OPINION OF ADVOCATE GENERAL
WATHELET
delivered on 29 November 2017 (1)
Case C‑518/16
‘ZPT’ AD
v
Narodno sabranie na Republika Bulgaria,
Varhoven administrativen sad,
Natsionalna agentsia za prihodite
(Request for a preliminary ruling from the Sofiyski gradski sad (Sofia City Court, Bulgaria))
(Reference for a preliminary ruling — State aid — Regulation (EC) No 1998/2006 — De minimis aid — Article 1(1)(d) — Aid granted in the form of tax relief — Investment in the production of goods intended for export — National legislation excluding investment in the production of goods intended for export from the benefit of the tax relief — Article 35 TFEU)
I. Introduction
1. This request for a preliminary ruling, lodged at the Court Registry on 4 October 2016 by the Sofiyski gradski sad (Sofia City Court, Bulgaria), concerns the interpretation of Article 35 TFEU and Article 1(1)(d) of Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 (2) and 88 (3) of the Treaty to de minimis aid (‘Regulation No 1998/2006’), (4) and on the validity of the latter provision in the light of Article 35 TFEU.
2. The request has been made in proceedings between ‘ZPT’ AD (‘the applicant’) and the Narodno sabranie na Republika Bulgaria (National Assembly of the Republic of Bulgaria), the Varhoven administrativen sad (Supreme Administrative Court, Bulgaria) and the Natsionalna Agentsia za prihodite (National Revenue Agency, Bulgaria) (taken together ‘the defendants’), concerning a tax assessment notice addressed to the applicant in respect of the financial year 2008.
3. By its action, the applicant requested that the referring court order the defendants jointly and severally to pay it compensation for material harm suffered by it as a result of the defendants’ infringements of EU law, in particular the provisions of Regulation No 1998/2006.
4. As requested by the Court, this Opinion will focus on the question referred by the referring court (5) concerning the validity of Article 1(1)(d) of Regulation No 1998/2006 in the light of Article 35 TFEU.
II. Legal context
A. EU law
5. Article 34 TFEU states:
‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.’
6. Article 35 TFEU provides:
‘Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.’
7. Article 36 TFEU states:
‘Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.’
8. Article 2(1) of Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles [107 and 108 TFEU] to certain categories of horizontal State aid, (6) entitled ‘De minimis’, provides:
‘The Commission may, by means of a Regulation adopted in accordance with the procedure laid down in Article 8 of this Regulation, decide that, having regard to the development and functioning of the common market, certain aids do not meet all the criteria of Article [107(1) TFEU] and that they are therefore exempted from the notification procedure provided for in Article [108(3) TFEU], provided that aid granted to the same undertaking over a given period of time does not exceed a certain fixed amount.’
9. Recital 1 of Regulation No 1998/2006 states:
‘Regulation (EC) No 994/98 empowers the Commission to set out in a Regulation a threshold under which aid measures are deemed not to meet all the criteria of Article [107(1) TFEU] and therefore do not fall under the notification procedure provided for in Article [108(3) TFEU].’
10. Recital 6 of Regulation No 1998/2006 reads:
‘This Regulation should not apply to de minimis export aid or de minimis aid favouring domestic over imported products. In particular, it should not apply to aid financing the establishment and operation of a distribution network in other countries. Aid towards the cost of participating in trade fairs, or of studies or consultancy services needed for the launch of a new or existing product on a new market does not normally constitute export aid.’
11. Recital 8 of Regulation No 1998/2006 states:
‘In the light of the Commission’s experience, it can be established that aid not exceeding a ceiling of EUR 200 000 over any period of three years does not affect trade between Member States and/or does not distort or threaten to distort competition and therefore does not fall under Article [107(1) TFEU] …’
12. Article 1 of Regulation No 1998/2006, entitled ‘Scope’, provides:
‘This Regulation applies to aid granted to undertakings in all sectors, with the exception of:
…
(d) aid to export-related activities towards third countries or Member States, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity;
(e) aid contingent on the use of domestic over imported goods;
…’
13. Article 2 of Regulation No 1998/2006, entitled ‘De minimis aid’, states:
‘1. Aid measures shall be deemed not to meet all the criteria of Article [107(1) TFEU] and shall therefore be exempt from the notification requirement of Article [108(3) TFEU], if they fulfil the conditions laid down in paragraphs 2 to 5 of this Article.
2. The total de minimis aid granted to any one undertaking shall not exceed EUR 200 000 over any period of three fiscal years. … These ceilings shall apply irrespective of the form of the de minimis aid or the objective pursued …’
14. Recital 4 of Regulation No 69/2001 provided that ‘[i]n the light of the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures, this Regulation should not exempt export aid or aid favouring domestic over imported products.’
B. Treaty law
15. Article 3(1)(a) of the Agreement on Subsidies and Countervailing Measures annexed to the WTO Agreement provides that ‘shall be prohibited … subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance.’
16. Annex I to the Agreement on Subsidies and Countervailing Measures annexed to the WTO Agreement sets out an illustrative list of export subsidies.
C. Bulgarian law
17. The Law on corporation tax (7) (‘the fiscal legislation’) provides, in the version in force as from 1 January 2007:
‘Article 182 …
2. … Tax relief representing de minimis aid shall not apply to:
…
(7) investment in assets used in activities relating to exports to third countries or Member States. …
Article 184 … Corporation tax shall be deducted in full for taxable persons on their taxable profit from manufacturing activity carried out, including contract manufacturing, where all of the following conditions are met:
(1) The taxable person has performed the manufacturing activity solely in municipalities where, in the year preceding the present year, the unemployment rate was at least 35% higher than the national average in respect of that period;
(2) … the conditions set out in:
(a) Article 188 [of the fiscal legislation] are met in cases of de minimis aid.
…
Article 188 …
1. … Tax relief shall constitute de minimis aid where the amount of de minimis aid received in the previous three years, including the current year, irrespective of the form or source, is below the equivalent in [Bulgarian lev (BGN)] of EUR 200 000 …
2. The resources corresponding to the tax reduction referred to in Article 184 must be invested in tangible or intangible assets in accordance with the legislation on accounting before the expiry of a four-year period starting from the year in respect of which the tax is deducted …’
III. The dispute in the main proceedings and the questions referred for a preliminary ruling
18. The core activity of the applicant, a company registered in Bulgaria, is the manufacture of steel pipes, hollow profiles and related fittings. It engages in three separate and technologically independent manufacturing activities in its manufacturing facilities, namely the manufacture of steel pipes, hollow profiles and protective railings for roads (guardrails), hot-dip galvanisation of components and electroplating or cold-galvanisation of components.
19. In its tax declaration for 2008, the applicant declared that it wished to benefit from the corporation tax reduction provided for in Article 184 of the fiscal legislation in the amount of BGN 140 677.51 (approximately EUR 72 000).
20. By tax assessment notice of 5 March 2010, the claim for a corporation tax reduction was refused on the ground that the applicant did not meet the condition set out in Article 182(2)(7) of the fiscal legislation, in so far as, during the period up to 2012, it had made investments in its manufacturing facilities from which products were exported.
21. According to the referring court, ‘the tax authority states that Article 182(2)(7) [of the fiscal legislation] [was] considered to be exhaustive and that a partial corporation tax reduction may not be claimed [by the applicant] in any event. The tax relief applies to manufacturing activity performed, including contract manufacturing, and the restrictive condition is linked to the subsequent marketing of the manufactured products and the protection of competition in the EU. Since [the applicant] manufactured products in 2008 which were marketed in Bulgaria, in EU Member States and in third countries, it comes within the scope of the restrictive condition set out in Article 182(2)(7) [of the fiscal legislation] and for that reason may not benefit from the corporation tax reduction in respect of 2008. The corporation tax liability for 2008 was established by the tax authority in the amount of BGN 140 677.51 [approximately EUR 72 000] plus interest payable in the amount of BGN 21 454.22 [approximately EUR 11 000]’.
22. On 21 May 2010, the applicant filed a notice of appeal against the decision of the administrative authority before the Administrativen sad — grad Burgas (Burgas Administrative Court, Bulgaria).
23. By decision of 12 January 2011, the Administrativen sad — grad Burgas (Burgas Administrative Court) annulled the assessment notice, finding that the refusal to grant the tax reduction was not justified since there were no exports associated with the independent electrogalvanisation manufacturing function in which the applicant wished to invest resources and that the four-year period during which the resources corresponding to the corporation tax reduction must be invested had not expired.
24. By judgment of 27 December 2011, which was delivered on appeal and has become final, the Varhoven administrativen sad (Supreme Administrative Court) set aside the judgment of the Administrativen sad — grad Burgas (Burgas Administrative Court) and dismissed the applicant’s appeal against the assessment notice. In so far as it was found that investments had been made in the hot-dip galvanising facility and products were exported from that facility, the Varhoven administrativen sad (Supreme Administrative Court) held that the condition set out in Article 182(2)(7) of the fiscal legislation concerning investment in assets not relating to exports to third countries or to Member States was not satisfied and that, in those circumstances, the tax reduction should be considered to be State aid distorting competition in the internal market of the European Union.
25. The applicant brought an action before the Sofiyski gradski sad (Sofia City Court) asking for the defendants to be held jointly and severally liable for alleged infringements of EU law, in particular Regulation No 1998/2006. The applicant claims that it is entitled to compensation in the amount of the tax reduction refused, plus interest.
26. In those circumstances the Sofiyski gradski sad (Sofia City Court) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:
‘(1) Do implementing provisions of EU law such as Regulation No 1998/2006 have direct effect and apply directly, and, if so, does a provision of national law which narrows or restricts the applicable scope of the EU legal provisions infringe those principles?
(2) Is State aid granted in the form of tax relief compatible with competition in the internal market, where such aid is invested in assets used for the manufacture of products, some of which are exported to third countries or to Member States?
(3) Does the manufacture of products for export through the use of assets obtained by means of State aid come within the scope of activity directly linked to the quantities exported within the meaning of Article 1(1)(d) of Regulation No 1998/2006? If the answer is in the negative, are Member States entitled to provide in national legislation for additional restrictions on exporters of products manufactured using assets that are the result of tax relief investment? If the answer is in the affirmative, how does that rule relate to the provisions of Article 35 TFEU concerning the prohibition of quantitative restrictions on exports between Member States and all measures having equivalent effect and does it constitute discrimination and infringement of the free movement of goods?
(4) Does Article 1 of Regulation No 1998/2006 allow a legal person to be refused recognition of the right to de minimis financial aid, arising from EU law, before the expiry of the four-year period laid down in national law, in which the investment should be made, solely on the ground that in that period it invested resources in, inter alia, independent, separate structures of its business from which exports were made?’
IV. Procedure before the Court
27. The applicant, each defendant, the Bulgarian Government, the Greek Government, the Italian Government and the Commission submitted written observations.
28. In the light of the ambiguity of the third sentence of the third question referred, the Court has taken two initiatives.
29. First of all, it asked the referring court the following question:
‘Could the referring court clarify which rule it is referring to in the third sentence of the third question, when asking the Court to consider the relationship between “that rule” and Article 35 TFEU?
Is the referring court asking whether Article 35 TFEU must be interpreted as precluding a rule of national law, such as that provided for in Article 182(2)(7) of the [fiscal] legislation or if it seeks to ascertain whether, in the light of Article 35 TFEU, Article 1(1)(d) of Regulation No 1998/2006 … is valid?’
30. In its response of 7 July 2017, the referring court stated:
‘The question seeks to ascertain whether Member States are entitled to provide in national legislation for additional restrictions on exporters of products manufactured using assets that are the result of tax relief investment. In the first hypothesis, where the manufacture of products for export does not come within the scope of activity directly linked to the quantities exported within the meaning of Regulation No 1998/2006, the question arises as to whether national legislation may provide for restrictions in cases similar to those set out in Article 182(2)(7) [of the fiscal legislation].
However, if that question is answered in the affirmative, that is to say, the manufacture of products for export through the use of assets obtained by means of State aid comes within the scope of activity directly linked to the quantities exported within the meaning of Regulation No 1998/2006, the question arises as to the relationship between, on the one hand, the restriction provided for in Article 1[(1)](d) of Regulation [No 1998/2006] and, on the other, the prohibition of quantitative restrictions on exports between Member States and other measures having equivalent effect.’
31. Secondly, on 13 September 2017, pursuant to Article 61(1) of the Rules of Procedure, the Court invited the parties and the interested persons referred to in Article 23 of the Statute of the Court of Justice of the European Union to answer the following question at the hearing on 18 October 2017:
‘Does Article 1(1)(d) of Regulation No 1998/2006 … infringe Article 35 TFEU?’
32. The applicant, the Varhoven administrativen sad (Supreme Administrative Court), the Bulgarian Government and the Commission submitted oral comments at the hearing on 18 October 2017.
V. Analysis
A. Preliminary observations
33. With regard to the question contained in the third sentence of the third question referred by the referring court relating to the conformity of Article 1(1)(d) of Regulation No 1998/2006 with Article 35 TFEU, (8) it should be borne in mind that the Court has consistently held that the prohibition of quantitative restrictions and measures having equivalent effect, provided for in Articles 34 and 35 TFEU, applies not only to national measures, but also to measures adopted by the institutions of the European Union. (9)
34. It is settled case-law that the provisions relating to the free movement of goods and those relating to State aid have a common purpose, namely to ensure the free movement of goods between Member States under normal conditions of competition, (10) as Articles 107 and 108 TFEU may in no case be used to frustrate the rules of the FEU Treaty on the free movement of goods. (11)
35. Consequently, I take the view that the FEU Treaty does not establish a hierarchy between its rules prohibiting quantitative restrictions (12) and on State aid. (13) It follows that national measures or measures adopted by the institutions of the European Union must be consistent with both the rules of the FEU Treaty on the prohibition of quantitative restrictions and the rules on State aid. (14)
36. It is clear that Article 1(1)(d) of Regulation No 1998/2006 does not directly place quantitative restrictions on exports. It is therefore necessary to examine whether that provision puts in place measures having effects equivalent to such restrictions.
37. The conditions laid down by the Court’s case-law relating to Article 35 TFEU correspond to those set out in Article 34 TFEU. Consequently, national measures or measures adopted by the institutions of the European Union which are capable of hindering, directly or indirectly, actually or potentially, trade within the European Union are to be considered as measures having an effect equivalent to quantitative restrictions within the meaning of Articles 34 (15) and 35 TFEU.
38. Indeed, the Court held in its judgment of 21 June 2016, New Valmar (C‑15/15, EU:C:2016:464, paragraphs 36, 40 and 43), that a national measure applicable to all traders active in the national territory liable to have a greater effect on goods leaving the market of the exporting Member State than on the marketing of goods in the domestic market of that Member State is covered by the prohibition laid down in Article 35 TFEU.
39. It should be noted that, in the judgment of 21 June 2016, New Valmar (C‑15/15, EU:C:2016:464), the Court made no mention of its judgment of 8 November 1979, Groenveld (15/79, EU:C:1979:253) (‘the Groenveld case-law’), in which it held that Article 35 TFEU ‘concerns national measures which have as their specific object or effect the restriction of patterns of exports and thereby the establishment of a difference in treatment between the domestic trade of a Member State and its export trade in such a way as to provide a particular advantage for national production or for the domestic market of the State in question at the expense of the production or of the trade of other Member States’. (16)
40. In my view, (17) in the judgment of 21 June 2016, New Valmar (C‑15/15, EU:C:2016:464), the Court departed from the more limited and stricter conditions laid down by the Groenveld case-law based, in particular, on the existence of a difference in treatment or discrimination between the domestic trade of a Member State and its export trade, preferring instead more ‘flexible’ (18) conditions based on the existence of a restriction or barrier to trade between Member States. (19)
41. In that regard, it should be borne in mind that, according to the Court, any restriction, even minor, of one of the fundamental freedoms enshrined by the FEU Treaty is prohibited by it. (20) It follows that, contrary to State aid rules under Regulation No 1998/2006, (21) there is no threshold under which national measures or measures adopted by the institutions of the European Union are deemed not to meet all the criteria of Articles 34 and 35 TFEU. By contrast, national measures or measures adopted by the institutions of the European Union cannot be regarded as capable of hindering trade within the European Union if the restrictive effects of that legislation are too indirect or too uncertain. (22)
B. Application ratione loci of Article 35 TFEU
42. It should be observed that Article 1(1)(d) of Regulation No 1998/2006 concerns exports towards third countries or Member States. However, Article 35 TFEU, which prohibits quantitative restrictions on exports and all measures having equivalent effect, applies only to the free movement of goods between Member States. (23) It follows that, in principle, trade with third countries does not fall within the scope ratione loci of Article 35 TFEU. Consequently, I will confine my analysis in this Opinion to the internal aspect of Article 1(1)(d) of that regulation, namely trade between Member States.
C. The existence in Article 1(1)(d) of Regulation No 1998/2006 of a restriction falling within the scope of Article 35 TFEU
43. In accordance with Article 2 of Regulation No 1998/2006, read in the light of Recital 8 thereof, aid not exceeding a ceiling of EUR 200 000 over any period of three years is deemed not to affect trade between Member States and not to distort or threaten to distort competition; such measures are therefore excluded from the concept of ‘State aid’. (24) They are therefore exempt from the obligation to notify laid down in Article 108(3) TFEU. (25)
44. In its judgment of 7 March 2002, Italy v Commission (C‑310/99, EU:C:2002:143, paragraph 94), the Court held that ‘the de minimis rule is intended to reduce the administrative burden on both the Member States and the Commission, which must be able to concentrate its resources on cases that are genuinely important at Community level’. (26)
45. However, in accordance with Article 1(1)(d) of Regulation No 1998/2006, aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity is excluded from the scope of that regulation and therefore from the benefit of the de minimis exemption. (27)
46. It follows that even if such aid is below the threshold set out in Article 2 of Regulation No 1998/2006, it is deemed not to meet all the criteria of Article 107(1) TFEU and therefore does not benefit from the de minimis exemption under that regulation and must be notified to the Commission in accordance with the procedure provided for in Article 108(3) TFEU.
47. In the light of the foregoing, I consider that Article 1(1)(d) of Regulation No 1998/2006 has a greater effect on goods leaving the market of the exporting Member State than on the marketing of goods in the domestic market of that Member State. (28) While it is true that Article 1(1)(d) of that regulation relates only to certain State aid linked to export activity, I take the view that the effects of that provision cannot be considered to be indirect or uncertain, in so far as the aid in question is excluded from the scope of application of the de minimis exemption. That provision thus discriminates between economic activities according to whether or not they are intended for export. (29)
D. The existence of a justification
48. Articles 34 and 35 TFEU nonetheless do not preclude prohibitions or restrictions justified on one of the public interest grounds listed in Article 36 TFEU or by overriding requirements. (30)
49. According to settled case-law, national measures or measures adopted by the institutions of the European Union restricting the exercise of the fundamental freedoms guaranteed may be allowed only if it pursues a legitimate objective in the public interest, (31) is appropriate to ensuring the attainment of that objective and does not go beyond what is necessary to attain the objective pursued. (32)
50. I consider that Article 1(1)(d) of Regulation No 1998/2006 is de jure discriminatory, in so far as it is specifically directed at certain exports. Consequently, such discriminatory treatment of exports must be justified on one of the public interest grounds listed in Article 36 TFEU, (33) namely grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property.
51. According to the Commission, ‘the exclusion of export aid from the scope of Regulation [No 1998/2006] is based, on the one hand, on the EU’s commitments to the [WTO] and, on the other, on the fact that export aid, which facilitates market penetration for commercial reasons, clearly affects trade between Member States. (34) It follows that the rationale of that regulation (according to which the criteria governing the existence of State aid were not met) is not applicable’. (35)
52. So far as concerns the first objective of Article 1(1)(d) of Regulation No 1998/2006 invoked by the Commission, namely the exclusion of aid to export-related activities towards third countries from the de minimis exemption in accordance with the EU’s commitments to the WTO, I consider that this is not relevant in the present case, since Article 35 TFEU is not applicable ratione loci to such exports. (36) Consequently, there is no scope for criticism of the exclusion of aid to export-related activities towards third countries pursuant to Article 1(1)(d) of that regulation in the light of Article 35 TFEU.
53. With regard to the second objective of Article 1(1)(d) of Regulation No 1998/2006 relied on by the Commission, (37) I consider that even though it may constitute a legitimate objective, it is not covered by any of the public interest grounds listed in Article 36 TFEU. Consequently, that objective is not such as to justify discrimination prohibited by Article 35 TFEU. Nor do I see any grounds that might justify the difference in treatment at issue here.
54. In the light of the foregoing, I take the view that Article 1(1)(d) of Regulation No 1998/2006, which has a greater effect on goods leaving the market of the exporting Member State than on the marketing of goods in the domestic market of that Member State, is not justified on any of the public interest grounds listed in Article 36 TFEU.
55. Consequently, the third sentence of the third question referred by the referring court must be answered to the effect that Article 1(1)(d) of Regulation No 1998/2006 is invalid in that it establishes within the de minimis rule a difference in treatment between economic activities which are purely national and those relating to exports to Member States.
VI. Conclusion
56. In the light of the foregoing, I propose that the Court should answer the third sentence of the third question referred by the Sofiyski gradski sad (Sofia City Court, Bulgaria) as follows:
Article 1(1)(d) of Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid is invalid in that it establishes within the de minimis rule a difference in treatment between economic activities which are purely national and those relating to exports to Member States.