Recent Developments August 2017

News Update EU State Aid Special
10 augustus 2017

General Court confirms unlawful state aid for French shipping company

In 2006, the French shipping company Société Nationale Corse-Méditerranée ("SNCM") was privatised. The capital injection and privatisation plan for SNCM was considered by the European Commission to be in line with the state aid rules. The plan included a recapitalisation of €158 million, a capital contribution of €8.75 million, and a current account advance of €38.5 million to finance a social plan. After an action was brought by SNCM's main competitor, the General Court (the "GC") annulled the Commission decision. The Court of Justice of the European Union (the "CJEU") upheld the judgment. Following the judgments, the Commission adopted a new decision and considered the measures as unlawful state aid. France and SNCM appealed the new decision. On 6 July 2017, the GC confirmed that the capital injection and privatisation measures adopted by France in favour of SNCM constituted unlawful state aid. The GC confirmed that the Commission correctly applied the market economy private investor test. Fot the purpose of this test, the conduct of France, as a shareholder, was compared with that of a diversified holding company, seeking to maximise its profits and protect its corporate image as a global investor. The GC stated that the French Government had failed to demonstrate that there was an elevated risk of social conflicts within public undertakings, not just in the geographic region that SNCM operated in, but also in the transport sector in general. Therefore, the GC concluded that the measures failed the market economy private investor test. Consequently, SNCM is required to repay over €220 million to France.

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Commission confirms Irish air travel tax exemption did not constitute state aid

Between 2009 and 2014, an air travel tax (the "ATT") had to be paid by airlines operating in Ireland. The ATT was levied for every passenger departing from an airport located in Ireland, whereas passengers in transfer or transit were exempted from the tax. After a complaint from Ryanair arguing that the non-application of the ATT to transit and transfer passengers constituted unlawful state aid the Commission adopted a decision in 2011, and found that the exemption did not constitute state aid. Ryanair appealed the decision and the General Court annulled the decision on the ground that the Commission should have started the formal investigation procedure in order to gather all relevant information. On 14 July 2017, the Commission adopted a new decision in the case and confirmed that the ATT exemption for transit or transfer passengers did not constitute a selective advantage since it favoured all airlines with transfer or transit passengers and, therefore, did not constitute state aid. The exemption was in line with the underlying logic of the Irish ATT, which was to tax journeys by air originating from Ireland. If a passenger transfers or transits in Ireland they are on a single journey from their airport of origin to their airport of destination. The exemption avoids such a journey being subject to double taxation.

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Tax exemption for Catholic Church may result in unlawful state aid

The Administrative Court in Madrid asked the CJEU whether the tax exemption applied to a Catholic Church School used for state-regulated education and for non-compulsory education must be regarded as state aid prohibited under EU law. The CJEU stated that the tax exemption at issue may constitute unlawful state aid if the activities carried out in the school building are economic activities. The CJEU observed that only the educational activities that are not regulated and subsidised by the state appear to be economic in character since they are financed by private contributions. It is up to the referring Spanish court to determine whether the school building in question is used for such economic activities and whether the other cumulative criteria of Article 107(1) TFEU are met.

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Commission approves precautionary recapitalisation of Italian banks

On 4 July 2017, the Commission approved Italy´s plan for a precautionary recapitalisation – amounting to €5.4 billion – of Monte dei Paschi di Siena ("MPS"), the fourth largest bank in Italy. The Commission approved the measures after the fulfilment of two conditions: (i) the European Central Bank has confirmed that MPS is solvent and meets capital requirements and (ii) Italy has obtained a formal commitment from private investors to purchase the bank's non-performing loan portfolio. The state aid rules ensure that public funds can only be injected in a bank that is profitable in the long-term. This condition requires the bank to undergo an in-depth restructuring with the purpose of ensuring its viability in the long-term. MPS's restructuring plan provides for a five-year restructuring period during which (i) MPS plans to re-orient its business model and (ii) the disposal of a €26.1 billion non-performing loan portfolio. On 25 June 2017, the Commission published a Factsheet on ´How the EU rules apply to banks with a capital shortfall´ explaining the use of the state aid rules in the banking sector.

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Dutch legislative proposal for the recovery of unlawful state aid

On 6 July 2017, the Dutch Government published the legislative proposal for the recovery of unlawful state aid. Currently, Dutch law does not provide a conclusive set of rules for ensuring the effective recovery of state aid in all cases. The proposal seeks to fill the gap by providing a stand-alone legal basis for the relevant administrative body to adopt a payment order in order to recover the aid granted under administrative or civil law. This provision will be placed in the Dutch General Administrative Law Act (Algemene wet bestuursrecht). It will be possible to appeal the payment order before the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven) and, therefore, guaranteeing an unambiguous review. For the recovery of fiscal aid, the proposal refers to the existing tools under the Dutch General Act on State Taxes (Algemene wet inzake rijksbelastingen), which will be amended for this purpose. The recovery tools introduced by the proposal are limited to the situation in which the Commission, after an investigation, adopts a decision ordering the recovery of the incompatible and unlawful state aid. The date on which the legislative proposal is to be enacted has not yet been announced since it has to be reviewed by both the House of Representatives (Tweede Kamer) and the Senate (Eerste Kamer).

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The Houthoff Buruma EU team is also available at eu-office@houthoff.comor +32 (0)2 507 98 00.

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