Market Economy Operator Principle (MEOP) versus the “favouring” concept from Article 107(1) TFEU with regard to investments, risk capital, guarantees and loans.

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UNIVERSITY OF AMSTERDAM

Market Economy Operator Principle

(MEOP) versus the “favouring” concept

from Article 107(1) TFEU with regard to

investments, risk capital, guarantees and

loans.

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State Aid Law is one of the key elements of competition law. Its effective working is necessary for the functioning of the common market and assurance of the equality of all players on the market. The control of State Aid in the community law is ruled by articles 107 and 108 TFEU. Article 107 (1) of the Treaty on the Functioning of the European Union (TFEU) states that “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.”

Article 107 (1) TFEU does not give a clear definition of the “aid”; it mentions “any aid” as a possible obstacle in the working of the common market. All the criteria found in Article 107 (1) TFEU are interdependent. For this reason, their definition needed to be clarified in order to avoid any misinterpretations. It seemed rather easy in the theory than in practice. However, it was the actual case law that gave the guidelines to interpretation of State Aid based on the wording of Article 107 (1) TFEU. Nevertheless, even the European Court of Justice has occurred difficulties in interpretation and qualification of the “aid” and its practical

application in every particular case. The interpretation has not always been simple due to the nature of the aid self.1_{In Banco Exterior de Espana the Court noticed :”(...) the concept of aid}

is thus wider than that of a subsidy because it embraces not only positive benefits, such as subsidies themselves, but also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect”.2

With the expansion of the European Union and opening its markets for competition to the new Member States and other participants, private and public sectors of those markets come more and more towards each other. Based on the Article 107(1) TFEU, the State Aid rules generally only apply to the “undertakings”. Regardless of their legal status, those entities need to engage in an economic activity in order to fall within the category.3_{It is not of a great}

importance whether the undertaking is of a private or a public nature, as long as it is active economically. As a result, public money can also be invested in private undertakings. As long

1_{Case C-78/76 Steinike & Weinling vs. Federal Republiek of Germany [1977] ECLI:EU:C:1977:52, para 21} 2_{Case C-387/92 Banco Exterior de Espana [1994] ECLI:EU:C:1994:100, para 13}

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as the rules established by the treaty are fulfilled, there is no fear for unlawfully given State Aid. It is different, if the investment or guarantee received gives that undertaking an economic advantage over other players on the market and therefore disturbs the competition. Unlawful State Aid can be recovered. Therefore, it requires the formal investigation by the Commission and close cooperation with the Member States, which should take all necessary measures to recover the aid from the beneficiary in accordance with the national procedures established.4

Those procedures are, however, time consuming. That is why public instances make sure the transactions are lawful. One of the ways to do that is to act as a “market economy operator”; namely, to act as a private sector investor in normal market conditions.5

The Commission introduced in 19846_{a Market Economy Investor Principle (MEIP), and}

since its first appearance MEIP has become a useful tool in State Aid Law to asses whether actions taken by public national institutions constitute State Aid in accordance with the Article 107(1) TFEU. The core of the MEIP is the fact that a Member State invests in an undertaking on terms and conditions which would be acceptable to a private investor

operating under normal market economy conditions, the investment does not constitute a State Aid.7_{In applying MEIP, the Commission and the Courts, make an assessment whether from a}

point of State Aid grantor, a private investor (in similar circumstances) would have provided the financing in question8_{or from the point of the State Aid receiver, the benefit would have}

not been received under usual market conditions.9_{This test has been used and applied to the}

particular cases for a number of years, as well as developed its different forms, such as, under many, creditor or vendor principle. With the years passing by, the position of public authority dynamically started to change its character. The scope of the MEIP adapted its form to the current circumstances and resulted in the transformation from investor test to more complex and broader principle, namely the Market Economy Operator Principle. However, the main disadvantage that still comes within is its legal base. It is a construction, not a Treaty

provision that often needs deeper assessment of all circumstances and conditions given, as well as the consistency in its application by the authorities.

State Aid is a very dynamic area of law. In order to ensure the aid is given according to the rules the Commission turns more and more in the direction of the Market Economy Operator.

4_{Article 108 (3) TFEU}

5_{Case C-39/94 SFEI v La Poste [1996] ECR 1-3547, para.60}

6_{Communication of the Commission on Government Capital Injections, Bulletin EC 9-1984}

7_{B.Slocock “The Market Economy Investor Principle”, Competition Policy Newsletter, No 2, June 2002} 8_{Joined Cases T-228/99 and T-233/99 West LB v Commission [2003]}

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That is why its nature is changing rapidly. From a rare application of it in previous years, the Commission and the courts impose it being a general test rather than an exception.10_Both

concepts, the “favourable” element of Article 107(1) TFEU and the MEIP/MEOP test, are of economic nature. They both embrace economic transactions closed by public authority taking entrepreneurial decisions. Majority of those deals are investments, guarantees, loans or risk finance investments. Hereby the question arises: to what extend does the MEOP/MEIP fit in the “favouring” concept of the Article 107(1) TFEU when it comes to investments, risk capital, guarantees and loans?

In this essay I will try to critically answer the main question and illustrate my findings in the context of case law of the Commission and the courts. Section two focuses on a deeper analysis of Article 107(1) TFEU and the important role of State Aid. The “favouring” concept and its nature will be discussed and illustrated with the relevant case laws. Section three examines in detail the concept of MEOP/MEIP; its relevance and development from the Market Economy Investors Principle into the Market Economy Operating Principle over the years. Moreover, this essay will show the reasoning behind it. I will make an attempt to prove the significant role of the MEOP/MEIP concept in practice illustrated with the relevant case laws. In section four, I will try to show the link between the MEIP and the “favouring” concept of Article 107(1) TFEU and its limits of application in practice of the Commission and the Courts. Finally, based on the research performed, I will discuss my findings and dare to answer the main question: to what extend does the MEOP/MEIP fit in the “favouring” concept of Article 107(1) TFEU when it comes to investments, risk capital, guarantees and loans?

2. ARTICLE 107(1) TFEU 2.1. General principles

Article 107(1) TFEU describes State Aid as “any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by

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favouring certain undertakings or the production of certain goods in so far as it affects trade between Member States”.

State Aid rules only apply to undertakings. The definition of an “undertaking” has been interpreted very consistently by the Court of Justice of the EU as en entity engaged in an economic activity, regardless of its legal status and the way it is financed.11_{Whether an entity}

falls under the definition of an undertaking depends on the nature of the activities provided. The Commission distinguishes three important consequences of the general principle.12

First of all, the classification of the entity under the national law is not crucial. The definitions and different forms of undertakings in national law of the Member States can be significantly different from one another. Yet, they can still classify within the meaning of Article 107(1) TFEU as undertakings. What the Commission finds important are the activities of economic nature that the undertaking in question performs.

Secondly, State Aid rules also apply to undertakings that do not necessary generate profits in their activities. The Court of Justice as well as the General Court proved it several times that goods, as well as services can be offered on the relevant market by non-profit entities. Also non-profits find themselves in competition with one another when it comes to the products or services offered. Its economic survival, however, strongly depends on their ability to compete with other undertakings as well as on the differentiation of their products or service

provided.13_{In Cassa di Risparmio di Firenze and Others,}14_{the Court stated that “the offer of}

goods or services is made without profit motive does not prevent the entity which carries out those operations on the market from being considered an undertaking, since that offer exists in competition with that of other operators which do seek to make a profit.”

Thirdly, undertaking is an entity performing economic activities with regard to goods or services. If an entity is active on the market with both economic and non-economic activities, only the economic ones would classify it as an undertaking in the letter of Article 107(1) TFEU. What falls under an economic activity, according to the Court, is “any activity

consisting in offering goods and services on the market”.15_{In contrast, it is up to the Member} 11_{Case C-41/90 Höfner and Elser v Macrotron GmbH [1991]; joined cases C-180/98 to C-184/98 Pavlov and}

Others [2000] ECR I-6451, para 74

12_{Communication from the Commission, Commission Notice on the notion of State aid as referred to in Article}

107(1) TFEU, Brussels 2016

13_{Case C-49/07 MOTOE [2008] ECR I-4863, para 27 and 28}

14_{Case C-222/04 Cassa di Risparmio di Firenze and Others [2006] ECR I-289, para 122 and 123} 15_{Joined cases C-180/98 to C-184/98 Pavlov and Others [2000] ECR I-6451, para 75}

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State and its political choices whether a particular market for goods or services has been created. Also, the organization of the market can be of great importance to the activities performed by an undertaking.16_{What also needs to be taken into consideration when}

discussing economic activities, are the political choices made as well as economic

developments in the Member State. They can differ from being very stagnant and rigid to very dynamic and advanced. It is up to the national governments which form the definition and classification the economic activities fall into. Also, the passing of time often changes the scope of it or enriches it slightly.17

The fact that a particular entity holds shares or enjoys a majority shareholding in an

undertaking offering goods or services on the market, does not automatically classify it as an undertaking for the purpose of Article 107(1) TFEU. On one hand, having shares in an undertaking, gives rise to the rights of a shareholder in exercising its power. On the other hand, the enjoyment from the profit of dividends, as an owner of assets, does not

automatically classifies the entity under the definition of an economic activity of Article 107(1) TFEU if the entity does not provide goods or services on a relevant market.18

2.2. Public powers

Article 107(1) TFEU applies to undertakings. Those entities can be private or public bodies. However, the State can act in a double role. The State can act either by exercising its public power or as a shareholder. In Commission v Italy19_{the role of the State was classified as “by}

exercising public powers or by carrying on economic activities of an industrial or commercial nature by offering goods and services on the market”. The Court underlined the importance of such distinction, the nature of the activities and the category they fall into. Often, the activities performed by the State are part of the prerogatives of being an official authority exercising public powers. In this case, the activities performed can not fall under category of an

economic activity. However, the double role of the State allows any public entity to engage in an economic activity too, separated from the public powers. As a result, a public actor acts as an undertaking and consequently can fall under the definition of Article 107(1) TFEU. On the

16_{Joined cases C-159/91 and C-160/91 Poucet and Pistre [1993] ECR I-637, para 16-20}

18_{Case C-222/04 Cassa di Risparmio di Firenze SpA and Others [2006] ECR I-289, para 107-118 and 125} 19_{Case C-118/85 Commission v Italy [1987] ECR 2599, para 7}

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contrary, if the economic activity exercised by the public body cannot be separated from the execution of its public powers, the activities performed by that entity in general, will fall fully under public powers.20

2.3. Elements of the Article 107(1) TFEU

Article 107(1) TFEU has five components that as a whole create a provision on the State Aid. In order for an aid to be qualified as State Aid, those five components need to be fulfilled. They are: state resources, economic advantage, selectivity, distortion of competition and effect on trade.

2.3.1. State resources

The first element of Article 107 (1) TFEU relates to the aid granted by a Member State or through state resources. Under the term “state resources” fall public founds in the possession of a Member State governed by decentralised organs on the regional, central or local level, e.g. municipalities or other public or private instances chosen by the State.

“For advantages to be able of being categorised as aid within the meaning of Article 87(1)

EC, they must, first, be granted directly or indirectly through State resources (...) and, second, be imputable to the State (...)”21

Aids given through state resources can be in the form of tax benefits or exemptions,

preferential tariffs given to undertakings22_{, financial contributions by the banks (with assets}

permanently at State’s disposal) etc.23

2.3.2. Economic advantage and selectivity

The second and third element can be linked together. They focus on the favouring certain undertakings or the production of certain goods and as a result reaching an economic advantage with respect to other players on the market. Undertakings in question need to be engaged in economic activities.

20_{Case C-113/07 P SELEX Sistemi Integrati v Commission [2009] ECR I-2207, para 72; Case C-138/11}

Compass- DatenbankGmbH [2012] ECR I-0000, para 38

21_{Case C482/99 France v Commission Stardust Marine [2002] ECR I-04397, para 24} 22_{Case C-67,68-70/85 Van der Kooy v Commission [1988]}

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In Denkavit Italiana the Court stated that it was not important if the economic advantage granted was necessarily connected to social or economical reasons. The Court pointed out that what matters is the effect of the economic advantage given and not the target or the cause of it.24

The “favouring” element focuses on the selectivity. However, there are two aspects that need to be distinguished. Firstly, it is of a great importance whether there is a favour or an

advantage given to certain undertaking or the production of certain goods. Secondly, it is essential that the advantage given has selective nature. Where a general measure includes all entities on the market and gives each one of them the same chances and opportunities to grow or develop, the selective one favours only certain undertakings or certain aspect connected to them. They can enjoy the benefits when others can not do it. Selectivity and the advantage given can be directed to concrete sectors or areas of business, locally or central; certain products or services offered on the market25_{; production of goods. The form of the advantage}

varies from case to case. It can be found in the form of a beneficial loan, tax exemption or, for instance, very good terms.

The concept of the “favouring” certain undertakings will be discussed in detail further on.

2.3.3. Distortion of competition

The fourth element focuses on distortion or threat to distort competition. Competition on the market is very important. It stimulates the economic growth, innovation and development. However, a measure given by the State, in any form, can give the privileges for certain undertakings, when weakening the position of the others. It strengthens the position of the receiver of the aid26_{and gives it more chances and opportunities compared to the}

not-receivers.

2.3.4. Effect on trade

Fifth element is about the effect that given aid may have on trade between Member States. It focuses on the potential risk an aid may cause on the market. With the opening of the markets

24_{Case C61/79 Denkavit Italiana [1980] ECR 1980 -01205} 25_{Case C-53/00 Ferring SA v ACOOS [2001], ECR I-9067}

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of Member States to free movement of goods, services, capital, persons, the European Union as well as Member States assure that the internal market remains open and gives equal chances to all the players. Knowing the importance of the trade in products and services between undertakings from different Member States, it is logical that any aid “injection” to any of them may potentially affect the trade between them. The Court in Altmark-case concluded:

“(...) there is no threshold or percentage below which it may be considered that trade between Member States is not affected. The relatively small amount of aid or the relatively small size of the undertaking, which receives it, does not as such exclude the possibility that trade between Member States might be affected (...).”27

2.4. The “favouring” concept

In Commission v Netherlands the Court concluded that an economic advantage granted by the Member State or through state resources can only be categorised as State Aid in the sense of Article 107(1) TFEU if it has a point of focus to favour particular undertakings or the production of certain goods.28_{The “favouring” concept focuses on the selectivity. However,}

according to the principle of equal treatment discussed by the Advocate General Cosmas in the Tierce Landbroke v Commission29_{it is of a great importance of Community law and}

Community interest that any measure applied at national level should be in accordance with the principle, by giving equal chances to all players. That is why it is essential to establish whether it is the aid given by the State or its bodies that favours certain undertakings and their products or services on the market, or any other factor that also plays a role. There is a huge difference when it comes to the measures used by the State, namely when it comes to the point of their application. Most of the measures applied by the State have general application. Everyone or no one can be affected by them. In order for Article 107(1) TFEU to be

applicable it is important that a measure in question directly or indirectly favours certain undertakings or is regarded to give them any sort of economic advantage which the recipient undertaking would not have obtained under normal market conditions. Only then it can be qualified as aid.30_{A measure that “favours” is prone to create an advantage and strengthens} 27_{Case C-280/00 Altmark [2004] ECR I-07747, para 81}

28_{Case C-279/08P Commission v Netherlands [2011] ECR I-7671, para 61} 29_{Case C-353/95 P Tierce Landbroke v Commission [1997] ECR I-7007,} 30_{Case T-538/11 Belgium v Commission [2015] EU:T:2015:188, para 72}

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the position of one entity while not forming such advantage for the other one. It is especially important in the situation when both undertakings are players on the same relevant market. A measure or aid does not need to affect a specific undertaking. It can affect, for example, the whole sector of an industry, a relevant market of certain product or a local policy. The most important is, above all, that such measure is prone to create inequality on the market between undertakings in a similar factual and legal situation.31

In order to make an assessment whether players on the market are in the similar legal and factual position it is of a great importance to establish the policy objective of the measure and to compare it to the situation of the undertakings in the light of that objective.32_{From case law}

of the European Court of Justice it can be concluded that many factors need to be taken into consideration.33_{It is very often the case that, even within the same industry or sector, certain}

undertakings are not affected at all by the measure applied by the State when in other cases it favours undertakings based on the certain requirements. The “favourability” concept results from the legal criteria for granting a measure normally reserved for only some undertakings. The factors can be: the size ( large versus small-medium enterprises), being active in a certain area or sector, legal personality, undertakings incorporated in a certain period or belonging to a group with specified characteristics or function within the group.34

In fact, the favourably given aid can also explicitly create a barrier for some undertakings. As a result Member States would prevent some entities from benefiting from the measure. The Court in Ramondin SA and Ramondin Capsulas SA v Commission concluded that the Basque authorities, by restricting the application of the tax credit to investments in new fixed assets, reserved tax concession only to entities with notable financial capital. The Court agreed with the assessment of the Commission that the tax credit was intended to “favour” certain

undertakings above the others.35

When Member States apply “favouring” concept explicitly benefitting a limited group or chosen undertakings, for example granting capital or assets to it, the nature of such measure seems rather straightforward. However, there can be a case that Member State adopts more

31_{Case T-135/12 France v Commission [2015] EU:T:2015:116, para 43}

32_{C.Quingley, “European State Aid Law and Policy”, 3}rd_{ed., Hart Publishing, 2015}

33_{Joined Cases C-106/09 P and C-107/09 P Commission and Spain v Government of Gibraltar and United}

Kingdom [2011]

35_{Joined Cases T-92/00 and T-103/00 Ramondin SA and Ramondin Capsulas SA v Commission [2002] ECR}

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general measures applicable to all undertakings that fulfil the given criteria. The case could be when, for instance, certain tax exemptions are exposed or social security exemptions are given for undertakings that satisfy the established criteria. In contrast, the ECJ in Belgium v

Commission concluded that despite of the positive character of the measure (by reducing

social security contributions for some undertakings, the aid was supposed to generate more jobs on the market) and the importance of the sectors affected, the measure was not qualified by the Court as a general measure but as State Aid.36_{Alike, in Spain v Commission, the Court}

decided for “favouring” certain industries above others in making use of a policy when purchasing commercial vehicles. The scheme was available only for natural persons, small-medium enterprises and institutions serving public services. However, due to the fact that larger undertakings were not included in making use of the scheme, the measure was qualified as a selective, favouring only some undertakings above the others.37

In order to conclude whether the measure “favours” certain undertakings above the others or the production of certain goods, it is the Commission’s task to prove that that measure creates inequality between undertakings on the market which, “(...) with regard to the objective of the measure in question, are in a comparable factual and legal situation”.38_{The Commission}

performs a three-step analysis in order to asses whether there is any chance that the measure qualifies as “favourable” or selective one. First of all, there must be a clear identification of a system of reference. Secondly, it needs to be clear and transparent whether the measure differs from the system as much as it differentiates between economic operators, who find themselves in the legal and factual circumstances. In case the derogation exists, it proves the “favourable” character of the measure. The lack of derogation excludes the existence of it. Thirdly, in case the measure is proven to be “favourable”, it needs to be tested, whether that measure can be maintained by the nature or the general scheme of the reference system.39_In

case the measure, after passing positively the third step, is proven not to give an economic advantage it will not fulfill the criteria of the Article 107(1) TFEU. 40_{As a result, the measure}

will not be regarded as State Aid. Of course the Commission’s three-step plan may not always apply to all the cases. Other assessments might need to be examined in order to establish the derogation from the competition rules.

36_{Case C-75/97 Belgium v Commission [1999] ECR I-3671} 37_{Case C409/00 Spain v Commission [2003] ECR I-1487, para 50}

38_{Case C-279/08 P Commission v Netherlands (NOx) [2011] ECR I-7671, para 62} 39_Idem.

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At the disposal of the Commission there is also another useful tool that helps to test whether in a particular case State Aid might exist. It is the Market Economy Operator Principle or its variation the Market Economy Investor Principle.

3. THE MARKET ECONOMY OPERATOR PRINCIPLE

In order to understand the concept of the Market Economy Operator, it is important to look at the nature and characteristics, as well as its applicability and the reasoning behind it, that can be found in the practice of the Commission and the Courts.

3.1. Meaning and general principles of MEOP/MEIP 3.1.1. The Background

For the last 30 years the Market Economy Investor Principle has been in the Commissions practice as one of the key elements for economical analysis in the State Aid cases.41_{Its main}

role is to asses whether a transaction entered into by a public authority gives an economic advantage to an undertaking and as a result falls within State Aid regime in the letter of Article 107(1) TFEU.

The European Union’s legal order is transparent in the area of the property ownership, according to Article 345 TFEU. This field has been left for Member States to establish the rules and the shape of it. Member States are free to decide whether their national undertakings are due to be privatized or nationalized or not. However, the State may engage its public authorities and organs in a variety of commercial activities. As a result, the State can act in dual capacity; on one hand, as a public body, and on the other hand, as a private investor pursuing the same logic of making profit from its investment. If, in a market economy, the State acts as the private investor would, by, for example, investing its assets or providing a guarantee on the terms that of a private investor, it is not granting State Aid within the meaning of Article 107(1) TFEU.

After all, Member States are permitted to run mixed economies where the state participation level is quite high. In a mixed economic system, private undertakings strive for the pursuit of

41_{H.W. Friederiszick, M.Troge, “Applying the Market Economy Investor Principle to state Owned Companies –}

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profit and designate its capital and investments, when the State influences the economy indirectly through its monetary and fiscal policies. Moreover, in a mixed economy the government is able to “internalize the positive and negative externalities” and stimulate the production of goods and development of services as well as the trade, which often would suffer without the stimulants or would be otherwise forgotten by the private sector.42_{It seems}

everybody can profit from the freedom created by that type of economy. As a result, there is a competition between private and public undertakings on the market, when the government plays the regulating role in the background. It creates a sense of stability, especially in the economic context. However, the right to run a mixed economy, next to its profits, one should be also aware that the level playing field, as well as the competition on the market between private and public players, should be respected at all times.43_{In contrast, too much freedom}

could lead to the overwhelming power in a form of an aid to the national industry that would disturb the balance in the common market and would interfere in the competition law of the Union.44_{That is why; it is of a great importance to have a standard to determine whether}

public investments encompass any form of State Aid.

Article 107(1) TFEU has prohibited “(…) any aid granted by the Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings (…)”. State Aid in this context creates an advantage to the undertaking in question that would not have happened or been present in the normal course of events.45_{The capital injection by the State is compared to funds or guarantees provided by the}

bank, private investor or capital markets.46_{The state sources and advantages given can take}

different forms. It can be an investment, capital injection, loan, guarantee, as well as the involvement in the commercial project or enterprises. The public body may act in various positions from creditor, investor, vendor etc. Despite the form of the involvement, the actions concerned should be market conform, in other words carried out in line with normal market conditions. However, public investor, before locating its assets in the chosen area needs to take into account that there are different aspects typical for the government policies. Often investments need to be carried out according to and along with, for instance, the local

42_{http://www.investopedia.com/ask/answers/063015/what-are-some-benefits-mixed-economic-system.asp}

visited 13/06/2016

43_{A.Cyndecka “The Market Economy Investor Test in EU State Aid Law: Applicability and Application”, 2016,}

Wolters Kluwer Law International

44_{G.B.Abbamonte, “Market economy investor principle: a legal analysis of an economic problem”, 1996,}

European Competition Law Review 258

45_{Case C-84/82 Germany v Commission [1984] ECR 1451}

46_{J.Kavanagh, G.Niels, S.Pilsbury, “The marlet economy investor: an economic role model for assessing State}

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policies, regional development, social issues or environmental protection. Considering all the aspects given, it is rather difficult to estimate whether the form of a State intervention

involved is in reality compatible with the same behaviour performed by a private or

commercial party. In this situation a proper assessment is needed. This is a moment when the Market Economy Operator comes to place.

3.1.2. General principles

The Market Economy Operator Principle has been created to asses the possibility of an existence of State Aid in different economic transactions that take place daily on the Common Market of the European Union. In the practice of case law, the Courts and the Commission have developed the Market Economy Investor Principle to confirm the presence of State Aid in public investment affairs. The Court in Cityflyer Express v Commission case stated: “to determine whether a State measure constitutes aid distorting or threatening to distort

competition and affecting trade between Member States the relevant criterion is (...) whether the undertaking receiving the aid could have obtained the amounts in question on the capital market, and (...) whether a private investor would have entered into the transaction in question on the same terms and, if not, on which conditions he could have entered into the

transaction”.47

In the 30 years of the Commission’s and Court’s practices involving the assessment of the possible State Aid, there has been many other variations and subtypes established of the principle’s test application. In order to establish the involvement of State Aid in any form in the deals the Courts have developed the Private Creditor test – by comparing the behaviour of a public creditor to that of hypothetical private one in alike circumstances.48_{Another form is}

the Private Vendor test- in order to evaluate whether a sale performed by the public institution contains State Aid, having in mind the behaviour of the private vendor under normal market conditions and the price agreed.49_{The next form is the Private Purchaser test – assessing a}

purchase transaction; the Private Guarantor test; the Private Supplier test etc.

All those tests are leading to the same conclusion, namely, that the behaviour of public bodies or ventures should be compared to that of alike private economic operators under normal

47_{Case T-16/96 Cityflyer Express v Commission [1998] ECR II-757, para} 51 48_{Case C-525/04 P Spain v Commission [2007] ECR I-9947, para 44}

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market conditions in order to conclude whether the transactions performed, eventually delivered the economic advantage to the receivers. The Commission referred to that method of assessment as the Market Economy Operator test.50

3.2. From MEIP to MEOP

All the test methods mentioned previously have one aspect in common, that is, to identify the granting of an economic advantage to the undertakings concerned, in cases of public

investment. They all work towards the same result.

In Germany v Commission, the Advocate General concluded, that the existence of an aid would come to light, if the receiver of the benefit would not normally obtain it in normal market conditions. The situation in the mentioned case was related to the investment of substantial assets in a venture.51_{In contrast, in Spain v Commission the term “aid” was}

described as “aid granted whenever a State made funds available to an undertaking which in the normal course of events would not be provided by a private investor applying ordinary commercial criteria and disregarding considerations of social, political or philanthropic nature”. 52_{Finally, the European Court of Justice in SFEI v LaPoste came to the conclusion}

that “in order to determine whether a State measure in the context of commercial relations constitutes aid for the purposes of Article 107(1) TFEU, it is necessary to establish whether the recipient receives an economic advantage which it would not have obtained under normal market conditions”.53_{The court categorised this method as the Market Economy Investor}

Principle (MEIP), also used in practice as the Private Investor Test (PIT).

The Market Economy Operator Principle (MEOP), on the other hand, has a wider scope and requires more complex economic assessment of the situation. The purpose of the MEO test54

is to investigate whether the State intervention on the market has granted an advantage to a venture, from a perspective of the beneficiary, by not behaving like a market economy operator, from a perspective of the State, in the particular situation in question. The test is fulfilled when the public authority behaves similarly to the private investor in normal market

51_{Case C-84/82, Germany v Commission [1984] ECR 1451, AG Slynn p. 1501} 52_{Case C-278/92 Spain v Commission [1994] ECR I-4103, AG Jacobs p.4112} 53_{Case C-39/94 SFEI v La Poste [1996] ECR 1-3547, para.60}

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conditions. If it is the case, there is no issue with the possible economic advantage obtained as a result of State investment, because the receiver, in theory, could have acquired the same results dealing with a comparable size private investor.55_{Consequently, if the public body has}

not acted as a market economy operator would have done in a similar situation; there is a chance that a receiver obtained an advantage of the circumstances occurred. As a result, the beneficiary undertaking found itself in a more favourable position56_{with respect to the other}

players on the market under normal market conditions.

However, “(...) in order to assess whether the same measure would have been adopted in normal market conditions by a private investor in a situation as close as possible to that of the State, only the benefits and obligations linked to the situation of the State as shareholder — to the exclusion of those linked to its situation as a public authority — are to be taken into account.”57_{The applicability of the private investor test ultimately depends on the role of the}

Member State as shareholder and not in its capacity as public authority, according to the Court in Commission v EDF.58

In order to asses whether the intervention by the State took place in normal market conditions, the Commission investigates each and every case on an ex ante base, having regard to the information accessible at the time of the decision, namely, “(…) the only relevant evidence is the information which was available, and the developments which were foreseeable, at the time when the decision to make the investment was taken.”59_{It is not always simple to predict}

future events. However, it requires the evidence that the decision was made considering the possible economic evaluations similar to the ones private investors usually do. By means of business plan or a developed strategy of a project, the future needs to be seen at some point in order for the investor to locate his money accordingly.

All the relevant circumstances should be taken into consideration in order to be able to research the compatibility of the transactions with the market conditions. It is the application of the MEO-test.

55_{Case T-244/08, Konsum Nord ekonomisk forening v Commission, [2011] ECR II-444, para 62} 56_{Case C-124/10 P Commission v EDF [2012], para 90}

57_{Idem. Para 79-81} 58_{Idem para 81}

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3.3. Application of the MEO-test

Compliance with market conditions can be empirically established by specific market data or other available methods.60_{Those methods of assessment help by means to investigate closely}

whether the financial transaction fulfils the criteria of the MEOP and therefore will not qualify as State Aid in the letter of the Article 107(1) TFEU.

3.3.1. Data empirically established

3.3.1.1. Pari passu transactions

Pari passu transactions consists of investments made under the same terms and conditions by public and private investors, where both categories intervene simultaneously and where the intervention of the private investor is of real economic significance.61_{Moreover, it is}

important that the starting positions of the private and public bodies are comparable with regard to the transaction,62_{considering the previous exposure, the possible synergies to}

achieve, distribution of transaction costs etc. To add, the intervention of the private operators needs to have real economic significance.63_{It cannot be marginal.}

3.3.1.2. Tender procedure

The compliance with market conditions can be established when the transaction is executed following an open, transparent, sufficiently well publicised, non-discriminatory and

unconditional tender procedure, in compliance with the principles of the Public procurement Directives.64

Firstly, the openness of the transaction allows all interested investors to be a theoretical part of the process.65_{Secondly, the transparency element gives all tenderers clear information of}

the process, as well as equal access to the information and the clarity of it. This element is very important especially for the cross-border transactions or investments. Thirdly, the element of equal and non-discriminatory treatment of all players enables tenders to be

60_Idem.

61_{Case CN 172/2000, Irish Seed and Venture Capital Fund Scheme [2001], OJ 2001 C-37/48} 62_{Case T-296/97 Alitalia v Commission [2000] ECR II-3871, para 81}

63_{Case C-53/2006 Citynet Amsterdam [2008] OJ L 247}

64_{Directive 2004/17/EC of the European Parlement and of the Council of 31 March 2004} 65_{Article 1(11)(a) of Directive 2004/18/EC , Article 1(9)(a) of Directive 2004/17/EC}

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assessed objectively in the line with the market conditions. Fourthly, a tender for a sale of assets, goods or services in qualified unconditional, when any possible purchaser is free to obtain the assets, goods and services to be sold and use them for his own aims.66_{It is against}

the unconditionality concept to include extra conditions, others that stated in the domestic law of the decision of the public bodies, for the benefit of those public institutions or the general interest. All those conditions mentioned, have as an aim establishing a satisfactory level of competition in order to set the market price. This tender method is commonly used when a State acts as a vendor, for instance, in the cases involving privatization.

3.3.2. Data established other than empirically

3.3.2.1. Benchmarking

Benchmarking is another method of assessment in order to establish whether public

transactions fulfil the terms according to the market conditions. This method can be used for comparable transactions executed by comparable private operators in comparable

circumstances. Recognizing a suitable benchmark is of a great importance to those

transactions, only in cases where suitable benchmarks are available. The factors playing a role in pointing out a right benchmark are, under many, the kind of operator concerned (holding venture, operative company, long-term investor etc), the type of transaction at stake (equity participation, debt transaction), the relevant markets (financial, dynamic technology etc.) and transaction’s timing.67

3.3.3. Other methods

Pari passu transactions, tender procedure and benchmarking are the most common methods of MEOP assessment. In case when the transaction does not fall under one of them, there are also other methods of assessment available.

Net Present Value (NPV) assessment investigates the difference between positive and negative cash flows over the lifetime of the investment, when Internal Rate of Return (IRR)

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discounts the rate when NPV is set as zero. There is also a counterfactual analysis, which examines whether public entity has prior economic exposure to an undertaking on the market (creditor, grantor etc.).68

Despite the chosen method of assessment of the market conditions, it is still of a great

importance when applying the MEOP/ MEIP test to fulfil all its criteria, both from the side of the State and the receiver. However, the case law practice shows it is not always as simple and clear as the theory states. There are often nuances and exceptions, as well as the question marks left for the Commission and the Courts to decide upon.

4. ECONOMIC ADVANTAGE VERSUS SELECTIVITY

The nature and the characteristics of the Market Economy Operator Principle and the “favouring” concept have been explained in the previous chapters separately. However, the aim of this paper is to link them together and illustrate their possible coexistence, as well as to prove the difficulty of the applicability of the MEOP/MEIP in the context of the favouring concept in particular cases, by the Commission and the Courts in practice.

4.1. Applicability difficulties and challenges of the MEOP/MEIP

Applicability issue focuses on the question whether the MEOP/MEIP can be applied to a given state intervention in a particular case. The answer is not always as straightforward as it may seem. Slocock recalls three points related to his analysis of the MEIP. First of all, the concept of the MEIP is a construction never mentioned directly in the Treaty. For the last 30 years it has been developed in the case law by the Courts. It is a test of what the Article 107(1) TFEU recalls as “favour”. Secondly, the MEIP does not per se focus on the behaviour of the State in question but relatively on the effect the aid contributes to the undertaking. However, this point seems rather questionable and requires further discussion as the approach of the Commission in some cases shows the lack of consistency in the application of the MEIP. Thirdly, there are situations where the application of the MEIP seems rather uneasy, namely where the receiver of the advantage finds himself in the “aid-environment”. It is particularly the case when an undertaking previously received any kind of aid and recalls for a

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new one. Yet, the application for a new aid will most probably not fulfil the criteria of the MEIP and, as a result, it can possibly fall in the State Aid prohibition provision.69_{On the}

contrary, the theory states the rules to follow but the applicability in practice often gives different picture of it.

4.1.1. EDF case

EDF case is a good example of the challenges related to the applicability of the MEIP test in the context of the “favouring” concept of Article 107(1) TFEU. It is also one of the first cases where the Court of Justice applied the MEIP test to the fiscal measures taken.70

French company Electricité de France (EDF), responsible for electricity generation and transmission throughout France, was a public undertaking wholly owned by the State. In order to follow the requirements stated in the Directive 96/92/EC on common rules for the internal market in electricity, EDF was privatised. In those circumstances, the French State and EDF signed a management contract regulating the financial affairs between both parties. Meanwhile, some aid from the government was allocated directly to the capital injections not occurring on the profit and losses account. EDF explained it as “pure accountancy operation”. However, this operation had also some fiscal consequences. The amount of aid was

surprisingly similar to the corporation tax EDF owned to the French State. In other words, the government resigned from the payment of the tax by EDF and converted it into an equivalent increase of the capital of EDF.

In 2001 the Commission demanded from the French State to provide the information

regarding the tax exemption given to the EDF in order to establish the lawfulness of the given aid. France pleaded that the measure applied by the State would not qualify as an aid as it was an investment made by the shareholder of the EDF, namely the French State. The

Commission was not very impressed by this conclusion, as, accordingly, the grantor rights

69_{B.Slocock, “The Market Economy Investor Principle”, Competition Policy Newsletter No 2, June 2002}

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should have been taxed equally (at the same rate and in the same time) as other free of tax provisions. The Commission concluded that the MEIP test was only applicable in the context of the gain of the economic advantage and not as an act of the exercise of regulatory powers as France did, by not acting as a private investor would. The conversion occurred could not have been the act of a private investor as private investors are not able, legally, to adapt tax liability. In the final analysis, the Commission excluded the examination under the MEIP and compared the position of the State with that of a private investor, and whether the last one could possibly have invested such a significant amount of money into EDF.71

EDF and the French State challenged the Commission’s decision in 2009 before the General Court by stating that the Commission committed an error of law. Accordingly, the

Commission did not focus on the effects of the aid but on its form. Based on that, the General Court annulled the Commission’s decision. Also the Court of Justice brought the attention to the fact that public authorities gather their money mainly from the taxes and as a result, use that money in the investments performed. By preventing public bodies from using their taxation money for those reasons, the States might be not only adversely discriminated, but also the Community Law provisions could be infringed, namely Article 107(1) TFEU.72

The Commission challenged the Courts decision and appealed before both Courts in 2012 stating that: “A public authority can not use an argument any economic benefits it could

derive as the owner of an enterprise in order to justify aid granted in a discretionary manner by virtue of the prerogatives it enjoys as the tax authority in relation to the same enterprise. While a Member State may act as a shareholder in addition to exercising its powers as a public authority, it must not combine its role as a State wielding public power with that of a shareholder. Allowing Member States to use their prerogatives as public authorities for the benefit of their investments in enterprises operating in markets that are open to competition would render the Community rules in State Aid completely ineffective. Furthermore, while in accordance with Article 345 TFEU the Treaty is neutral as regards the system of capital ownership, the facts remains that public enterprises must be subject to the same rules as private enterprises. Public and private enterprises would no longer be granted equal treatment if the State were to use the prerogatives of public power for the benefit of the enterprises in which it is a shareholder”.73

71_{Commission Decision 2005/145/EC 16 Dec 2003 on the State Aid granted bt France to EDF and the electricity}

and gas industries, para 96-97

72_{Case T-156/04 EDF v Commission [2009] ECR II 4503, para 96-99, 101} 73_{Case C-124/04 Commission v EDF [2012] ECR nyr, para 96-97}

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According to the Commission, a State has incomparable assets at its disposal, partly through taxation; with respect to other investors on the market and that is already a significant advantage. In contract, the Court argued:

“(...) the private investor test is not an exception which applies only if a Member State so requests, in situations characterized by all the constituent elements of State aid incompatible with the common market, as laid down in Article 87(1) EC; (…) that test is among the factors which the Commission is required to take into account for the purposes of establishing the existence of such aid.”74

Consequently, where it appears that the private investor test could be applicable, the Commission is under a duty to ask the concerned Member State to provide all relevant information enabling it to determine whether the conditions governing the applicability and the application of that test are met.75_{During the investigation by the Commission all the}

relevant facts should be taken into account, such as nature and subject matter of the measure, as well as its context, objectives and rules related to it.76_{However, in Ryanair case the Court}

stated: “when applying the private investor test, to envisage the commercial transaction as a whole in order to determine whether the public entity and the entity which is controlled by it, taken together, have acted as rational operators in a market economy; the Commission must, when assessing the measures at issue, examine all the relevant features of the measures and their context, including those relating to the situation of the authority or authorities

responsible for granting the measures at issue.”77_{All in all, the General Court when}

considering whether the MEIP was applicable, did not err in law by focusing its analysis, not on the fiscal nature of the aid given, but on the improvement – with a view to the opening up of the electricity market - in EDF’s financial situation and on the effects of the measure in question on competition. 78_{After all, “(…) in view of the objectives underlying}

Article 107(1) EC and the private investor test, an economic advantage must — even where it has been granted through fiscal means — be assessed inter alia in the light of the private investor test, if, on conclusion of the global assessment that may be required, it appears that, notwithstanding the fact that the means used were instruments of State power, the Member

74_{Idem, para 103} 75_{Idem, para 104}

76_{Case T-319/12 & C T-321/12 Spain v Commission [2014] EU:T:2014:604, para 45} 77_{Case T-196/04 Ryanair Ltd v Commission [2008] ECR II-3643, para 59}

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State concerned conferred that advantage in its capacity as shareholder of the undertaking belonging to it.”79

In 2016, the Commission re-launched the investigation on the case and examined in detail the French government’s evidence in its capacity as a shareholder.80

The long-lasting EDF case is a perfect example of the challenges related to the applicability of the MEIP. Is seems that the Commission as well as the Courts are confused on that matter. Possibly in the future, in the cases where the State invests its assets in order to support public company, the Commission will have to exercise a “global assessment” based on the evidence submitted by the Member State concerned, in order to decide whether the State exercised its public power or acted as a shareholder in order to exclude or not the applicability of the MEIP test.81_{There is a problem related to that matter, simply, that public and private interests are}

often mixed or crossing one another. A Member State, depending on the political climate, for instance, can claim to have clearly economic goal when unofficially it has different reaching points.82_{All in all, it will remain a challenge and a clear tension between the “favouring”}

concept and the MEIP/MEOP, especially if one venture, thanks to the financial injection, will be placed in a more “favourable” position in relation to the others in normal conditions of a market economy.

4.1.2. Joined cases Spain vs Commission (Hytasa)

Hytasa case is another example of the challenges of the applicability of the MEIP.

Between the years 1987-1989, the Spanish authorities agreed to contribute capital to three companies owned by the Spanish government. Two of them operated in the textile industry and one in the footwear sector. Due to the chronic unprofitability of those three undertakings, the Spanish State decided to privatize them as the costs related to the liquidation were higher than keeping the companies in operation from the public owner’s perspective. The

Commission, however, was arguing that capital injections in favour of the undertakings under privatization were an illegal act and an incompatible State Aid.

79_{Idem para 92}

80_{Commissions Decision 2016/154}

81_{A.Sanchez Graells, “Bringing the Market Economy Agent Principle to full power”, European Competition}

Law Review, June 2012

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The ECJ argued, in determining the presence of State Aid, it is necessary to consider whether in similar circumstances a private investor of a size comparable to that of the bodies

administering the public sector might have provided capital of such an amount. Having this in mind, the ECJ suggested that a distinction must be drawn between the dual obligations of the State, namely, as a shareholder and as a public authority.83_{Those three undertakings were}

limited companies. The ECJ continued that, where the company is constituted with limited liability, the State, in its capacity of the shareholder, is only liable for its debts up to the liquidation value of its assets. So for the purpose of applying the private investor test, the obligations arising from the cost of redundancies, payment of unemployment benefits and aid for restructuring of the industrial infrastructure should not be taken into consideration.84

Private investor test (PIT) can be used in order to determine whether a public company has been granted an advantage within the meaning of Article 107(1) TFEU, by comparing the behavior of the State with that of a private investor operating in normal market conditions.85

Aid does not necessarily need to be granted by the State itself. It may also be granted by private or public intermediate bodies appointed by the State. However, when the State acts as a shareholder, the distinction between the obligations related to the public and private body need to be made in order to verify the application of the MEIP in a particular situation. Again, the liability of a public shareholder is restricted to the value of the subscribed capital. Other costs, such as unemployment benefits, for instance, should not be taken into account when applying the MEIP.86

4.2. Tax arrangements

The role of State Aid control is to prevent the distortion of competition when national public authorities grant advantages to undertakings on a selective basis. Often, the aid is granted through fiscal measures or social security systems. The role of the Commission is to

investigate whether there has been an issue with “favouring” certain undertakings fiscally. In case there is a breach of State Aid rules, the receiver needs to pay back the aid to the grantor

83_{Joined Cases C-278/92 to 280/92 Spain v Commission (Hytasa) [1994] ECR I-4103, para 21-22} 84_{Idem para 22}

85_{Case C-39/94 SFEI v La Poste [1996] ECR 1-3547, para.60}

86_{A.Cyndecka “The Market Economy Investor Test in EU State Aid Law: Applicability and Application”, 2016,}

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Member State (often with an interest).87_{The Commission states, that: “every decision by the}

administration that departs from the general tax rules and benefits individual undertakings leads in principle to the presumption of State Aid and must be analysed in detail.”88

Tax exemptions can be of a different nature. They can represent an individual aid, such as ruling or transaction with tax authority, or tax schemes benefitting a certain category of enterprises.89_{However, not all fiscal grants or subsidies qualify as State Aid. All elements of}

Article 107(1) TFEU need to be fulfilled. If one of them is not met, there is no State Aid in question. There are two elements of State Aid under Article 107(1) TFEU especially relevant in the context of taxation. It is the economic advantage relating to the MEOP test and

selectivity element, including general and selective measures. The Market Operator test in the context of tax rulings determines whether the transfer pricing arrangements between grantor and the receiver within the same corporate group are on the same line with the arrangements that a prudent market operator under normal market conditions would have accepted.90

The question arises: do tax exemptions give beneficiaries a selective economic advantage? To what extent does the MEOP fit in the “favouring” concept of Article 107(1) TFEU? In order to answer those questions it is of a great importance to place them in the context of a case law of the ECJ.

4.2.1. Gibraltar tax case

This case is one of the first ones, where the Court of Justice recognised the selectivity element of a measure. Namely, “(...) the criteria forming the basis of assessment which are adopted by a tax system must also, in order to be capable of being recognized as conferring selective advantages, be such as to characterize the recipient undertakings, by virtue of the properties which are specific to them, as a privileged category, thus permitting such a regime to be described as favouring ‘certain’ undertakings or the production of ‘certain’ goods within the meaning of Article 87(1) EC.” 91

87_{“When tax attacs! Corporate tax arrangements under EU state aid scrutiny”, Advancing economics in business,}

Oxera Agenda, December 2014

89_idem 90_idem

91_{Joined Cases C-160/09 P and C-107/09 P Commission and Spain v Government of Gibraltar and United}

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The European Commission opened its investigation proceedings in relation to State Aid, after recognizing some discriminating tax measures in the fiscal system of Gibraltar. Those tax measures concerned “exempt companies” and “qualifying companies”. As a result offshore companies benefitted from them. Later on, Gibraltar replaced all corporate tax measures with the new entire tax system. The Commission underlined that the whole fiscal system as well as new tax system of Gibraltar was very selective, as if it has been explicitly designed to

“favour” certain undertakings or the production of certain goods.

The Court stated that the reference system, defined by the State, all based on the general criteria, in practice discriminated undertakings in the same situation with regard to the objective of the tax reform. It resulted in the economic advantage given to the offshore ventures.92_{As for the conclusion, the Court said:” the fact that offshore companies are not}

taxed is not a random consequence of the regime at issue, but the inevitable consequence of the fact that the bases of assessment are specifically designed so that offshore companies, which by their nature have no employees and do not occupy business premises, have no tax base under the bases of assessment adopted in the proposed tax reform.”93

4.2.2. Starbucks

Starbucks Manufacturing EMEA BV distributes and sells coffee and coffee-related products to the cafés and shops in Europe, Africa and Middle-East. Its headquarters are based in the Netherlands.

In 2008 the Dutch government issued Starbucks Manufacturing a very “attractive” tax

advantage. Consequently, the tax burden of Starbucks Manufacturing was reduced since 2008 by a total of between 20 to 30 million euro. It was achieved in two ways. Firstly, Starbucks Manufacturing paid a very substantial royalty to another Starbucks company in the UK for using coffee-roasting know-how. Secondly, Starbucks Manufacturing also paid a highly inflated price for green coffee beans to Starbucks Coffee Trading SARL, based in Switzerland.

As a result of both, Starbucks Manufacturing’s taxable profits in the Netherlands were substantially reduced. The royalty shifts the large majority of its profits – which cover coffee

92_{Idem, para 101 et} 93_{Idem, para 106}

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but in reality are largely generated from tea, pastries and cups etc. – to the group company in the UK. This company is not liable to pay corporate tax in the UK, nor in the Netherlands. State Aid investigations by the Commission have its point of focus on the prices charged for transactions between subsidiaries of the same corporate group (Transfer Pricing

Arrangements), and the calculation of the taxable bases of the subsidiaries. Transfer pricing may have an significant influence on the distribution of profit between subsidiaries of a corporate group located in different countries.94_{In the case of Starbucks there were tax rulings}

issued that validated Advance Pricing Agreements (APA’s). APA’S regulates the pricing applicable to all subsidiaries of the same corporate group when calculating taxes. 95_{If the tax}

base is calculated in a “favourable” way, this may fall under a selective advantage. The Commission stated: “tax rulings should not have the effect of granting the undertakings concerned lower taxation than other undertakings in a similar legal and factual situation. Tax authorities, by accepting that multi national companies depart from market conditions in setting the commercial conditions of intra-group transactions through a discretionary practice of rulings, may renounce taxable revenues in their jurisdiction and thereby forego State resources, in particular when accepting commercial conditions which depart from conditions prevailing between prudent independent operators”. To apply the MEOP test in the context of the tax arrangements context agreed with the Member State, it is important to compare those tax rulings with the “prudent behavior of a hypothetical market operator”. The Commission agreed that tax rulings should not lead to paying taxes lower than other undertakings in a similar and legal situation.

The Court of Justice has confirmed that “if the method of taxation for intra-group transfers does not comply with the arm’s length principle, and leads to a taxable base inferior to the one which would result from a correct implementation of that principle, it provides a selective advantage to the company concerned.”96_{However, even applying MEOP test, there can be}

some issues, for instance, “a market operator would not accept that its revenues are based on a method which achieves the lowest possible outcome if the facts and circumstances of the case could justify the use of other, more appropriate methods.”97

94_Oxera

95_{European Commission (2014), Stae Aid SA.38374 (2014/C)(ex 2014/C)(ex 2014/CP) – Netherlands, Alleged}

aid to Starbucks, Official Journal of the European Union , 11 June 2014

96_{Idem, para 76} 97_{Idem, para 77}

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If, instead of issuing a ruling, the tax administration simply accepted a method of taxation based on prices which depart from conditions prevailing between prudent independent operators, there would also be State aid. The main problem is not the ruling as such, but the acceptance of a method of taxation which does not reflect market principles.98

In its press release the Commission stated that the Netherlands must recover the unpaid tax from Starbucks. This will remove the unfair competitive advantage they have enjoyed and restore equal treatment with other companies in similar situations. The amounts to be paid are between €20 and €30 million.99

Still, State Aid granted in the form of tax arrangements or rulings remains a very sensitive area of the competition law, where the Commission likes to keep a close eye on it. There are plenty of legal instruments available to help Member States asses whether the given aid falls within the “favourable” economic advantage of Article 107(1) TFEU, especially in the area of taxation. There seems to be less tension between MEIP/MEOP and “favourable” concept when it comes to fiscal issues. MEOP is not as relevant in tax cases as it may seem. Simply because no tax benefits received from the State can be compared to any investment made by private investor, simply because tax benefits can only be issued by States. Still, both, the Member State and the Commission are responsible for the proper assessment of the issue so that the rules on State Aid remain fully respected.

5. CONCLUSION

For the Commission, State Aid control has always been a very important policy instrument. Not only as a part of competition law but also in order to assure equal “level playing field” to all players on the market. However, the commotions around public finances being exposed to the private parties often bring the public eye attention, not always of the receivers only. The clearance of the financial arrangements, the transparency of the organs involved, as well as the crucial role of the Commission in the whole process makes it a full picture.

However, Member States do not always follow the rules stated in the Article 107(1) TFEU. When it comes to the economical advantage given to ventures or “favouring” certain undertakings based on specific criteria, the “global assessment” seems to be needed. The

98_{Idem, para 76}

Market Economy Operator Principle (MEOP) versus the “favouring” concept from Article 107(1) TFEU with regard to investments, risk capital, guarantees and loans.