The recovery of State Aid, time to rethink some concepts?, by Miguel Muñoz

As it is well known, State aids are, basically, measures attributable to a member State, in a very broad sense, that affect competition in the internal market by giving an unjustified advantage to certain market operators against their competitors.

The recovery of State Aid, time to rethink some concepts?, by Miguel Muñoz
By way of foreword to this brief note, I would like to congratulate FIDE for the initiative of launching the English version of their website, and thank them FIDE for the trust placed in me when they invited me to participate. Hopefully, once the reader has finished reading this brief note such trust will not have been betrayed.

One of the main problems that corporations, and therefore the legal professionals that assist them, face when they are confronted to a Decision by the European Commission (EC) declaring the existence of a State aid is the recovery procedure. As it is well known, State aids are, basically, measures attributable to a member State, in a very broad sense, that affect competition in the internal market by giving an unjustified advantage to certain market operators against their competitors. That is the reason why the basic obligation that a negative Decision by the EC imposes to the member States is to immediately recover the aid granted, as a mean to guarantee the reestablishment of the level playing field as soon as possible. But this idea, even if it makes complete sense in abstract, raises many issues that are worth to reconsider, since it may in many cases, impose great burdens to beneficiaries of the aid.

Before analyzing some of the mentioned problems, there is a basic idea that the reader should bear in mind. When the EC announces the adoption of a negative decision, it is very common that the media inform about it emphasizing the infringement committed by the beneficiaries. In fact, it is very common, especially in cases when the beneficiary of the aid is a concrete single corporation, e.g. some of the fairly recent Decisions related to tax rulings, to read or hear that the EC has fined this or that company or that the beneficiary of the aid has not paid the taxes legally due. But despite this wide habit, that kind of remarks are completely wrong, since the only infringer of EU law in State aid cases is the State itself. In fact, the only addressee of the EC Decision is the State.

Having said that, one may agree on the principle of immediate recovery of the aid granted in clear cut cases, i.e. when there is no discussion about the fact that the measure is constitutive of State aid. But there is much more to say about the topic when the relevant players engage in long and complex legal struggles before the various judicial bodies that have competence on the subject.

If we, for instance, take the example of the Spanish goodwill tax amortization, we find that the measure was implemented by Spain back in 2002, the EC decisions were adopted in 2009, 2001 and 2014, the General Court delivered its first judgement related to the first and second by the end of 2014, the Court of Justice solved the appeal in December 2016, and we are still waiting for the judgement by the General Court in the resend procedure. In parallel there are many procedures pending with the General Court in relation to the third Decision and probably hundreds of recovery procedures before national authorities and courts at different stages.

Given the described landscape, it is obvious that we are facing an extremely complex case and that the recovery of the aid will be anything but immediate. Therefore, one can only wonder why the relevant authorities, no matter if national or European, judicial or administrative, do not accept the suspension of the obligation to recover, i.e. the obligation imposed to the beneficiaries to immediately revert the amortization applied, with all the complex calculations that this operation implies, the effects that it has on past and future tax returns and the clear possibility that, once the European jurisdiction has delivered it final judgement, the decisions are annulled and everything has to be replaced to the original situation. And, besides that we should, once again, not forget that the taxpayers, or at least the average tax payer, that applied the goodwill amortization were everything but aware that they were benefiting from a State aid.

I have to admit that the example is quite extreme, since the goodwill case is particularly complex, but despite that it can be perfectly reproduced in other files, and the Spanish tax lease case seems to be a good example of this statement.

Taking all this into account, I sincerely believe that the EC and the Court of Justice should revisit their doctrine on the possibility to suspend the obligation to recover in this cases. Unfortunately if they do not do so, the margin for manoeuver for the national authorities is practically non-existent, since they could easily be confronted to an infringement procedure or a fine.

It is true that, in order to estimate the suspension of the EC Decision, the Court of Justice has to consider the balance between the particular interest of the appellant and the general interest of the EU but one of the possible qualifications of the jurisprudence that could be introduced is the consideration of the economic damages that the immediate execution of the EC Decision would imply for the beneficiaries, i.e. if the case is clearly complex, and particularly if there is a strong evidence of the invalidity of the EC Decision, the Court should not simply disregard the economic damages alleged by the beneficiary, but accept them if they are significant.   

This fairly simple solution, even if it would imply the obligation for the beneficiary to bring an action for annulment and request the adoption of an interim measure, would prevent the uncertainty and damages caused by an early execution of a clearly questionable EC Decision.

There are of course many other issues raised by the obligation to recover and, in general, in the field of State aid measure. I hope that FIDE’s staff will be so kind to invite me in the future to share them with all the readers.  

​Miguel Muñoz

Miguel Muñoz is Associate Partner in EY Abogados office in Madrid, leader of EU tax controversy. He is State Lawyer (Abogado del Estado), currently in voluntary leave. Prior joining EY, Miguel has been Head of the Legal Service of the Secretary of State for Finance, Director of the Legal Service of the former Spanish Energy Regulator (Comisión Nacional de Energía), and member of the Spanish Legal Service before the Court of Justice of the European Union. Miguel is Permanent Professor at the Master in European Union Law Universidad Carlos III of Madrid, and member of its Academic Council.