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Archive for the ‘Everything Competition Lawyers should know about State Aids’ Category

In the press this week

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On the tax-related State aid investigations. Many newspapers opened this week with big headlines on the alleged news that the Commission had adopted a “preliminary decision” regarding the State aid probe into Apple (see e.g. here). I’m a bit intrigued by what’s behind this press campaign; the only news is that the Commission has published in the Official Journal decisions that had already been adopted before the summer. This sort of publication is never news, so why the fuss about it now is beyond me.

[It is, by the way, interesting to observe how some developments are “sold” twice, whilst others –including the closure of infringement proceedings against luxury watch manufacturers- go under the radar (disclaimer/advertising: my firm represented one of the main companies subject to that investigation)].

Given that I’ve lately been working on loads of tax-related State aid cases before the General Court I’ve developed a particular interesting in these matters. We might comment more in-depth on them in the future; for the moment, I’ll simply point out that by questioning not national taxation systems or tax rulings in general but rather APAs (advance price agreements) the Commission might be opening Pandora’s box (how many multinationals –including many EU ones- have similar arrangements?; could all of those now be challenged under State aid rules? ) For my previous comments on these issues, see here.

On the Google search investigation. The Google case has been on the news again, which, paradoxically, is no news. It’s been a while since we last commented on this investigation (partly because there wasn’t anything substantial on which to comment, and partly because the susceptibility around these issues is quite acute). One of the main contributors to this blog –Pablo Ibañez Colomo- gave his views to Global Competition Review a few days ago; Pablo explained that “[i]t is very controversial to argue that, as a rule, article 102 [prohibiting abuse of dominant position] requires all dominant companies to give access to their facilities – including operating systems or search engines – on non-discriminatory terms and conditions (…) I do not believe there is case law supporting this understanding of the provision.” According to Pablo, “there is the expectation that remedies are justified even if it is not clear why Google’s conduct is illegal”.

Last time I wrote about the case I made some comments on the politicization of competition law enforcement (see here). Since then, Vice-President Almunia has explained that politics are being left aside of the case (here, ehem). So, politics aside, let me focus on a purely legal point without discussing who’s right or wrong:

The complainant’s interesting main legal argument now seems to be that Google’s proposed commitments do not address the concerns set out in the Commission’s preliminary assessment (see, e.g. here). This a most interesting claim, and one on which many –including myself- can’t really comment because we haven’t read the preliminary assessment. In fact, no one other than Google was supposed to have seen it (according to the Manual of Procedure, “the complainant has no right to a hearing or to receive a (non-confidential) copy of the Preliminary Assessment or to have access to information”). In this case, however, the Hearing Officer granted a request for access on the part of some of the complainants (see the previous hyperlink for a source).

Now, consider the future implications of this move: in the past the Commission could overdo a bit its concerns in its preliminary assessments because, after all, they are not subject to the same requirements as the SO, would not be subject to any rebuttal on the part of its addressee, unlike SOs do not need the approval of the Commission’s President and, at most, could give the Commission a stronger hand in commitment negotiations (which, regardless of what Alrosa says, obviously exist). Now that the Commission is aware of the fact that preliminary assessments will/could be accessed by complainants, will it have to show more self-restraint? Will this have an impact on future commitment negotiations? Would these problems be avoided if the Commission was required to adopt a proper SO prior to entering into commitment negotiations?

On Android. I also saw some headlines this week anticipating, once more, the initiation of a formal investigation into Android. As frequent readers will recall, I’ve already written quite extensively about this (see here). On October 15th (the same day in which, by the way, the Commission will be making public an avalanche of decisions…) I’ll be speaking about it at a conference in Brussels, so in case anyone has thoughts about the case feel free to send them my way.

On the Euribor probe and the role of the Ombudsman. Last week, the fact that Crédit Agricole had resorted to the Ombudsman to complain about a possible bias on the part of the Commission also hit the news. CA’s claim has to do with the Commission having adopted a settlement decision finding a cartel infringement in relation to the Euribor prior to concluding the infringement proceedings against those who chose not to settle (see Gaspard Sebag’s piece for Bloomberg here). This obviously raises most interesting procedural questions, which I’d nevertheless tend to think pertain more to the realm of judicial review than to the Ombudsman. The piece includes a quote of mine which is a candidate for the prize of ‘dullest comment of the year in the press’: “It’s always uncomfortable to have to deal with the Ombudsman”. A deep thought that is… ;)

 

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On DG Comp’s fight against tax competition and tax planning

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Tax%20Planning

The European Commission has in recent years been very active applying State aid rules to tax provisions and regimes. The first paper I ever wrote back in 2004 (don’t read it, it was initially done for a tax course and I was a 20 year old student…) dealt with those issues; now, ten years later, I’ve taken interest again on this subject and am currently involved in a handful of cases dealing with the taxation/State aid interface before the General Court.

The fact is that the Commission has recently undertaken a more proactive and prominent role in resorting to State aid rules to public initiatives that, in its view, facilitate aggressive tax planning. Those of you attending the 2014 Competition Forum back in February will recall that the Commission held a panel on “Taxation and Competition Policy”, in which it inquired about the role of State aid investigations in tackling tax evasion, tax fraud and aggressive tax planning (a video recording of the discussion as well as the transcripts of the speeches are available here).

Against a background of lack of political consensus on how to deal with harmful tax competition and what is seen as tax avoidance, the Commission is keen on being regarded as a proactive authority (it’s not the first time that competition policy is used to achieve results that couldn’t be attained by governments and legislators).

As part of this effort, the Commission has sent information requests to various Member States in order to assess the compliance of tax ruling practices (advanced binding decisions in fiscal matters which may allow for special treatment for some particular companies) and patent box regimes (incentives designed to encourage companies to make profits from their patents) with state aid rules. Yesterday the European Commission went through the trouble of issuing a Press release aimed at naming and shaming Luxembourg for having failed to provide information (specifically, the names of thelargest 100 companies benefitting from the patent box regime) , invoking fiscal secrecy.

I was quoted yesterday in a Bloomberg piece in relation to this news, so I though it’d be interesting to recycle my thoughts explain my views in a bit more detail here:

This is a highly sensitive area where publicly visible messages (such as yesterday’s press release) may send powerful signals and give rise to concern on the parts of governments and companies, and where playing to the gallery might therefore be considered useful at times. That’s part of the game and shouldn’t surprise anyone.

But if we’re realistic, we should realize that (for as long as fiscal policy remains within the realm of nation States), there’s a limit to what can be achieved with State aid rules, and that it’s doubtful that the current investigation, focused on patent box regimes and tax rulings, will yield any meaningful results:

-       Patent box regimes have been authorized in several Member States, and the Commission has consistently accepted that they do not confer the selective advantages that would qualify them as State aid.

-       With regard to tax rulings –and whereas I’m not aware of the details of the investigation- even in the event that the Commission were to find incompatible State aids, this would only have the effect of suppressing divergent tax treatment within the Member State at issue (the Commission can only identify as aid deviations from “the system of reference” provided by the State’s standard tax regime ). This would therefore not at all address the main, big picture, concern linked to divergent treatment across, and beyond, different Member States.

It’d nevertheless be interesting to follow developments on this area. The amounts that could be in play for many companies would make any antitrust fine look insignificant. Anyone in need of a lawyer? ;)

State aid: you don’t know what you’re missing (+ thicko of the day award)

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Montebourg

Some of you might remember one of ours posts titled State aid conferences: that’s where the fun is! (Michael O’Leary and Kim Jong Il make for a great marketing combination and attracted quite a few readers) [Btw, today’s picture features another “peculiar” character; see below for an explanation].

In reality, and jokes aside, State aid is a field where much is currently happening, and that most antitrust lawyers often fail to follow and even perceive as distant.  Let me explain why that may not make much sense:

Off the top of my head, I would say that around 40% of DG Comp’s decisional output and resources are devoted to State aid. In economic terms, State aid issues generally have much greater repercussions than most antitrust cases (to put just one example, the guys at my office are advising Spain on how to use some tenths of billions granted by the European Council to restructure the financial sector). The substantive issues are no less interesting, complex, and challenging as the one’s posed by antitrust law.

On the other hand, to be sure, political interference is much more frequent, intense, and often less camouflaged (politicians, very particularly French and British ones, seem to be the ones realizing about the impact of these rules) than in antitrust. You might have read this morning about the French Industry Minister, Arnaud Montebourg, openly attacking both State aid rules in general and Vice-President Almunia in particular. In the Minister’s words, the Commission lives in a “legal delirium” and “makes up rules that don’t exist in the Treaties in order to perpetuate its powers”. He also referred to the Commissioner an “obsolete liberal integrist” and asserted that he has the backing of 11 Member States to “revise and liberalize State aid”. For once I will be the controversial one here instead of Nico, and I’ll refer to Monsieur Montebourg as the first recipient of the “Thicko of the day” award (pictured above proudly receiving his trophy)    :)

Despite all the above (the fun, the legal complexity and the political and economic importance), State aid is not paid the attention it deserves by practicing lawyers. Why? Easy:  because those most directly affected often seem to be public authorities (many companies haven’t yet understood the opportunities and the risks associated to these rules), and those don’t pay as high bills as private companies do. (I guess efficiency and profit-maximizing related incentives also give rise to market failures/externalities).

Whereas I agree with the idea that State aid DNA shares more chromosomes with internal market rules than with antitrust law, there are some common feature between the two disciplines. Aside from the fact that they were placed in the same chapter of the Treaty –which led to their enforcement being entrusted to the same body: DG Comp-, State aid law is also always constantly in the making and questioning itself, which is what initially seduced me from antitrust.

An example: on January 17th the European Commission launched a consultation paper on the very the notion of aid. Think about it; no one would dare of doing the same in antitrust, even if very few people (perhaps with the exception of the influential Giuliano Marenco) have a comprehensive theory to explain what a restriction of competition actually is (an idea I also stated here and here).

There’s loads of “low-hanging fruit” in this domain. If you’re interested in an overview of the legal issues involved in determining what an State aid really is, I very strongly encourage you to read Andrea Biondi’s recent piece: State aid is falling down, falling down: An analysis of the case law on the notion of aid (very recently published in Common Market Law Review).

In the past few weeks I’ve taken a few initiatives to compensate for our State aid deficit. On a personal level, I got heavily involved together with José Luis Buendía in drafting and lodging no less than 12 State aid appeals concerning a particularly controverted and interesting decision (little did I know that I’d have to do that in the course of the Christmas holidays; btw, the experience left me wondering how we could manage in the pre e-Curia days). On a blog-related level, we’ve just asked a couple of the best minds in the field to become regular contributors to Chillin’Competition. We hope to be able to announce their coming on board soon.

Written by Alfonso Lamadrid

23 January 2014 at 5:58 pm

ECJ’s ruling on France Telecom’s State aid case (Joined Cases C-399/10 P and C-401/10 P)

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Note by Alfonso: As some you may have noticed, I’ve taken an unusually long blogging break from which I’m now back. As every time I’m out of combat, Pablo Ibañez Colomo (who, by the way, has recently been fast-track tenured -major review- at LSE and has just received a major review teaching prize; congrats!) comes up with a replacement post that’s better of what I would’ve written (we have a luxury bench at Chilin’Competition…). A few days ago Pablo sent us this post on France Telecom that we(I)’ve been slow to publish due to the easter holidaus and to to the frenchy’s posting frenzy ;) We leave you with Pablo:

Some readers wll remember that during my short-lived tenure as a substitute blogger a few months ago, I wrote about a pending State aid case involving France Telecom. I guess that at least a fraction on those readers will be interested in knowing that the Court of Justice delivered its Judgment in the case on 19 March.

Unsurprisingly, the judgment is in line with AG Mengozzi’s (very sensible) opinion. The General court annuled the Commission’s decision on grounds that the Commission had not identified a clear link between the advantage deriving from  a shareholder loan offer in favour of France Telecom and the State resources allegedly involved by virtue of the measure. As I argued in my previous post, the Court of Justice takes the view that the General Court’s interpretation of Article 107(1) TFEU would leave outside the scope of the provision measures suh as guarantees departing from market conditions (see paras 107-111). Such measures do not immediately place a burden on the budget of the State, but a ‘sufficiently concrete risk of imposing an additional burden on the State in the future‘. According to the Court, it is sufficient to identfy such a ‘sufficiently concrete risk‘ for State aid rules to come into play.

The broader picture is aguably more interesting than the outcome of this case. As I mentioned in the previous post, the Court of Justice has sided with the Commmission (thereby departing from the analysis of the General Court and the theses advanced y Mmember States) in some key cases revolving around the notion of selectivity. France Telecom, arguably the single most important case of the past years on the notion of State resources, seems to confirm this trend. The old principles of Article 107(1) TFEU case law, if anything, seem more solid following these high-profile disputes

State aid conferences: that’s where the fun is!

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(You’ll understand why we chose this pic if you keep on reading)

The European State Aid Law Institute held its 10th Experts’ Forum on new developments in European State aid law last Thursday and Friday.

I didn’t attend (as a means to reducing my current backlog I’m quitting conferences for a while) but some of my colleagues did. One of my bosses colleagues, José Luis Buendía, develivered a critical presentation on the State Aid Modernisation Initiative (“SAM”). Hopefully he will be able to turn it into a post for this blog once he manages to take some time off for this (he’s currently a bit busy representing the Spanish Fund for Orderly Bank Reestructuring, which will be borrowing 100.000 million euros from the EU rescue funds; see here or, actually, almost anywhere else).

I hear that there were other excellent sessions (e.g. there seems to be unanimous praise for Marc van der Woude’s presentation), but the session that will perhaps stick for longer in attendees minds was the Opinion Panel featuring Ryanair´s CEO (Michael O´Leary) and the Deputy Director General for State aid (Gert-Jan Koopman). As you may know, O´Leary has a reputation for being somewhat of an histrionic character, and he stood up to it.

The version of O´Leary’s CV included in the materials was already a bit different from the usual stuff (I promise I’m not making any of this up):

Michael O´Leary has served as Ryanair CEO since 1993. Born in a stable in 1961, he was a boy genius, who excelled both academically and at sports. Having represented Ireland internationally at bog snorkelling and flower arranging, he graduated from Trinity College in Dublin as soon as they could get rid of him. He then became another  boring KPMG accountant until divine inspiration sentenced him to a life of penal servitude in the airline business. Despite his best efforts, Ryanair is the World´s favorite airline, with 1,5000+ low fare routes accross 28 countries. (…) It is widely known that women find him irresistible“.

Some of the points he made in his speech that were most warmly received by the Commission were that (i) DG COMP has hired North-Korean economists to draft the guidelines on regional airports ; (ii) that no Commission official has ever set foot in Charleroi because they only fly on expensive tickets ; (iii) that he had woken up to fly at 6 a.m, something that the Deputy Director General does not even conceive has humanly possible; and (iv) that there are only two sorts of people that like the guidelines: flag carriers and Kim Jong Il. His last slide was actually of Kim Jong Il  saying “These guidelines are fab!”.

I’m so sorry I missed it…

Written by Alfonso Lamadrid

11 June 2012 at 1:01 pm

A turn of the screw (José Luis Buendía on SGEIs)

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[Note by Nicolas and Alfonso: Since we learnt the news that the Commission was preparing a reform of the State aid rules applying to services of general economic interest we have been trying to have our friend (also Alfonso's boss) José Luis Buendía to give us his views on the reform. Apart from a  being a top-notch State aid lawyer and the author of the seminal (and perhaps only) book on Article 106 (a new edition is in the pipeline), he was heavily involved in the drafting of the original "Altmark package" at the time when he was working for the European Commission. In fact, a few months ago a member of the European Commission said at a conference that whereas some people call this package the "Monti package", many Commission officials refer to it as the "Buendía package". We are very thankful for him for having taken the time to write this insightful piece that we believe will be a "must" for anyone dealing with this subject. It's a privilege for us. Enjoy!]

The editors of this blog have kindly invited me to comment the recently adopted ‘Almunia package’, in which the EC has revisited the State aid rules applicable as regards the financing of Services of General Economic Interest (SGEI).[1]

I have chosen the expression “a turn of the screw” to introduce this short comment for two reasons. The first and most obvious reason is that the new rules would – at least at first sight – increase the pressure and make life more difficult for the big operators of SGEI. The second relates to a Henry James novel, The Turn of the Screw” (1898), subsequently adapted to cinema by Jack Clayton under the titleThe innocents” (1961). The reference to the story seems pertinent to me because it has had very differing interpretations, often mutually exclusive.  The ambiguity of the story makes difficult to conclude whether the governess has actually seen the ghosts or whether she simply dreamed. “The Turn of the Screw” definitively looks like a ghost story but… is it really a ghost story? In any case it is a great story I can recommend.

As I will try to explain, when comparing it with the previous post-Altmark (or Monti-Kroes) Package, the Almunia package definitively looks as a turn of the screw as regards the rules applicable to the financing of SGEI.

In my opinion, and given the current political context, the most remarkable feature is the mere adoption of the package by the Commission.  One has to remember that some Member States wanted that the rules on SGEI were adopted, not by the Commission but by the Council and the Parliament, under the new legal basis introduced in Article 14 TFEU by the Lisbon Treaty. Despite this political pressure the Commission chose not to make a proposal under this new basis (probably for the same reason that turkeys do not vote for Thanksgiving). Instead, it revisited the package under its own powers under Articles 106 and 107 TFEU. This decision seems wise and legally well founded, in particular given the limits of Article 14, but is still quite courageous in this time of centrifugal tendencies at the EU level.

Obviously this small comment cannot cover all the interesting issues raised by the package. It is however fair to say that the content of the reviewed package does not look as particularly conciliatory with those who wanted more flexibility for SGEI. It is true that there are some changes going in that direction. This is the case for the small operators in charge of SGEI that are exempted from notification (in particular, there is a new exemption of some social services and a new draft de minimis specially conceived for SGEIs), but the story seems quite different for the bigger operators that remain subject to individual notification.  Under the Almunia package – and contrary to the previous Monti-Kroes package – the rules applicable to the big operators are going to be different and stricter from the rules applied to the smaller.

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Written by Alfonso Lamadrid

14 March 2012 at 2:21 pm

Death in Venice: The end of a Commission’s locus standi theory in State aid cases?

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[Note by Alfonso: Once again, it´s a pleasure to have our friend, State aid expert, and colleague of mine Napoleón Ruiz  (don´t be fooled by the picture, he´s real) informing us of what´s new in the world of State aids. We leave you with him].

Thanks again to Nico and Alfonso for inviting me to write a post on State aid matters. My previous post was devoted to explaining how “vaporous” some of the legal concepts which make up the notion of State aid are.  

As a sequel of my previous post, I would like to briefly refer to another interesting battlefield within the State aid area: the locus standi of the beneficiaries of aid schemes ( think, for instance, of tax measures) to challenge negative decisions of the Commission. In contrast with antitrust practice where undertakings are always the addressees of the Commission’s  decisions, in State aid cases the addressees of Commission decisions are –in theory- exclusively member States.

State aid cases brought before the European Courts by recipients of the aids usually begin with ferocious debates with the Commission on whether the  appellants fulfill, or not, the famous Plaumann test. Needless to say, the Commission is not precisely enthusiastic when it comes to accepting undertakings appealing its Decisions; that is true to such an extent that one could attribute it the nickname of  “Dr. No” (which is the answer one –almost- always gets when asking whether an aid beneficiary is individually concerned by a negative decision). The Commission’s argument in this regard is simple and sharp: in order for an undertaking to be individually concerned, it needs to prove that it has actually benefited from the aid, and that can only be demonstrated when the applicant has been addressed a recovery order from the Member State before lodging the appeal (and that does not happen so often). Otherwise, that undertaking must refer to the national  judge and pray request: (i) that the Court declares itself competent to rule the case and (ii) that it raises a preliminary reference of validity of the Commission´s  decision (which does not happen frequently either ).

Frankly, one does not need to be a constitutional law expert to find this argument at odds with the most basic conception of the right to access to justice under article 6 of the ECHR.

That was indeed the state of play in State aid cases until just a couple of weeks ago, when the ECJ issued an important ruling which has gone relatively unnoticed. I am referring to the so-called Hotel Cipriani (a very recommendable place to stay in Venice if one can afford it…) case (C-71/09 P). In that case, the ECJ upheld the GC’s ruling, dismissing the Commission’ pleas on admissibility and clarifying the boundaries of the Plaumann test in such cases. In particular, the Court states in paragraphs 55-57 of the Judgment that:

“The Court must dismiss at the outset the argument that the recovery obligation imposed by the contested decision did not sufficiently identify the applicants at the time that that decision was adopted. (…)

As the Advocate General has pointed out (…), the order for recovery already concerns all the beneficiaries of the system in question individually in that they are exposed, as from the time of the adoption of the contested decision, to the risk that the advantages which they have received will be recovered, and thus find their legal position affected. Those beneficiaries thus form part of a restricted circle (…), without it being necessary to examine additional conditions, concerning situations in which the Commission’s decision is not accompanied by a recovery order. Moreover, the eventuality that, subsequently, the advantages declared illegal may not be recovered from their beneficiaries does not exclude the latter from being regarded as individually concerned.

The Court must also dismiss the Commission’s argument that recognition of the admissibility of actions against a decision of the latter ordering the recovery of State aid had the ‘paradoxical and perverse’ effect of requiring the beneficiaries of the State aid to challenge that decision immediately, before even knowing whether it would lead to a recovery order concerning them. (…)”

It seems to me that the wording of the Judgment leaves little room for interpretation: the Court finds that the order for recovery imposed by the Decision is, by itself, sufficient to individually concern a beneficiary without any further requirements (i.e. individual order of recovery addressed to the beneficiary by the Member State). Thus, the ECJ definitely quashes the Commission’ position regarding the locus standi of beneficiaries and, in my view closes the debate.

In conclusion, although I would not insinuate that the Commission was as “fond” of the argument as was the character of Dr. Von Aschenbach of young Tadzio in Thomas Mann’ tale (masterly brought to the screen by Luchino Visconti), it is however true that this Judgment strikes a serious blow to the procedural strategy of the Commission, which from now onwards will have to focus much more on substance and less on admissibility.

Written by Alfonso Lamadrid

1 July 2011 at 4:03 pm

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