PRESS RELEASE No 21/23
Luxembourg, 2 February 2023
The recovery of the full amount of the aid referred to was ordered on the basis of an erroneous identification of the recipients.
In 2006, several complaints were made to the European Commission concerning the application of the ‘Spanish tax lease system’ (the ‘STL system’) to certain finance lease agreements in so far as that system enabled shipping companies to purchase ships built by Spanish shipyards at a 20% to 30% rebate, to the detriment of shipyards in other Member States. According to the Commission, the objective of the SLT system was to allow economic interest groupings (‘EIGs’) and the investors involved in those EIGs to benefit from tax advantages, which they then transferred in part to shipping companies that had purchased a new vessel.
In the contested decision, 1 adopted in July 2013, the Commission took the view that three of the five tax measures comprising the STL system were State aid, within the meaning of Article 107(1) TFEU, which took the form of a selective tax advantage and was partially incompatible with the internal market. Given that the aid at issue had been put into effect since 1 January 2002 in breach of the notification obligation, the Commission ordered the national authorities to recover that aid from the investors, that is to say the members of the EIGs.
Action for annulment by Spain
In September 2013, the Kingdom of Spain, Lico Leasing SA and Pequeños y Medianos Astilleros Sociedad de Reconversión (‘PYMAR’) SA brought actions for annulment against the decision at issue. In its judgment Spain and Others v Commission, the General Court ruled that the advantage received by the EIG investors was not selective and the reasoning for that decision regarding the criteria relating to distortion of competition and the effect on trade was insufficient. Consequently, it annulled the decision at issue. Hearing an appeal brought by the Commission against that judgment, the Court set it aside by its judgment in Commission v Spain and Others (C-128/16 P) ruling, in particular, that the application of the condition relating to selectivity on which the Commission had based its analysis was erroneous. Nevertheless, it took the view that, since the General Court had not ruled on all the pleas raised before it, the state of the proceedings did not permit it to give final judgment and, consequently, it referred the cases back to the General Court.
By its judgment after the referral Spain and Others v Commission (the ‘judgment under appeal’), the General Court dismissed the actions brought by the Kingdom of Spain, on the one hand, and Lico Leasing and PYMAR, supported by 34 entities which had been granted leave to intervene for that purpose in Case C-128/16 P (the ‘interveners in the first appeal’), on the other. In that judgment, the General Court rejected the plea seeking to challenge the selectivity of the STL system by holding, in essence, that the existence of a broad discretion of the tax authority to authorise early depreciation was sufficient to accept that the STL system as a whole was selective. The General Court also rejected the pleas alleging failure to state reasons for the decision at issue, infringement of the principle of equal treatment, infringement of the principles of the protection of legitimate expectations and legal certainty and of the principles applicable to recovery of the aid. As regards that last point, in particular, it found that the Commission had not erred in law in ordering the recovery of all the aid at issue from the EIG investors alone, even though part of the tax advantage obtained had been transferred to third parties, that is to say the shipping companies.
Appeal by Spain
Next, the Kingdom of Spain, Lico Leasing and PYMAR, as well as the interveners in the first appeal, brought three separate appeals against the judgment under appeal, by which they seek to have that judgment set aside and, accordingly, the decision at issue annulled.
Decision of the General Court
By its judgment, the Court upholds the Kingdom of Spain’s ground of appeal alleging failure to state reasons in the judgment under appeal as far as concerns the recovery of the aid at issue and dismisses the appeals as to the remainder. Having partially set aside that judgment and taking the view that it is in a position to give a final ruling on the part of the actions which remain to be examined, the Court rules, following its review of the case, that the decision at issue must be annulled in so far as it orders the recovery of all the aid referred to from its recipients on the ground that they were erroneously identified.
Findings of the Court
The General Court did not err in law by considering, in finding that the measure consisting in early depreciation is selective, that the existence of discretionary factors was such as to favour the beneficiaries over other taxpayers in a comparable situation. Furthermore, the General Court was correct in finding that the Commission had not erred by inferring from the selective nature of the early depreciation that the STL system was selective as a whole, since it is common ground that the other measures at issue comprising the STL system depended on prior authorisation of the early depreciation. Consequently, the Court rejects all the grounds of appeal relating to the selectivity of the STL system as unfounded.
In the second place, as regards the recovery of the illegal aid, the Court holds that the application of the principles of the protection of legitimate expectations and legal certainty in the judgment under appeal is free from any error of law, except for one error which however had no effect on the assessment of the General Court, and therefore the complaints raised in that regard must also be rejected.
In the third place and final place, the Court rules on a ground alleging failure to state reasons in the judgment under appeal. In this connection, the Court holds that, while that judgment appears reasoned to the requisite legal standard as regards the selective nature of the STL system, by contrast, the same is not true as regards the recovery of the aid at issue.
In this case, it follows from the Commission’s own findings that the STL system constituted, as a whole, a tax scheme intended to give an advantage not only to the investors in an EIG, but also to the shipping companies. Moreover, it is apparent from the information put forward by the Commission that the allocation of that advantage between the shipping company and the EIG investors was provided for in legally binding agreements, submitted to the tax authority and which the latter took into account in order to authorise, in the exercise of its discretion, early depreciation. In view of the foregoing, the Court holds that the Commission erred in law, in the light of the objective pursued by the recovery, by designating EIG investors as the sole recipients of the aid at issue essentially on the ground that the advantage obtained by the shipping companies by virtue of the transfer of part of the tax advantage granted to the EIGs resulted from a combination of legal transactions between private entities which, therefore, was not imputable to the State, even though the EIGs were nonetheless required, under the applicable rules, to transfer to those shipping companies part of the tax advantage obtained.
Consequently, the Court partly annuls the decision at issue, that is to say inasmuch as it designates the EIGs and their investors as the sole beneficiaries of the aid referred to and, consequently, inasmuch as it orders the recovery of all the aid exclusively from the EIG investors.
Source: Curia – press release