Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for March 2019

GCR Awards- Thank you!

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Last night in Washington DC Pablo and I received, respectively, the Global Competition Review “Academic Excellence” and “Lawyer of the Year (under 40)” awards.

Thanks so much to GCR for selecting us and to all those of you who, ignoring your conscience and against your best judgment, took a moment to vote for us 😉

Pablo’s award, following two previous nominations, is objectively and unquestionably deserved. It’s a recognition to his unique intelligence, hard and public work, honesty and influence in competition law globally. I was honoured to receive the award on his behalf and couldn’t be more proud of my co-blogger and friend.

My award is more subjective, as good lawyering involves many dimensions that are often not public, almost always attributable to a larger team and, in any event, impossible to objectively assess. But I don’t really mind that the awards isn’t necessarily about great lawyering. What matters to me is that so many people cared enough to give their support. Thanks to all of them and to my clients, colleagues, my firm and, above all, family, for permitting me to do what I like.

I’m also very proud of all my colleagues at Garrigues for being among the four shortlisted candidates to the EU Regional Firm of the Year Award.

Congrats to all other nominees and winners and, once again, thank you!!

Written by Alfonso Lamadrid

27 March 2019 at 7:49 am

Posted in Uncategorized

Unilateral Digital Service Taxes and EU State Aid Rules: the elephant in the room

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tax

We have always cautioned against the application of different rules and standards only to certain companies. That is a trend that appears to be in vogue these days. In some cases, this approach may threaten the consistency of the law and breach general principles. In other cases, the application of ad hoc rules would be in direct breach of EU Law itself.

Here is a perfect example that affects two areas that are of particular interest to the European Commission and to myself: tech and fiscal state aid. [Disclosure: I have examined these issues following a request from our friends at CCIA, who will also post this piece on their own blog. Below is my reasoning, you can make your own conclusion]

You have probably read on the news about the Commission plans to create a “digital service tax” (“DST”). This is a plan that was reportedly abandoned recently due to the opposition of some Member States (see here). Absent a harmonized EU DST, some Member States (namely France, Italy and Spain) have adopted or announced the adoption of their own unilateral DSTs. The declared objective of these taxes is to ensure that the provision of digital services is taxed in the jurisdictions where users contribute significantly to the process of value creation.

This is not the place to discuss the political opportunity or possible consequences of these initiatives nor to challenge wider proposals to reform tax systems (which may make sense), so let’s assume that these are legitimate policy initiatives. We will focus not on the idea, but on its execution.

As currently designed, it is obvious to me that the different national DST proposals would involve the granting of State aid (which doesn’t necessarily mean they are illegal, only that they need to be notified by the Commission for clearance).  Think about it:

First, the case law makes clear that a specific tax addressed only to certain undertakings may imply a selective advantage to other companies not subject to the tax. The key question is whether all the companies in the same legal and factual situation, having regard to the objective of the system, are treated in the same way. [See e.g. the Court’s recent Judgment in ANGED, where the CJEU considered that regional environmental taxes that applied to supermarkets but exempted commercial malls despite having a similar negative impact on the environment constituted a selective advantage to malls].

This means that one needs to verify whether the scope of the tax at issue is consistent with its declared objective or whether, on the contrary, it exempts other companies that should have been subject to the tax.

In the case of the DSTs, the current proposals do not target all activities where users create value, but only some, namely online advertising services, online intermediation services and data transfer services. This excludes any other services where users may also create value.

Second, the scope of the proposals is further delineated in the light of a high worldwide revenue threshold (both the French, Spanish and Italian proposals set a 750 million worldwide revenue threshold). But the case law also makes clear that crafting objective thresholds in such a way that de facto exempts domestic companies from the application of a tax can also amount to State aid.

The clearest examples are the recent Commission decisions regarding Hungarian and Polish turnover taxes on certain activities, now before the CJEU. In three separate decisions (here, here and here), the Commission considered that these taxes constituted State aid as they were based on particularly high turnover thresholds and were effectively designed to tax almost exclusively large companies (usually foreign companies) and not smaller ones (almost always domestic companies), in a way that was unrelated to the objectives sought by the Member States. [Evidently, the State aid nature of a measure does not depend on whether it is granted by Hungary and Poland or by France, Spain and Italy…]

Third, revenue-based taxes do not appear to be consistent with the declared objective of taxing digital services in the place where users contribute to the process of value creation. This is because users can create value in many ways regardless of the company’s turnover. Actually, this is precisely the reason why many people would like to see a change in merger notification thresholds only based on turnover.

Public statements from national politicians saying that SMEs and national companies have nothing to fear (see e.g. here, here –the French Government actually calls this the “GAFA tax” – or here) would appear to confirm that these initiatives have been crafted with addressees in mind, not just to tax digital services where users contribute to the process of value creation (a tax with a company nickname sounds a tiny bit selective…). This is a sort of Marxist (I mean Groucho) view of fiscal policy: “these are my principles, but to some companies we’ll apply others”. This is not just me saying it: the Danish, Swedish and Finish governments (not known for being soft on taxes) have also spotted the problem and opposed even the EU proposal (see here).

By treating differently companies that are in a comparable situation, unilateral measures such as the French, Italian or Spanish DSTs would, in my view, constitute clear State aid. It’s therefore surprising that none of these pro-European Member States have notified the projects so that the Commission can assess their compatibility.

In the light of the Polish and Hungarian precedents, one could anticipate that –regardless of its political views- the Commission will in any event ultimately intervene, or be forced to intervene.

Written by Alfonso Lamadrid

22 March 2019 at 11:15 am

Posted in Uncategorized

EU Judicial Review: Major Antitrust Implications of Recent State Aid Cases

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Blinkers

We competition lawyers often wrongly approach our discipline in isolation from the wider context in which it is applied. This is also true when it comes to judicial review. We tend to forget that antitrust is only a fraction of what the EU Courts and EU judges do, and that what they do in other areas might also have major implications in ours.

A perfect illustration of what I’m saying lies in two State aid judgments: C‑300/16 P, Frucona Kosice, and the very recent T-865/16, Fútbol Club Barcelona v Commission.

Both cases relate to how the Court approaches judicial review of complex economic assessments when the burden of proof is on the Commission. This, as you know, is an issue common to antitrust, mergers and State aid, and also to other areas of EU law. As you also know, in these cases the EU Courts apply a “manifest error of assessment” standard. Pursuant to the Tetra Laval formulation (which GC President Jaeger has called “the forgotten paragraph”), in these cases “the Court must establish “not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it”.

The first case is Frucona Košice.  Here, the CJEU clarified that “the information ‘available’ to the Commission includes that which seemed relevant to the assessment to be carried out in accordance with the case-law (…) and which could have been obtained, upon request by the Commission, during the administrative procedure” (71). The CJEU then observed that the Commission had “failed to obtain” (80) “all the relevant information” (81) and confirmed the annulment of the Decision.

I had already briefly discussed this case on the blog some time ago, in relation to how the Commission intended to apply the lessons from the Intel Judgment (see here). As I said then, the Frucona Judgment confirmed that the Commission cannot just sit and wait for the dominant company to bring all the necessary evidence to establish a point at a stage where the burden remains on the Commission (for competition law purposes, that would be at the state of identifyinga prima facie restriction under 101(1) or at the stage of ascertaining “intrinsic capability” to restrict competition within 102). Remember the difference between the burden of proof and the evidential burden? If not, click here.

All this was confirmed and expanded on just a few days ago in the FC Barcelona v Commission case, where the Court annulled a decision declaring that certain Spanish fiscal rules granted State aid to some football clubs (the Court’s press release available here). The Judgment (not yet available in English, can be found here).

Specifically, the GC ruled that when the Commission is confronted, during the administrative proceedings, with evidence capable of leading to “doubt” as to a relevant aspect of the case, it is then obliged to undertake measures of enquiry. Failure to do this can result in the Commission not meeting its burden of proof, which in turn might lead to the annulment of the Decision. This Judgment is based on…the Frucona Košice precedent.

In a nutshell:

-FC Barcelona argued that the Commission’s decision had not properly assessed one aspect of the case (the idea was that it had assessed a tax scheme looking only at the nominal tax rate and not to other constituent elements that cannot be dissociated from the tax scheme), and that, had it done so, it would have come to a different conclusion. FC Barcelona invoked the Commission’s duty to conduct its investigation actively, fully and impartially, seeking to gather, by means such as RFIs, any information available to it, including both inculpatory and exculpatory evidence (para. 38).

-The Commission argued that it had based the decision on the information submitted to it by the Spanish authorities and that no additional measures of enquiry were necessary. It contended that the applicant’s arguments were “simplistic and possibly erroneous” and that in any event they had not been put forward by the applicant during the administrative proceedings (para. 41);

-The Court observed, however, that “the Commission, who bears the burden of proof (…) enjoyed the possibility of requesting, within the limits of its investigatory obligations within the administrative proceedings, any information necessary to conduct its assessment” (para. 59, citing in turn para. 71 of Frucona Košice). The Court notes that the information contained in the decision did not exclude the possibility that the applicants’ argument may have been well founded (paragraph 60 in fine). In paragraphs 66 and 67 the Court finds that at the time of adopting the contested decision it had at its disposal elements that “should have led it to doubt” its approach, and that since these elements were not addressed the EC failed to meet its burden of proof. This means that the evidence to be put forward by the company must not be sufficient to prove a point, but simply to lead to doubt.

-The Court also addresses the Commission’s point that the applicant had not raised the necessary arguments during the administrative proceedings, noting that they had been raised by another party (Real Madrid; ironically, in a way Real has won the case for Barcelona…), and that therefore the Commission failed to establish its case having regard to the data at its disposal at the time of adopting the Decision.

-The GC dismissed a parallel application by another applicant in exactly the same situation, but which failed to raise this legal argument (Athletic Bilbao, in case T-679/16).

The bottomline(s):

  • The Courts recognizes the Commission’s ample powers and will often defer to its assessment on substance, but for this trust to exist the Commission will at the very least need to show that it has not avoided any relevant issues, and that it has pursued all relevant leads.
  • Some key members of the EU Courts had also signalled some of this. As noted by Vice-President Van der Woude, cases like Cartes Bancaires or Intel raise questions for which answers “can be found in the burden of proof that rests upon the Commission pursuant to Article 2 of Regulation 1/2003”. Read that in the context of the Judgments discussed above and connect the dots.
  • These developments are here so stay. It won’t be difficult for the Commission to continue to win cases if it incorporates this logic into its day-to-day. If that does not happen, we are likely to witness a series of annulments based on this logic. This, of course, is assuming that lawyers understand the underlying logic, make sure to submit the relevant info during the administrative proceedings and raise the issue in Court. [My bet is that I will be making a few future cross references back to this prediction]

 

Written by Alfonso Lamadrid

18 March 2019 at 6:31 pm

Posted in Uncategorized

A Competition Law MOOC

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mooc

The Rafael del Pino Foundation is hosting a Massive Online Open Course (MOOC) on competition law and policy (in Spanish).

The course is based on a series of approx. 12 minute videos (each one featuring an expert in the topic at issue) accompanied by basic materials, forums and an online evaluation.

Some videos provide a basic understanding of different aspects of competition law, other are more specific and can be a refresher for those with greater knowledge. You can also use them to improve your professional Spanish 😉

In its first week the MOOC has proved to be a success, with several hundred people already registered.

FYI, Pablo was in charge of the video on the competition/IP interface, and I did the one on abuse of dominance; you can safely skip those…

To register (for free), click here.

 

Written by Alfonso Lamadrid

11 March 2019 at 4:07 pm

Posted in Uncategorized