among them.
62 Arts 96 and 97 EC—both provisions are notable for having remained dead letters.
63 Which are more likely to be the outcome of government capture.
64 That is, to encourage immigration towards the regulator’s jurisdiction and to discourage emigration away from it and towards other jurisdictions.
65 For the debate on fiscal competition see Keen, MJ ‘The Welfare Economics of Tax Co-ordination in the European Community: a Survey’ (1998) 14 Fiscal Studies 15 CrossRefGoogle Scholar; Oates, W ‘Fiscal Competition and European Union: Contrasting Perspectives’ (2001) 31 Regional Science and Urban Economics 133 CrossRefGoogle Scholar; Pinto, C Tax Competition and EU Law (The Hague/ New York, Kluwer Law International, 2003)Google Scholar; Schön, W (ed) Tax Competition in Europe (Amsterdam, IBFD Publications, 2003)Google Scholar.
66 Competence to harmonise direct taxation stems from Art 94 EC, which requires unanimity in the Council.
67 Certain legislative measures designed to pursue freedom of establishment also have an effect on direct taxation; these are examined in Arnull, A, Dashwood, A, Dougan, M, Ross, M, Spaventa, E and Wyatt, D Wyatt and Dashwood’s European Union Law 5th edn (London, Sweet & Maxwell, 2006) 886-7Google Scholar.
68 Resolution of the Council and of the Representatives of the Governments of the Member States meeting within the Council of 1 Dec 1997 on a Code of Conduct for Business Taxation, OJ 1998 C 2/1.
69 Ibid, point A.
70 Ibid, point J. European Commission, Notice on the Application of the State Aid Rules to Measures relating to Direct Business Taxation, OJ 1998 C 384/3.
71 Bratton, W and McCahery, J ‘Fiscal Federalism, Jurisdictional Competition and Tax Coordination: Translating Theory to Policy in the European Union’ in Esty, D and Geradin, D (eds) Regulatory Competition and Economic Integration (Oxford, OUP, 2001)Google Scholar.
72 In 2001, for instance, the Commission investigated 11 different corporate tax regimes in 8 Member States. See European Commission, Press Release of 11 July 2001, IP/01/982.
73 Barnard, C and Deakin, S ‘Market Access and Regulatory Competition’ in Barnard, C and Scott, J (eds) The Law of The Single European Market: Unpacking the Premises (Oxford, Hart Publishing, 2002)Google Scholar.
74 Case C–212/97, Centros Ltd v Erhvervs- og Selskabsstyrelsen [1999] ECR I–1459; Case C–208/00, Überseering v Construction Company Baumanagement GmbH (NCC) [2002] ECR I–9919; Case C–167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd. [2003] ECR I–10115; Case C–411/03, SEVIC Systems AG [2005] ECR I–10805. Deakin, S ‘Legal Diversity and Regulatory Competition: Which Model for Europe?’ (2006) 12 ELJ 440 CrossRefGoogle Scholar.
75 Case C–446/03, Marks & Spencer plc v David Halsey [2005] ECR I–10837.
76 However, the Court added that the UK rules pursued legitimate objectives constituting overriding reasons in the public interest (provided that they were not disproportionate in relation to their aims).
77 Case C–196/04, Cadbury Schweppes plc and Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue [2006] ECR I–7995.
78 However, the Court found that the legislation could be justified if it applied to wholly artificial arrangements intended to circumvent national law where there was evidence to prove that the subsidiary did not carry out a genuine activity in the Member State of establishment. See also Case C–524/04, Test Claimants in the Thin Cap Group Litigation v Commissioners of Inland Revenue, judgment of 13 Mar 2007 (not yet reported), in which UK legislation restricting the ability of a resident company to deduct for tax purposes interest on loan finance granted by a parent company resident in another Member State was found to breach Art 43 EC in so far as that restriction did not apply to the same transaction occurring between a resident company and its resident parent. That restriction was found to be justified if the legislation was based on objective and verifiable criteria identifying the existence of a purely artificial arrangement, and allowed taxpayers to produce evidence to prove the commercial justification for the transaction.
79 Above n 77, Opinion of 2 May 2006, para 37.
80 Less economically advanced states are, in general, more likely to gain from tax competition than more advanced ones, because, given their lower competitiveness on other fronts (eg infrastructure) in relation to the latter, tax rates represent their main attraction to businesses. They also can better afford low taxation as their welfare systems are less developed. See Baldwin, R and Krugman, P ‘Agglomeration, Integration and Tax Harmonisation’ (2004) 48 European Economic Review 1 CrossRefGoogle Scholar.