THE ALLOCATION OF BURDEN OF PROOF IN MEOP
CASES
Who has to prove what?
Greta Ciccolini Student number: 11272511 Email: greta.ciccolini@icloud.com European Competition Law and Regulation
Master’s Thesis Supervisor: Cees Dekker
ABSTRACT
Since it was established by the Commission in the 1980s, the Market Economy Operator Principle (MEOP) has been a fundamental instrument to determine whether actions by public bodies confer on the recipient undertaking an economic advantage, one of the five cumulative conditions that indicates the presence of State aid under Article 107(1) TFEU. The rationale behind this test is that a State intervention or measure does not amount to incompatible aid if the State behaves as a rational, profit-oriented private market operator would have in similar circumstances under normal market conditions.
Despite the fact that the Court endorsed the use of the test more than three decades ago, the distinction between applicability and application of the MEOP, which was brought to light only in 2008, has made the allocation of burden of proof more complicated and has caused undesired legal uncertainty. The present thesis sheds light on the approach of the EU Courts and of the Commission when it comes to apportioning the burden of proof in order to determine which party it ultimately rests upon, whether it is on the Commission, that needs to prove the presence of economic
advantage under Article 107(1) TFEU, or on the Member State that has to demonstrate its compliance with the test to derogate from that Article.
In order to answer this question, a black letter analysis of recent case law is carried out. From this, I deduced that as concerns the applicability of the test the burden of proof falls in general upon the Commission, including in cases where it is the recipient of aid to invoke it, while it shifts onto the Member States if they call for an assessment under the MEOP during the administrative procedure, where there is doubt as to whether it is actually applicable. Even when this is the case, the
Commission has the duty to actively assist the Member State to discharge its burden of proof. As concerns the application of the test, it is clear from case law that it is for the Commission to carry out an overall assessment to establish the economic soundness of the measure, but the Member State in question has to provide evidence showing that its decision was based on economic evaluations conducted ex ante.
TABLE OF CONTENTS
Introduction
1. Article 107(1) TFEU
1.1 Elements of the definition of State Aid 1.1.1 The notion of undertaking
1.1.2 State origin or resources criterion 1.1.3 Advantage criterion
1.1.4 Selectivity criterion
1.1.5 Distortion of competition criterion 1.1.6 Effect on trade criterion
2. The Market Economy Operator Principle (MEOP) 2.1 Origins
2.2 Meaning and purport 2.3 Applicability of the MEOP 2.4 Application of the MEOP
2.4.1 General principles 2.4.2 Assessment methods
2.4.2.1 Compliance when specific market data is available 2.4.2.1.1 Pari passu transactions
2.4.2.1.2 Tender procedure
2.4.2.2 Compliance when specific market data is not available 2.4.2.2.1 Benchmarking
2.4.2.2.2 Other assessment methods
3. The burden of proof in MEOP cases
3.1 The burden of proof as concerns applicability of the MEOP 3.1.1 EDF
3.1.2 Frucona Košice
3.2 The burden of proof as concerns the application of the MEOP 3.2.1 The ex ante assessment requirement
3.2.2 The standard of proof and the consequences of not meeting it 3.2.3 Reversed burden of proof?
3.2.4 The ‘Frucona test’ applied to fiscal State aid in the football sector 3.2.5 Larko
Conclusion
INTRODUCTION
State Aid control is one of the main pillars of EU competition law. Its aim is to ensure that
governments' interventions do not distort competition and trade between Member States. The basic legal framework governing State aid control is set out in Articles 107-109 of the Treaty on the functioning of the European Union (TFEU). Article 107 TFEU lays down the substantive rules setting out a general definition of aid that is prima facie incompatible with the internal market, namely aid in any form where it involves State resources, confers a selective advantage on the recipient and in so far as it affects competition and trade between Member States. Article 108 TFEU provides for the procedure for enforcement of State aid rules by the Commission and the European Courts, while Article 109 TFEU enables the adoption of block exemptions in the field.
In 1984, the Commission officially articulated the Market Economy Investor Principle (MEIP), which subsequently evolved in Market Economy Operator Principle (MEOP), a test which revealed itself to be a fundamental tool in assessing whether a State measure confers an economic advantage to an undertaking, one of the five cumulative conditions of Article 107(1) TFEU. The principle is based on the assumption that if the State behaves as a rational, profit-oriented private market operator would have done in similar circumstances under normal market conditions, then its measure or intervention does not grant an advantage and, thus, does not constitute aid within the meaning of Article 107(1) TFEU.
Despite the amount of case law judged upon by the EU Courts since the emergence of the MEOP, some aspects concerning its applicability and application, two stages of its assessment, remain highly controversial. One of these concerns the allocation of the burden of proof in cases in which the test is employed. The aim of this thesis is to shed light on the EU Courts' and Commission’s approach when it comes to apportioning the burden of proof and to draw conclusions on the basis of this analysis on whether the MEOP should be considered as a tool applied by the Commission in order to prove the requirement of economic advantage under Article 107(1) TFEU or whether compliance with it should be proven by the Member State in order to derogate from that Article.
In order to answer this question, I will, first of all, introduce and analyze the cumulative conditions to qualify for State aid incompatible with the internal market listed under Article 107(1) TFEU. In the second part, I will illustrate the relevance and development of the Market Economy Operator
Principle, paying particular attention to the distinction between applicability of the test and its application. In the third section, I will employ a black-letter methodology in order to outline how the EU Courts and the Commission have dealt with the issue of the allocation of the burden of proof in cases which involved the MEOP. The consequences that such practice has on the concept of advantage will also be discussed.
CHAPTER 1 Article 107(1) TFEU
The concept of State aid is defined under EU law in Article 107(1) TFEU. This provides:
“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.”
State aid is, therefore, considered incompatible with the internal market, unless the Treaties provide otherwise. The main compatibility provisions are constituted by Article 107(2) and (3) TFEU and Article 106(2) TFEU. Aid must be authorized if it fulfills the conditions of Article 107(2) TFEU which addresses certain extreme measures, while the Commission retains its discretion when it comes to measures under 107(3) TFEU. Article 106(2) TFEU, on the other hand, allows aid to be approved where it is necessary for the performance of a service of general economic interest (SGEI).
1.1 Elements of the definition of State Aid
Article 107(1) TFEU lists five criteria which represent a series of cumulative conditions that the Member State’s measure needs to meet in order to be qualified as State aid. These are the following: 1. granted by the State or through State resources
2. providing economic advantage 3. to certain undertakings (selectivity) 4. distortion of competition
5. effect on trade between Member States
These elements are, therefore, the ones to be analyzed after checking whether the beneficiary of aid is an undertaking to prove the existence of State aid. They are not defined in specific legislation, but the Commission’s ‘Notice on the notion of State aid’ and the case law cover them extensively. I 1
will provide an overview of what they entail in the next sections.
Commission Notice on the notion of State aid as referred to in Article 107(1) TFEU [2016] OJ C262/1
1.1.1 The notion of undertaking
State aid rules apply exclusively where the beneficiary of such aid is an ‘undertaking’, which constitutes, hence, a precondition for its application. This has been consistently defined by the Court of Justice as any entity engaged in economic activity, regardless of its legal status and the way in which it is financed. The Court further clarified that by economic activity is meant any 2
activity consisting in offering of goods or services on a given market, where that activity could be 3
at least in principle carried out by a private entity in order to make profit. Whether the entity is an undertaking, depends, thus, on what function is carrying out in that specific case and not on other criteria. As pointed out in the Commission’s Notice, this principle has three consequences, the main of which being that the functional approach makes possible for an entity to be considered as an undertaking when performing some activities (economic), and not when carrying out others (non-economic).
Two categories of activities constitute non-economic activities pursuant to the case law of the Court: the exercise of public authority and activities performed on the basis of solidarity. As concerns the first, where the State acts by exercising public power or where public entities act in 4
their capacity as public authorities , they do not fall within the scope of Article 107(1) of the 5
Treaty. The activities of the State or public entities are considered as exercising public power where these are essential sovereign powers of the State, tasks performed in the public interest,
administrative functions or where they are connected with those functions by their nature, aim or rules to which are subject . However, as recognized in Commission v Italy, the State “may act 6
either by exercising public powers or by carrying on economic activities of an industrial or commercial nature by offering goods and services on the market”. In the latter case, the State is 7
acting as an undertaking and can, therefore, fall under the definition of Article 107(1) TFEU.
Case C-41/90 Klaus Höfner and Fritz Elser v Macratron GmbH [1991] ECR I-1979, para 21
2
Joined Cases C-180/98 to C-184/98 Pavlov and Others [2000] ECR I-06451, para 75
3
Case C-118/85 Commission v Italy [1987] EU:C:1987:283, paras 7 and 8
4
Case C-30/87 Bodson [1988] EU:C:1988:225, para 18
5
Case C-343/95 Calì & Figli [1997] EU:C:1997:160, paras 22 and 23
6
Commission v Italy (n°4), para 7
As mentioned above, the other non-economic activities relate to activities based on solidarity. In this case a distinction must be made between entities that fulfill an exclusively social function which usually involve cross-subsidy and are subject to the State supervision when it comes to how the scheme functions, not representing undertakings, and entities which operate in the same way as ordinary commercial enterprises in the same sector, constituting undertakings. The former can be distinguished from the latter for being non-profit and for having a social aim, compulsory affiliation and benefits independent of the contributions made.
1.1.2 State origin or resources criterion
Article 107(1) TFEU recites that the aid must be ‘granted by a Member State or through State resources’. Despite the fact that the ‘or’ seems to indicate that only one of the two options needs to be satisfied, according to case law State resources not always amount to aid. In Stardust Marine the Court established that advantages fall within the category of State aid only when, first, they are granted directly or indirectly through State resources, and, second, they are imputable to the State. 8
The Notice confirms the cumulative nature of these two conditions when in the introduction defines this element of Article 107(1) TFEU as ‘the imputability of the measure to the State and its
financing through State resources’ and also in Chapter three where the conditions are explicitly 9
mentioned as separate and cumulative. 10
As concerns the imputability of a measure to the State, if it is granted directly by the State or a public authority then its existence cannot be doubted, even when the public authority enjoys some degree of autonomy and the measure is not explicitly approved by the State. When the 11
aid is granted through intermediate bodies or public undertakings, nevertheless, it is more difficult to determine imputability. The Court, thus, ruled that this can be inferred from indicators arising from the circumstances of the case and its context. 12
Case C-482/99 France v Commission [2002] ECR I-4397, para 24
8
Notice (n°1), point 5
9
Ibid, point 38
10
Case T-358/94 Air France v Commission [1996] ECR II-2109, para 62
11
Case C-482/99 France v Commission (Stardust Marine) [2002] ECR I-4397, para 55
As regards the criterion of state resources, all resources from the public sector are considered as such and in many cases resources from State-owned enterprises fall under the same definition since the State is able to control them. The origin of the resources is not relevant, provided that before being transferred they have been under public control of the national authorities, even though not their property. Furthermore, the form of State resources can vary between direct grants, subsidies, 13
loans, guarantees, direct investment in the capital of companies and other benefits in kind, but the positive transfer of funds is actually not necessary as long as foregoing State revenue is present. This means that also waiving revenue which was destined to the State constitutes transfer of State resources and so does whatever means that causes the creation of a concrete risk of imposing an 14
additional burden on the State in the future, by a guarantee or a contractual offer. 15
1.1.3 Advantage criterion
The second condition for aid to qualify as State aid under Article 107(1) TFEU is for it to confer an advantage. This is defined as any economic benefit which an undertaking could have not obtained under normal market conditions, that is to say in the absence of State intervention. These are 16
measures that, in particular, lighten the burdens normally assumed in the budget of an
undertaking. As laid down in the Notice, this is an effect-based doctrine since the aim of the State 17
intervention or its cause are not relevant for the assessment, and so is also the form of the 18
measure. As mentioned previously, the form that aid can take is, indeed, not limited to positive 19
economic advantages but expands to incorporate also relief from economic burdens.
Another factor considered irrelevant is whether the competitors of the aid beneficiary in other Member States operate in more favorable conditions, have access to cheaper resources or if they
Air France v Commission (n° 11), paras 65, 66 and 67; and Notice (n°1), point 57
13
Case C-83/98 P France v Ladbroke Racing Ltd and Commission [2000] EU:C:2000:248, paras 48-51
14
Case C-200/97 Ecotrade [1998] EU:C:1998:579, para 41
15
Case C-39/94 SFEI v LaPoste [1996] EU:C1996:285, para 60
16
Case C-157/01 Danske Busvognmænd v Commission [2004] ECR II-917, para 57
17
Case C-173/13 Italy v Commission [1974] EU:C:1974:71, para 13
18
Case C-280/00 Altmark Trans [2003] ECR I-7747, para 84
have received State aid, because the advantage is calculated on the basis of the comparison 20
between the costs or revenue of the recipient before and after the State intervention, rather than of the differences of costs between the beneficiary and other undertakings. This process is called ‘internal benchmarking’, which is replaced by ‘external benchmarking’ when, instead of granting a subsidy, the State purchases a good or a service from an undertaking. In that case, the price paid by the public authority is compared to the prevailing market price of that good or service in order to determine whether aid is granted to the seller. The price is, however, not the only variable to take into account when scrutinizing the market conditions.
The test to assess whether the State is granting an economic advantage on the recipient of aid, known as Market Economy Operator Principle, is the focus of the next chapter.
1.1.4 Selectivity criterion
It is clear from the definition of State aid that only measures which grant a selective advantage to certain undertakings or economic sectors fall under the notion of aid. This means that, on the contrary, measures of general application, namely measures subject to objective criteria pursuant to which they may be granted to a potentially indefinite number of operators who are not exhaustively identified, do not constitute State aid. Nevertheless, according to the Notice, even a measure that 21
has these characteristics could be selective in nature, unless all economic sectors benefit from it. Selectivity can be either geographical/regional, where undertakings in a specific part of a Member State receive preferential treatment over operators in the rest of the territory, or material, which covers forms of unequal treatment of undertakings by way of intervention of public authorities. 22
Despite the fact that from the definition regional selectivity seems to take place whenever the measures do not apply to the whole territory of the Member State, the reference system does not have to be necessarily the entire State. Measures with a local scope of application can, in fact, be
Italy v Commission (n°18), para 17
20
Martino Ebner and Edoardo Gambaro, ‘The Notion of State Aid’ in Alberto Santa Maria (ed), Competition
21
and State Aid. An Analysis of the EC Practice (Kluwer Law International 2008), 27
Andreas Bartosch, ‘Is there a need for a rule of reason in European State Aid law?: Or how to arrive at a
22
considered not selective if they fulfill certain requirements. Material selectivity, on the other hand, 23
is assessed on the basis of whether the measure at hand provides for unequal treatment of two groups that should prima facie be treated equally. Its selectivity can be, however, justified by the nature or general scheme of the system. 24
1.1.5 Distortion of competition criterion
The fourth element concentrates on the distortion of competition or a threat to it. A distortion of competition within the meaning of Article 107(1) TFEU is usually found to take place when the State grants a financial advantage to an undertaking that carries out its activities in a liberalized sector where there is, or at least there could be, competition. It is clear that selective aid generally 25
strengthens the position of the recipient of aid and, thus, it is liable to potentially distort competition. This condition is easily fulfilled, especially in view of the fact that, since it is not required a significant distortion, even a low amount of aid or low market shares of the recipient on the market does not rule it out.
1.1.6 Effect on trade criterion
The fifth condition is represented by the effect that the aid in question may have on trade between Member States. The wording of Article 107(1) TFEU seems to imply, contrarily to Article 101(1) and 102 TFEU, that the effect on trade cannot be potential. However, case law shows that actual effect on interstate trade does not need to be verified, it is enough to prove that the aid may affect trade and distort competition. 26
Furthermore, according to the Court for aid to have effect on trade between Member States, it is not necessary that the beneficiary is involved itself in intra-Community trade, since even local or regional services can result in an increase or maintenance of internal activity that decrease the
Case C-88/03 Portugal v Commission [2006] ECLI:EU:C:2006:511, para 57
23
Bartosch (n°22), 731
24
Joined Cases T-298/97, T-312/97 etc. Alzetta [2000] EU:T:2000:151, paras 141-147
25
Case C-518/13 Eventech [2015] EU:C:2015:9, para 65
opportunities for undertakings established in other States to penetrate the national market. This 27
finding is confirmed both in the Heiser and the Eventech case where the standard used to determine the existence of aid concerns the question of whether it can be excluded or not the possibility that enterprises from other Member States compete with the beneficiary and that their opportunities are reduced. 28
As concerns the question of whether the effect on trade must be appreciable, the Altmark case specifies that “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”. Despite the lack of a threshold regarding the effect on 29
trade, the ‘De Minimis Regulation’ provides a safe harbor for measures corresponding to aid 30
lower than € 200.000 granted over a period of three years.
AltmarkTrans (n°19), para 78
27
Eventech (n°26), para 70 and Case C-172/03 Heiser [2005] ECRI-1627, para 35
28
AltmarkTrans (n°19), para 81
29
Commission Regulation (EU) N°1407/2013 on the application of Articles 107 and 108 of the Treaty on the
30
CHAPTER 2
The Market Economy Operator Principle (MEOP)
As stated in the previous chapter, the Market Economy Operator Principle is a well-established test set up by the Commission to determine whether the State is providing the recipient undertaking with an economic advantage, one of the elements of Article 107(1) TFEU, which it would not have obtained from a private economic operator under normal market conditions. This chapter focuses on its origins, characteristics and evolution in case law, to then, in turn, deal with how the burden of proof is allocated in cases involving it in the next chapter.
2.1 Origins
The principle has no legal basis in the Treaties, but it is rather a construct developed by the
Commission making use of the discretion granted to it by Article 108 TFEU. The objective of the 31
Commission was to clarify when government investment in undertakings constituted State aid, it was born, therefore, as a Market Economy Investor Principle (MEIP). Its origins date back to 1963, when the Commission for the first time envisaged the idea of the state acting as a private market operator in answer to a Written Question posed by Mr Burgbacher about the application of 32
competition law to public undertakings. A preliminary version of it was introduced for the first time in the Commission Decision establishing Community rules for aids to the steel industry of 1981 in 33
order to highlight that the restructuring of the industry could not infringe the non-discrimination principle between public and private bodies.
The principle was, however, formally articulated only in the Equity Holdings Communication of 1984 where it was held that capital injections amount to aid if they are investments that would not 34
be acceptable to a private investor under normal market considerations of risk and profit. On the
Thomas Doleys, ‘Fifty Years of Molding Article 87: The European Commission and the Development of
31
EU State Aid Policy (1958-2008)’ (Kennesaw State University 2009)
Reply to Parliamentary Question No. 48 of Mr Burgbacher [1963] OJ C125
32
Commission Decision 81/2330/ECSC [1981] OJ L 228/14
33
Commission Communication on the Application of Articles 92 and 93 [now 87 and 88] of the EEC Treaty
34
same wave, the Court endorsed the principle in 1986 in the Meura and Boch II cases, holding 35 36 that it was appropriate to establish the existence of State aid on the basis of the criterion mentioned in the Commission Decision, namely analyzing whether and to what extent the undertaking could have obtained the sum of the public capital injection on the private capital markets.
The new test for the concept of advantage was used also in other Commission Decisions of the early 1980s and was supported by the other European institutions. The Council made use of it in the Shipbuilding Code of 1981 and the European Parliament in its opinion about the latter did not present any objections to the Council’s approach. The European institutions saw it as an instrument to achieve the goal of liberalizing the economy and reducing the amount of public debt in the newly established neoliberal context of the 1980s. The MEIP allowed, in fact, to tackle the problem of inefficient public undertakings surviving only because of public support and to discipline the behavior of public enterprises by making them adhere to market rules and face competition from private actors on equal terms.
In the years, many other variations and subtypes of the test have been developed in order to assess the presence of advantage when the State acts not only in the capacity of investor, but also in a lender’s capacity, as a creditor or in the guise of a vendor, guarantor, reinsurer, borrower, purchaser or supplier. That is why in the next sections, the all encompassing term of Market Economy
Operator Principle (MEOP) will be used instead of Market Economy Investor Principle.
2.2 Meaning and purport
The MEOPcompares the decision of a public authority to invest, extend a loan or provide a guarantee, with the decision that a private operator would make under similar circumstances in terms of money, risk, duration of investment and other factors. The intention is to address the fact 37
that Member States can act both as public authorities and as entrepreneurs. This double role emerges from Article 345 TFEU which enshrines the principle of neutrality of the Treaties when it comes to rules of the Member States governing property ownership. States have the right to run a
Case C-234/84 Belgium v Commission (Meura) [1986] EU:C:1986:302
35
Case C-40/85 Belgium v Commission (Boch II) [1986] EU:C:1986:305
36
SFEI (n°16), para 60
mixed economy and, thus, they are not precluded from acting to achieve either the nationalization of undertakings nor their privatization.
According to the Court, public and private sectors should be treated equally, and from that equality derives the fact that also public undertakings are subject to competition law, including State aid rules, and that State intervention pursuing the profit-making logic of a private investor cannot be considered as granting State aid pursuant to Article 107(1) TFEU. The State can, therefore, still pursue public policy objectives by granting aid and compete with private actors on equal terms and conditions, without distorting competition by using its prerogatives, but only as long as the two different capacities of the State are distinguished from one other. This is exactly what the Market 38
Economy Operator Principle is employed for, to determine the presence of advantage on the basis of whether the Member State has acted in its capacity of entrepreneur and, if so, of whether its intervention is commercially sound.
2.3 Applicability of the MEOP
In light of the aforementioned distinction, the MEOP is applicable when the State acts as an undertaking intervening as a private operator and it is not when the State acts as a public authority. In Hytasa , the CJEU explicated that, in order to distinguish the two capacities of the state, it is 39 necessary to differentiate between the obligations it assumed as owner of the share capital of a company and the ones as public authority. In Ryanair the Court of First Instance actually 40 41 replaced the criterion of ‘obligations assumed as a shareholder in a company’ with the one of ‘exercising an economic activity’. This really encompasses the core of the applicability of the 42
MEOP which concerns the question of assessing whether the State intervention is of economic or public policy nature, regardless of the source of the funds. The fact that these may be granted through taxation or compulsory loans is indeed not relevant for the assessment. 43
Małgorzata Cyndecka, 'The Applicability and Application of the Market Economy Investor
38
Principle’ [2017] 16(4) EStAL, 514
Joined cases C-278/92 to C-280/92 Spain v Commission (Hytasa) [1994] ECLI-325
39
Ibid, para 22
40
Case T-196/04 Ryanair v Commission [2008] ECLI-585
41
Ibid, para 84
42
Case T-156/04 EDF v Commission [2009] EU:T:2009:505, para 248
In EDF the General Court shed light on the elements that are actually relevant for the 44
establishment of the test applicability, namely the nature, subject-matter and the rules to which the measures are subject, while also taking into account the objective pursued. If the State 45
intervention consist of legislation, it does not necessarily mean that the State is exercising its public authority, since its aims could still be entrepreneurial. As long as an economic objective which a private operator would consider (i.e. maximization of profits or minimization of losses, costs or risks faced) is pursued, the MEOP is applicable. This is not applicable, on the other hand, when the State is fulfilling obligations strictly falling under public authority powers.
It is important to be able to make a distinction between the applicability and the application of the test. The former, as we have seen, was explored by the Court only after two decades from the establishment of the test in the cases Ryanair of 2008 and EDF of 2009. Before then, its application was the decisive process to determine compliance.
Applicability and application constitute two different stages of using the test. The Advocate General in ING explained these two steps in the following way: “In my view, there are two questions to be answered when considering the private investor test: (i) was the State’s action such that it can meaningfully be compared with an act of a private investor; (ii) if so, was that action determined by considerations which are relevant only or at least primarily to the State in its capacity as public authority, or might the same action have been taken ‘in comparable market conditions by a private investor in a situation as close as possible to that of the State’? Stage (i) concerns the applicability of the test, stage (ii) concerns its application.” 46
Thus, the question of applicability of the MEOP is about the economic or commercial nature of the State measure concerned, whereas the question of application relates to the economic soundness of that intervention. The former concerns the question of whether a rational, profit-printed private 47
market operator could have made the same intervention, while the latter of whether that market
Case C-124/10 P Commission v EDF [2012] EU:C:2012:318
44
EDF (n°43), para 229
45
Case C-224/12 P Commission v the Netherlands and ING Group [2013] EU:C:2013:870, Opinion of the
46
AG Sharpston, para 35
Małgorzata Cyndecka, ‘’Reversed’, ‘Excessive’ or Misconstrued? The Controversy About the Burden of
47
operator not only could, but also would have made that intervention. If the MEIP is not applicable, 48
it is pointless to further assess its application. But, at the same time, the fact that the test is 49
applicable does not guarantee compliance with it, this can be confirmed only after the application of the test.
2.4 Application of the MEOP
Once established the applicability of the MEOP, the commercial soundness of the State intervention at hand must be verified through the application of the test. The ultimate aim of this part of the assessment is to evaluate whether the State has granted an economic advantage to an undertaking not acting in the same way as a market economy operator would have in relation to the transaction in question, especially as concerns its economic evaluations. In order to answer this question a comparison between the behavior of the public bodies and the one of private economic operators under normal market conditions must be carried out. If it results that the hypothetical, rational and prudent private operator would have not behaved as the public body in a similar situation, then the economic transaction is considered to provide an advantage to the beneficiary undertaking which it would not have obtained under normal market conditions, placing it in a more favorable position 50
compared to that of its competitors. 51
2.4.1 General principles
In order to realize this comparison, the elements that need to be taken into account, consequently, are only the ones relevant to establish whether the economic transaction is in conformity with the market conditions. First of all, an expectation for return must be present. A private investor always aims at maximizing its profit, so if the State disregards any prospect of profitability altogether, its intervention must be considered State aid. As clarified by the Court, it is not necessary for the State to be acting as a private investor pursuing economic policy aims with a view to realizing profit in
Ibid
48
Ryanair (n°41), para 91
49
Joined Cases T-228/99 and T-233/99 Westdeutsche Landesbank Girozentrale and Land
Nordrhein-50
Westfalen v Commission [2003] EU:T:2003:57, para 208
EDF (n°44), para 90; Case C-387/92 Banco Exterior de España EU:C:1994:100, para 14
the short term, but at least following a general or sectoral structural policy and guided by prospects of long-term profitability. 52
Secondly, it must be looked at the effects that the transaction has on the undertaking concerned. Other factors, such as the profitability and unprofitability of the undertaking recipient of aid, the means or form of aid, or the State’s rationale behind the transaction, are irrelevant. Only the interests and obligations of the State as an economic operator, and not the ones connected to the exercise of its public authority, must be considered. Whereas a State intervention driven by public 53
policy reasons can constitute a rational behavior from a public policy perspective, it is definitely not from the point of view of a market economy operator, which would not generally pay attention to these objectives. Accordingly, despite the fact that pursuing non-economic objectives does not exclude meeting the test, considerations of a social, regional or sectoral policy nature should be left aside.
Last but not least, the conformity with market conditions shall be checked on the basis of an ex-ante assessment, focusing on the information in the hands of the State when it decided to intervene, without being allowed to rely on ex-post economic evaluations to show in retrospective that the investment was actually profitable. The rationale behind this requirement is straightforward, 54
indeed, no prudent market economy operator would invest before having conducted a thorough analysis of the strategy and financial prospects of a project. The Member State must be able to provide this information whenever the market conformity of its intervention is doubted upon.
2.4.2 Assessment methods
When applying the Market Economy Operator Principle, the compliance with market conditions is checked against different situations on the basis of the amount of market data available. We can distinguish in particular between situations in which the compliance can be directly determined through transaction-specific market data and, if this lacks, indirectly through other methods. 55
Joined Cases T-129/95, T-2/96 and T-97/96, Neue Maxhütte Stahlwerke GmbH v Commission [1999] ECR
52
II-17, para 109
EDF (n°44), paras 79-81; Meura (n°35), para 14; Boch II (n°36), para 13
53
EDF (n°44) paras 83-85 and 105; Stardust Marine (n°12), paras 71-72
54
Notice (n°1), point 83
All those methods aim to investigate the financial soundness of the State intervention and, thus, its compliance with the MEOP and, in turn, with Article 107(1) TFEU.
2.4.2.1 Compliance when specific market data is available
The transaction’s compliance with market conditions can be empirically established by means of specific market data in two cases:
1. a pari passu transaction finalized at the same time by public and private entities
2. the sale and purchase of assets, goods and services realized through an open, transparent, non-discriminatory, and unconditional tender procedure 56
2.4.2.1.1 Pari passu transactions
By pari passu transaction is meant a transaction carried out under the same terms and conditions, being subject to the same degree of risk and rewards, by both public bodies and private operators who are in a comparable situation. These transactions are normally considered in line with market conditions , as long as public bodies and private operators act simultaneously, their starting 57
position in relation to the transaction is comparable and the intervention of private investors has a real economic significance rather than being merely marginal.58
2.4.2.1.2 Tender procedure
As concerns the sale and purchase of assets, goods and services or other comparable transactions, when these are conducted pursuant to tender procedure which is competitive, transparent, non-discriminatory and unconditional, the transactions are considered in line with market conditions. The tender needs to be competitive in order to allow all the interested bidders to participate and transparent so that everybody receives the same comprehensive information about every stage of the procedure. Furthermore, a tender has to be well-publicized to reach also international tenderers. All participants must be treated in a non-discriminatory manner and subject to a selection and award
Ibid, point 84
56
Case T-296/97 Alitalia v Commission [2000] EU:T:2000:289, para 81
57
Commission Decision 2008/729/EC of 11 December 2007 on State aid C-53/2006 Citynet Amsterdam, the
58
criteria objectively established before-hand. The criteria of unconditionality, lastly, is guaranteed by a tender where any potential buyer can acquire assets, goods or services regardless of what kind of business he runs.
If all these conditions are met the sale or purchase by public bodies does not constitute aid since the tender procedure is assumed to result in a market price determined on the basis of competition and in the best value for money.
2.4.2.2 Compliance when specific market data is not available
When a transaction was not concluded through a tender nor pari passu between public and private operators, it may still comply with market conditions. In these cases, the State acting in its 59
entrepreneurial capacity will be compared with a benchmark of a profit-printed market operator finding itself in a situation as similar as possible to the the one of the State. If a suitable benchmark cannot be found, other methods of assessment are available.
2.4.2.2.1 Benchmarking
Benchmarking consists of an assessment of the transaction in question in light of the terms under which comparable transactions by comparable private operators in comparable circumstances occurred. In order to define a suitable benchmark, the factors that should be taken into account regard the type of operator concerned (holding group, operative company, speculative fund, etc) , the kind of the transaction carried out (equity participation or debt transaction), its timing and the market in which it takes place (i.e. financial, technological or utility/infrastructure). The accuracy 60
of this method depends mostly on the availability of reliable comparators. Sometimes the available market benchmarks developed are actually adjusted to the specific characteristics of the State transactions. Furthermore, the reference value established is generally not one, but rather a range of potential ones whose median set of comparable transactions indicates that State intervention’s compliance with market conditions.
Case T-488/11, Sarc v Commission [2014] EU:T:2014:497, para 98
59
Notice (n°1), point 99
2.4.2.2.2 Other assessment methods
If none of the above mentioned ways to assess compliance with market conditions applies to the transaction at hand, other widely accepted and standard methods can be employed as long as they are based on objective and reliable data reflecting the economic situation of the transaction. One 61
of these is the Internal Rate of Return (IRR) assessment which leads to establish the annual return on investment by taking into consideration the stream of cash flows that the investor can expect to receive over the lifetime of the investment.
Another way to evaluate the investment decision is through Net Present Value (NPV) assessment which signals the difference between positive and negative cash inflows over the full duration of the investment discounted at the appropriate return. The return on the investment calculated through these methods must be compared with the normal expected market return, if this cannot be
expected, then the State investment is not achieved on market terms and as such not compliant with the MEOP.
The most suitable method is generally decided upon on the basis of the market situation, data availability or the type of transaction. Whatever method is chosen between the ones in which specific market data is available and those in which is not, when a prior economic exposure to the undertaking concerned occurs, it should be taken into account by conducting a counterfactual analysis.
Case T-274/01 Valmont Nederland BV v Commission [2004] EU:T:2004:266, para 71
CHAPTER 3
Burden of proof in MEOP cases
The term burden of proof refers to the obligation or responsibility to prove, in a case before the courts, the assertions made. Usually the burden of proving an infringement rests on the party or the authority alleging the infringement, while the burden of proof of the justification of the restriction at issue rests upon the party invoking the derogation. In State aid cases, it is well established that it is for the Commission to prove that all the five cumulative conditions under Article 107(1) TFEU explored in the first chapter are fulfilled, while it is for the Member States to provide evidence if 62
they rely on a derogation from that Article. There is, however, no legal stipulation about the 63
burden of proof in Regulation 2015/1589 nor in the Code of Best Practices fro the conduct of 64
State aid control procedures . 65
The question that arises considering the above mentioned general rule is whether the Market Economy Operator Principle is to be perceived as an integral part of the analysis under Article 107(1) TFEU with respect to the presence or lack thereof of an economic advantage or whether it should be considered as a derogation from it. The topic has been subject to debate before the
Commission and the EU Courts and in the academia. This chapter analyses recent case law in which the question has been considered in order to shed light on the understanding of the burden and standard of proof of the Commission and EU Courts and to determine, ultimately, which party does it rest upon.
The distinction between the MEOP applicability and application is fundamental for setting up the correct allocation of the burden of proof. This is mainly due to the fact that the margin of 66
discretion of the Commission is considered to vary in relation to the two stages of assessment of the MEOP. The scholar Lykotrafiti claims that whereas the discretion enjoyed by the EU institution is wide when it comes to establish how the MEOP applies in the case in question, it is restricted when
Case 425/11 Greece v Commission EU:T:2014:768, para 42
62
Case C-277/00 Germany v Commission EU:C:2004:238, para 55
63
Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of
64
Article 108 of the Treaty on the Functioning of the European Union [2015] OJ L248/9 Code of Best Practices for the conduct of State aid control procedures [2009] OJ C136/13
65
C-405/11 P Commission v Buczek Automotive [2013] ECLI-186, para 32
it adjudicates on its applicability. At the same time, the distinction has rendered the apportioning 67
of burden of proof more complicated and has caused undesired legal uncertainty.
3.1 The burden of proof as concerns the applicability of the MEOP
3.1.1 EDF
Electricité de France was a public-owned company governed under French law responsible for the generation and transmission of electricity throughout France, until it was privatized in order to comply with Directive 96/92/EC on common rules for the internal market in electricity. To complete this process, the French State and EDF signed a management contract to normalize EDF’s accounts and its relationship with the State. In the meanwhile, a part of the debt was allocated directly to the capital injections items without going through the profit and losses account, converting in this way a tax liability into share capital. The Commission rejected the argument of France claiming that it was acting as a private investor since it held that no private investor could hold a tax claim against an undertaking and then convert it into capital. For this reason the Commission found the MEOP inapplicable without making any assessment.
The General Court rejected the Commission’s approach stating that the form in which the aid is provided or its source is irrelevant, what matters is whether a private investor, despite not owning the same means at disposal of the State, would have taken a comparable investment decision if it found itself in the same circumstances. The General Court, thus, annulled the Commission
Decision, act which led the Commission to bring an appeal before the CJEU. In EDF of 2012, the Court recalled its case-law pursuant to which “the applicability of the private investor test
ultimately depends on the Member State concerned having conferred, in its capacity as shareholder and not in its capacity as public authority, an economic advantage on an undertaking belonging to it”. 68
Antigoni Lykotrafiti, ‘The intersection between the market economy investor principle and the one
time-67
last principle in the context of airline restructuring operations’ in Erika Szyszczak (ed), Research Handbook on European State Aid Law (EdwardElgar 2011), 118
EDF (n°44), para 81
The questions left unanswered at this point are how to determine whether the State acted in its capacity as a shareholder or as a public authority, on who the burden of proof of demonstrating this rests upon and when it should be established. In this regard, the Court held that: 69
“if a Member State relies on that test during the administrative procedure, it must, where there is doubt, establish unequivocally and on the basis of objective and verifiable evidence that the
measure implemented falls to be ascribed to the State acting as shareholder.” 70
“That evidence must show clearly that, before or at the same time as conferring the economic advantage (…), the Member State concerned took the decision to make an investment, by means of
the measure actually implemented, in the public undertaking.” 71
The CJEU, however, made explicit that the Market Economy Operator Principle is a test for verifying the existence of an economic advantage under Article 107(1) TFEU and not an exception which applies only at the request of the Member and, thus, it is the Commission that is under the obligation to examine whether the test has been satisfied or not. In this regard, where the test could be applicable, the Commission is also under the duty to ask the Member State in question to provide it with all the relevant information to establish whether the conditions governing the applicability and the application of that test are met. 72
So, to sum up, in EDF the Court held that if a Member State relies on the test during the
administrative procedure, where there is doubt, the burden of proof to demonstrate that it acted as a shareholder rests on it. Where, however, it is clear that the test could be relevant the burden of proof is allocated to the Commission which is under the obligation to request evidence to the Member State to show whether the test applies. In light of the above, it seems that the apportioning of burden of proof between the Commission and the Member States in MEOP cases for its applicability depends on the extent to which the transaction concerned calls for applying the test. If the facts of 73
Sebastien Thomas, ‘The EDF judgment of the CJEU in case C-124/10: Towards a public investor test in
69
EU State aid law?’ (EuropeanLawBlog, 18 September 2012) <https://europeanlawblog.eu/2012/09/18/the-edf-judgment-of-the-cjeu-in-case-c-12410-p-towards-a-public-investor-test-in-eu-state-aid-law/> accessed 1 June 2020 EDF (n°44), para 82 70 Ibid, para 83 71 Ibid, paras 103-104 72
Anne Louise Bengt Jespersen, “The development of the burden or proof in MEOP cases: Which side of
73
case do not immediately invite an assessment under the MEOP, then it is for the Member State to prove the contrary, but if it is evident from the beginning that the test could be applicable, it is for the Commission to investigate actively and gather the information necessary to establish its applicability.
3.1.2 Frucona Košice
The case concerns a Slovak producer of alcoholic and non-alcoholic beverages, Frucona, which in 2004 incurred a tax debt of more than € 20 million. The tax authorities decided to write-off the great majority of the debt instead of calling in the loan and force the company into bankruptcy. The Commission held that the write-off amounted to incompatible State aid since pursuant to its calculations more money could be recovered by the public body through selling the assets of the undertaking in question. The Commission, thus, reached its conclusion because the numbers showed that a private creditor finding itself in the same situation of the tax authorities would have followed through with the liquidation of Frucona due to the fact that it was a more profitable action to undertake.
After an appeal before the General Court and one before the Court of Justice, the Commission adopted a second Decision which reached the same result in relation to the incompatibility of the State aid granted, which led Frucona to appeal again. During the administrative proceedings and before the General Court the Slovak State claimed that the partial remission of the tax debt granted to Frucona constituted unlawful State aid, whereas the beneficiary argued that the agreement made with the tax authorities was compliant with the private creditor test and that the Commission did not support its conclusion with sufficient evidence. The GC annulled this Decision as well on the basis of the fact that the discount factor applied by the Commission to the value of the assets that could be sold to pay for the debt owed to the tax authorities, necessary because the revenue obtained from a forced sale is always below the book or normal market value of the asset, was arbitrary. The 74
Court, furthermore, accused the Commission of not having considered properly the various complications and delays that may emerge from a liquidation procedure.
Phedon Nicolaides, “Private Creditor Test” (StateAidHub, 24 October 2017) <http://stateaidhub.eu/blogs/
74
Both the General Court and the CJEU on appeal sided with Frucona noting that the Commission should have been more active in its investigation. The Court of Justice started by recalling its ruling in EDF, where it established that the MEOP is not an exception applicable only when the Member State requests so and that where the test is potentially applicable the Commission must gather information from the State in order to make its assessment. The Court recognizes the situation in which a public creditor grants payment facilities in relation to a debt owed to it by an undertaking as one in which the MEOP could be applicable. 75
The following paragraphs of the judgment are dedicated to rebutting the Commission’s allegation that the MEOP relates to the subjective state of mind of the State when taking the decision to intervene. The Commission argued that in a case in which the State itself affirms to have granted 76
aid that cannot satisfy the MEOP, no third party, including the recipient of aid, can invoke the applicability of the test. The Court, nevertheless, stated that the beneficiary of aid is not prevented from invoking the applicability of the test, and when it does, the Commission needs to assess whether the test applies. 77
As Advocate General Wahl argued, not allowing the recipient of aid to put forward arguments or evidence during the administrative procedure would run counter the logic of the process which aims at ensuring that the Commission has all the necessary information to perform its assessment under Article 107(1) TFEU. The AG also explained if the Court would have accepted the Commission’s 78
argument that if the recipient can invoke the test then it is under the obligation to establish
unequivocally that the measure has to be ascribed to that Member State acting as a private creditor, the burden of proof would have effectively shifted to the recipient. It would be the one required to disprove the existence of aid without even having been a party to the investigation of the
Commission. 79
Case C-300/16 P Commission v Frucona Košice [2017] EU:C:2017:706, paras 22-25
75
Ibid, para 11
76
Ibid, para 26
77
Frucona Košice (n°75), Opinion of AG Wahl, paras 71-72
78
Oliver Geiss and Tatiana Siakka, “Redrawing the market economy operator test: EU State aid law
post-79
Moreover, as regards the relevance of the Member State’s subjective state mind, the CJEU explained that:
“…the starting point for determining whether the private operator test is to be applied must be the economic nature of the Member State’s action, not how that Member State, subjectively speaking,
thought it was acting or which alternative courses of action it considered before adopting the measure in question.” 80
This is completely in line with the fact that under Article 107(1) TFEU attention must be paid only to the effects of the State measure in question and not to the cause or objectives of the public body implementing it.
The Court concluded its line of thought by making clear that it is incumbent on the Commission to take into consideration all the options and factors that a hypothetical private creditor would
reasonably have envisaged rather than those invoked by the Member State. In Frucona Košice, it 81
was actually due to the fact that the Commission did not ask for additional information as concerns the liquidation factors that the CJEU upheld the General Court’s ruling annulling the Commission Decision.
The case sheds light on the allocation of burden of proof between the EU institution and the Member State, especially on the obligations of the former whose scope seems expanded since it is obliged to assess the applicability of the MEOP even for cases in which the Member State itself considers the measure adopted as incompatible aid. Furthermore, as emphasized by Jespersen, the Commission’s duty to actively assist the Member States to discharge their burden of proof is an important provision that potentially modifies the assumption made post EDF that, where there is doubt, the Member States are solely responsible for providing evidence which proves that its measure is compliant with the MEOP.
Frucona Košice (n°75), para 27
80
Ibid, para 29
3.2 The burden of proof as concerns the application of the MEOP
3.2.1 The ex ante assessment requirement
In EDF the Court also clarified that in order to prove that it actually behaved as a rational private market operator, the State may have to provide evidence showing that its decision was based on economic evaluations that a private investor in a similar situation would have carried out before the investment to establish its future profitability. The Court, thus, clearly established for the first time 82
in EDF an ex ante requirement for applying the test, namely that the Member State has to provide evidence capable of showing that its intervention was based on a rational economic assessment conducted prior to the actual implementation of the measure. From a State aid perspective, requiring ex ante documentation proving the profitability of the measure makes total sense since if the State could use ex post evidence it means it would not have behaved in the same way as a private
operator and even if the ex post evaluations showed that the measure was economically rational that would indicate a lucky coincidence rather than actual rationality. 83
The principles set out in EDF as concerns the ex ante documentation were further developed in SACE which shed light on the standard of proof necessary to discharge the burden of proof and 84 answer the question of whether the absence of prior documentation automatically results into the failure to comply with the MEOP.
3.2.2 The standard of proof and the consequences of not meeting it
The case of 2015 dealt with measures taken by SACE, an Italian export credit agency wholly owned by the State, in favor of its subsidiary, SACE BT. They consisted in a capital injection, a capital contribution, reinsurance coverage and recapitalizations. The last two interventions of the parent company were found by the Commission to constitute unlawful State aid. The applicants sought the annulment of the Decision, claiming that the Commission had misapplied the MEOP while
assessing whether the measures by SACE conferred an advantage on its subsidiary.
EDF (n°44), para 84
82
Jespersen (n°73), 463
83
Case T-305/13 SACE and SACE BT SpA v Commission [2015] EU:T:2015:435
The General Court started by recalling the judgment in EDF, according to which it is for the Member State to provide the Commission with objective and verifiable evidence showing that its intervention is based on economic evaluations comparable to those which a rational private operator in a situation as close as possible to that of the State would have carried out, before adopting the measure in question, in order to determine its future profitability. If the Member State does not 85
submit the required evidence of a prior evaluation, the Commission is not obliged to conduct additional analyses. 86
In regard to the evidence required, the General Court specified that it should be assessed on a case-by-case basis and varies depending on the nature and the extent of the economic risks involved. The rationale behind this statement is that the thoroughness of the profitability analysis of a private operator prior to the investment of a small amount with low risk would be significantly minor to the analysis conducted before undertaking a complex investment strategy involving high risks. The Member State is expected to follow a similar logic. Since SACE was not able to provide any
preliminary economic evaluation of profitability at all, the GC established that those measures were not compliant with the MEOP.
From this case appears, therefore, that documentation showing that the Member State has carried out some sort of prior economic evaluation in order to assess reasonable probabilities of future profit is a prerequisite to comply with the test. In later case law, such as Duferco and Comune di 87
Milano of 2018, the General Court reiterated that the burden of proving the economic rationality 88 of its measure falls on the Member State and agreed with the Commission that excluded compliance with the MEOP as the State concerned failed to prove that they had conducted economic
evaluations. 89
The indispensability of undertaking an ex ante economic assessment to comply with the test has serious consequences for the concept of advantage. Indeed, even if posing this prerequisite makes
Ibid, para 97
85
Ibid, para 182
86
Case T-93/17 Duferco Long Products SA v European Commission [2018] EU:T:2018:558
87
Case T-167/13 Comune di Milano [2018] EU:T:2018:940
88
Jose Luis Buendia, Caroline Buts, Malgorzata Cyndecka, “Review of EU Case Law on State Aid –
89
perfect sense from the perspective of the MEOP, because of it transactions that do not actually confer a real advantage in economical terms to an undertaking may be considered as doing so, and, thus, fall within the scope of Article 107(1) TFEU. This is, in particular, the case when the State acts as a seller. For instance, if the State intends to sell publicly owned land or buildings, it can do so in a way that precludes the existence of State aid in favor of the buyer, only if the sale is conducted through an unconditional bidding procedure or, alternatively, if an independent evaluation is carried out by asset valuers prior to the sale negotiations in order to establish the market value. 90
When such evaluation does not take place, the State will be deemed to confer an advantage even if it sells the land at a price higher than the market price properly established by an ex post evaluation. This means that an undertaking acquiring a certain facility at a price of 4 million euros from the State valued after the sale for 3 million euros will be considered as receiving an advantage that may constitute State aid. For how absurd it is, this is the result of the practice of the Commission and the Court of requiring ex ante economic evaluations in order to assess compliance with the MEOP, obligation that fits the logic of the principle.
In the Valmont case of 2004, however, the Commission actually relied on an evaluation of 1998 ordered by the Dutch authorities in order to establish the presence of advantage in the sale by the municipality of Maarheeze of a piece of land, happened in 1994. On the basis of the same ex post evaluation the Court established that the difference between the sale price and the estimated market price based on objective and verifiable criteria did not prove the conferral of an advantage in economical terms. This means that potentially the State could use an evaluation consequent to its 91
intervention to show the absence of an advantage, even though it did not conduct an ex-ante economic assessment of the profitability of its measure. Since, as we have seen above, in the last years the case-law has stressed the indispensability of this element, more clarifications in this regard from the EU Courts are welcome.
Valmont (n°61), paras 4-5
90
Ibid, para 89
3.2.3 Reversed burden of proof?
Once the Member State has provided the evidence discussed above and all the other requisite evidence necessary to prove its compliance with the MEOP, it is, however for the Commission to conduct a global assessment of all the information. Therefore, the burden of proof seems to shift from the Member State to the Commission, after the former has adduced evidence to defend the claim that it has been acting in its capacity of shareholder as a profit-oriented market operator would have. In Frucona Košice, however, the Commission was considered by the Court under the obligation to obtain additional information in order to substantiate its conclusions when applying the private creditor test. The Commission contested this duty of investigation attributed to it claiming that it should carry out its assessment exclusively by reference to the information and evidence in the administrative file.
Because of this the Commission openly criticized the General Court before the CJEU, accusing it of “having created, inter alia by failing to limit the Commission’s verification obligation to the
evidence available to it, a new requirement imposing on it the excessive burden of having to seek all ‘imaginable’ evidence and information.” In this respect the Court reiterated that in relation to the 92
application of the MEOP, the Commission must carry out an overall assessment, taking into account all relevant evidence available to it with a view of determine whether the recipient would have manifestly not obtained comparable facilities from a private creditor in a situation as similar as possible to that of the public creditor seeking to recover debts. The CJEU clarified that by 93
information available to the Commission is meant all the evidence relevant to assessment and which could have been obtained, upon request by the Commission, during the administrative procedure. 94
The term relevant evidence, on the other hand, had already been defined by the General Court as all the information liable to have significant influence on the decision-making of a normally prudent and diligent private creditor in circumstances as close as possible to those the public creditor. The burden of proof that the conditions for applying the MEOP have been fulfilled, thus, rests upon the Commission, especially when the non compliance with the test is established on the basis of the fact
Frucona Košice (n°75), para 67
92
Case T 103/14 Frucona Košice [2016] EU:T:2016:152 , paras 132-133
93
Frucona Košice (n°75), para 71
that the Commission found that a private creditor would have not behaved as the public authorities. 95
In the Slovak case, the Commission had determined the value of Frucona’s assets in the event of liquidation by way of inference from the evidence in the administrative file containing the information put forward by the applicant or not contested by it. It did not, however carry out any methodological or economic analysis and did not request any additional information to verify the accuracy of its conclusions. The consequence of its failure to obtain information from the State about the liquidation factors and other alternative courses that the State could have taken is that its findings result in being based on unsubstantiated inferences and incomplete information.
The information in possession of the Commission was not the most complete and reliable
information available and was definitely not capable of substantiating that a private creditor would have gone through with the bankruptcy of the applicant instead of the write-off arrangement. In its defense the Commission claims that it is not for it to prove that its analysis is correct, but for the applicant to demonstrate that its claim concerning the logic of a private creditor is well founded. 96
On this basis, the Commission argued that it should not have provided the correct liquidation factor, but only assess all the information available to determine whether the applicant’s claim was
appropriately substantiated.
The Court reiterated that the burden of proving that the conditions for applying the test have been fulfilled is borne with the Commission, which cannot discharge it by making mere assumptions regarding those conditions without substantiating them to the requisite legal standard. The GC 97
went on by saying that even if the Commission’s assumption that the application of the private creditor test entails a shift of burden of proof, meaning that it is for the Member State or the recipient of aid to rebut evidence put forward by the Commission proving that the conditions for applying the test have not been met, those unsubstantiated assumptions presented are insufficient to
Frucona Košice (n°93), para 139
95
Ibid, para 204
96
Ibid, para 205
justify such a reversal of the burden of proof. In light of the above the General Court concluded 98
that the Commission committed a manifest error of assessment and annulled its Decision.
3.2.4 The ‘Frucona test’ applied to fiscal State aid in the football sector
By a decision of 2016, the Commission announced that Spain had unlawfully implemented State 99
aid in the form of a corporation tax privilege in favor of four professional football clubs, namely the Fútbol Club Barcelona, the Club Atlético Osasuna, the Athletic Club and the Real Madrid Club de Fútbol. Pursuant to a law of 1990 all Spanish professional football clubs were transformed into sports public limited companies (SPCLs) in order to better oversee their activities. The four above mentioned clubs, however, were exempted and could continue to qualify as sports clubs on the basis of the fact that they achieved a positive result for the tax year before 1990. As non-profit
organizations their income was taxed at a lower rate than the one for SPCLs up to 2016.
The Fútbol Club Barcelona brought an action against the Commission’s decision before the General Court, Case T-865/16, which resulted into the annulment of the decision. FC Barcelona claimed 100
that the Commission in its assessment focused uniquely on the nominal preferential tax rate applied to the four clubs, failing to take into account the other components of the tax regime of non-profit organizations. Among those a tax deduction for the reinvestment of extraordinary profits that was higher for SPLCs as compared to non-profit organizations. The applicant argued that the cumulative effects of the taxes rates and deductions applicable would show that the tax scheme does not put the four clubs in a more advantageous position than the others. FC Barcelona, thus, accused the 101
Commission of failing to conduct a complete and impartial analysis seeking to gather any information available, whether it was inculpatory or exculpatory evidence.
The Commission contended that its assessment was carried out on the basis of the information provided by the Spanish authorities and that no additional evidence was necessary. It argued that the applicant’s argument that the difference in tax rates was offset by the difference in the cap on
Ibid, para 206
98
Commission Decision (EU) 2016/2391 of 4 July 2016 on the State aid SA.29769 (2013/C) (ex 2013/NN)
99
implemented by Spain for certain football clubs [2016] OJ L357/1 Case T-865/16 FC Barcelona v Commission [2019] EU:T:2019:113
100
Ibid, para 38
