Case C-74/16, Congregacion de Escuelas Pias Provincia Betania v Municipality of Getafe , is concerned with whether an exemption for a church school from a municipal tax constituted State Aid. In an Opinion on 16 February 2017 Advocate General Kokott advises not. The school was pursuant to the church’s educational mission. It did not constitute commercial provision. The absence of any economic activity by the church meant that the exemption did not come within TFEU Article 107(1). She helpfully summarised the test for State Aid as follows, based in particular on the Altmark Trans case:-
“62. Under Article 107(1) TFEU, ‘save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’.
- Classification as ‘aid’ within the meaning of Article 107(1) TFEU requires that all the conditions set out in that provision are fulfilled.
- 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. Fourth it must distort or threaten to distort competition.
- In the examination of these conditions, it is settled case-law that it is less the subjective aims of the national authorities than the effects of the measure adopted which have the greatest relevance.
- i) Concept of ‘intervention by the State or through State resources’
- As regards, first, the criterion of ‘aid granted by a Member State or through State resources’, it is recognised that Article 107(1) TFEU not only embraces positive benefits such as subsidies but also measures which, in various forms, reduce the burdens normally to be borne by an undertaking and are thus not subsidies in the strict sense of the term but analogous to them in nature and effect.
- Preferential tax treatment which, although not involving a transfer of State resources, places the beneficiaries in a more favourable financial situation than other taxpayers, also falls within the scope of Article 107(1) TFEU. Naturally, that also applies where the relevant preferential treatment is granted by an infra-State authority, in this case a municipality, or reduces that authority’s revenue, since Article 107(1) TFEU refers to all measures financed from State resources and attributable to the State.”
- ii) Selective advantage
- Article 107(1) TFEU prohibits aid ‘favouring certain undertakings or the production of certain goods’, that is to say selective aid. According to case-law, what characterises the selective nature of the advantage is that certain undertakings or the production of certain goods are favoured in relation to other undertakings which, in the light of the objective of the measure at issue, are in a comparable factual and legal situation.
- According to settled case-law, in order for a tax advantage to be adjudged selective, the crucial factor is that the underlying State measure departs from the general system by introducing an unjustified distinction between economic operators who are in a comparable factual and legal situation, as regards the objective pursued by the tax rules of that Member State.”
“72. … the Court of Justice recognises that a tax advantage is not selective where the preferential treatment is justified by the nature and overall structure of the tax system, in particular if the Member State concerned can show that that measure results directly from the basic or guiding principles of its tax system. …”
“iii) Effect on trade between Member States and distortion of competition
- The third and fourth conditions in Article 107(1) TFEU, which are closely connected, deal with the effects of State aid on competition and on intra-EU trade respectively. In accordance with settled case-law, there is no requirement for proof of an actual effect on trade between Member States and an actual distortion of competition, but only an examination of the issue whether a measure is liable to affect trade and to distort competition.
- A measure is always liable to affect trade between Member States if it strengthens the position of an undertaking compared with other competitors in that trade. The favoured undertaking does not itself need to be a participant in intra-EU trade.
- With regard to the condition of the distortion of competition, it should be borne in mind that, in principle, aid intended to release an undertaking from costs which it would normally have to bear in its day-to-day management or normal activities distorts the conditions of competition.
- For commercially provided education services, as discussed in this section of my Opinion, that is to say the voluntary education on offer and other options offered by the school, there is a market on which larger and even smaller suppliers may operate across borders. If one of the suppliers of such education services, such as in this case the Catholic Church, receives an exemption from the tax on constructions, installations and works, and its actual or potential competitors in comparable situations have to pay that tax, that supplier obtains a cost advantage which may work in his favour in terms of competition.”
“82. According to the case-law of the Court of Justice, however, in EU law there is no threshold or percentage below which trade between Member States can be regarded as not having been affected. Neither the relatively small amount of aid nor the relatively small size of the advantaged undertaking can a priori mean that trade between Member States is not affected.
- Thus, if the economic activity of an establishment is of sufficient weight in order for the establishment to be classified as an undertaking for the purposes of the competition rules of EU law (which is a prior condition for the application of Article 107 TFEU), even relatively small amounts of aid may affect trade between Member States.
- In addition, under European competition law the effects of measures on intra-EU trade and competition in the internal market are never assessed in isolation but within their economic and legal context. In that connection, consideration should be given to whether what is at issue is an isolated specific instance or a series (‘bundle’) of problems of the same kind.”