State aid – Annulment of Commission decision on a Spanish tax exemption for lack of selectivity

T-515/13 and T-719/13
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
AppealKingdom of Spain and others v
European Commission
General Court7th Ch.M. van der Woude /State aid
KeywordsState aid – Tax measures applicable for the financing and purchase of ships – Decision finding incompatible State aid and the recovery of aid – Annulment proceedings – Advantage – Selectivity – Effect on interstate trade and competition - Reasoning
Significant pointsThe case involved an appeal against a decision by the European Commission in July 2013 to find tax breaks granted by Spain to economic interest groups (EIGs) for the order of ships to constitute incompatible State aid within the meaning of Article 107 TFEU.

The General Court annulled the Commission decision for failing to establish a selective advantage granted to the investors of the EIGs and for failing to provide sufficient reasoning on how the potential advantage distorted competition and affected trade in the internal market.

On the failure to establish a selective advantage (paras 119-180):

- The economic advantage conferred onto the members of the EIGs was available to all taxpayers in Spain, in exactly the same conditions, even in the presence of an authorisation system. Accordingly, the advantage was not deemed selective within the meaning of Article 107(1) TFEU.

- The EIGs certainly benefitted from the tax measures. However, due to their financial transparency, the advantages directly produced by these measures were entirely passed onto their members.

- The fact that the advantage only related to an investment in a certain type of asset and not to other investments or in other assets did not make it selective as regards the investors themselves because the investment was open to all undertakings.

On the failure to show the distortion of competition and effect on trade between Member States (paras 181-209):

- As regards the Commission’s statement that the investors operated in all sectors of the economy and that the advantage conferred strengthened their position on their respective markets, this is a very general statement which could be applied to all types of State support. This statement does not contain any specific element that might explain how the measures involved could distort competition and affect trade between Member States on the markets where the investors were operating.

- The Commission should have provided more information explaining how the advantage received by the investors in the EIGs, and not the shipping companies and shipyards, was capable of restricting or potentially restricting competition and interstate trade within the meaning of Article 107(1) TFEU on the markets where the investors were active.
Noteworthy1. This significant judgment confirms that the approach taken by the EU General Court in its judgments of 7 November 2014 in T-219/10 Autogrill España v Commission and T-399/11 Banco Santander and Santusa v Commission (currently under appeal before the Court of Justice) to thoroughly review the selectivity of tax measures. The EU General Court observed that an advantage must benefit certain undertakings under Article 107 TFEU and that a tax advantage which is open to all types of undertakings cannot be considered selective. A tax measure that benefits a certain type of investment open to all investors is a general measure and does not constitute State aid.

2. In addition, the EU General Court touched upon an area of State aid frequently ignored by the Commission when finding State aid: providing an explanation of how competition and trade are affected by the aid measure. In its decision of July 2013, the Commission had found that the measure benefitted investors who operated in all sectors of the economy. The General Court found this reasoning to be wholly insufficient. Even if an effect can be presumed in most cases, the Commission decision must still explain on which markets this effect will take place.

3. It is notable that the Commission’s decision did not find that State aid had been conferred to the Spanish shipyards. The fact that ordering ships became cheaper for EIGs through the tax breaks offered is likely to have led to an increase in demand for ships built in the Spanish shipyards. The Commission chose instead to identify a selective advantage benefitting the investors of the EIGs who ordered the ships and its decision was annulled for its weak reasoning in this regard.