Cases T-211/04 and T-215/04

Government of Gibraltar and United Kingdom of Great Britain and Northern Ireland

v

Commission of the European Communities

(State aid – Aid scheme notified by the United Kingdom regarding the Government of Gibraltar’s reform of corporate tax – Decision declaring the aid scheme incompatible with the common market – Regional selectivity – Material selectivity)

Summary of the Judgment

1.      State aid – Concept – Selective nature of the measure – Tax measure adopted by an infra-State body

(Art. 87(1) EC)

2.      State aid – Concept – Selective nature of the measure – Derogation from the common or ‘normal’ tax regime

(Art. 87(1) EC)

1.      Article 87(1) EC requires assessment of whether, under a particular legal regime, a national measure is such as to favour ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation. Such an analysis is also required in respect of a measure adopted not by the national legislature but by an infra-State authority, since a measure adopted by a regional or local authority and not the central authorities can constitute aid if the conditions laid down by Article 87(1) EC are satisfied. The determination of the reference framework has a particular importance in the case of tax measures, since the very existence of an advantage may be established only when compared with ‘normal’ taxation. The ‘normal’ tax rate is the rate in force in the geographical area constituting the reference framework.

Therefore, in order to assess the selectivity of a measure adopted by an infra-State body and designed to determine, in part only of the territory of a Member State, a reduced tax rate in relation to that applying in the rest of that Member State, it must be examined, first, whether that measure has been devised by a regional or local authority which has, from a constitutional point of view, a political and administrative status separate from that of the central government, secondly, whether it has been devised without the central government being able to intervene directly as regards its content, and, third, whether the financial consequences of that infra-State body introducing the measure are offset by aid or subsidies from other regions or from the central government of the Member State concerned.

(see paras 78-80, 86)

2.      Article 87(1) EC requires it to be determined whether, under a given legal regime, a national measure is likely to favour ‘certain undertakings or the production of certain goods’ over others which, having regard to the objective pursued by that regime, are in a comparable factual and legal situation. In order for the Commission to classify a tax measure as selective, it must begin by identifying and examining the common or ‘normal’ regime under the tax system applicable in the geographical area constituting the relevant reference framework. It is in relation to this common or ‘normal’ tax regime that the Commission must, secondly, assess and determine whether any advantage granted by the tax measure at issue may be selective by demonstrating that the measure derogates from that common regime inasmuch as the measure differentiates between economic operators who, in light of the objective assigned to the tax system of the Member State concerned, are in a comparable factual and legal situation.

If, in the course of those first two stages, the Commission has demonstrated the existence of derogations from the common or ‘normal’ tax regime resulting in a differentiation between undertakings, such a differentiation is none the less not selective when it arises from the nature or general scheme of the system of charges of which it forms part. In that situation, the Commission must determine, in a third stage, whether the State measure in question is not selective in nature even though it gives an advantage to the undertakings which are able to benefit from it. In that regard, given that the differentiations provided for vis-à-vis the common or ‘normal’ tax regime constitute derogations and are prima facie selective, it is for the Member State to show that those differentiations are justified by the nature and general scheme of its tax system in that they derive directly from the basic or guiding principles of that system. In that context, a distinction must be made between, on the one hand, the objectives attributed to a particular tax regime and which are extrinsic to it and, on the other, the mechanisms inherent in the tax system itself which are necessary for the achievement of such objectives.

If the Commission has failed to carry out the first two stages of the review of a measure’s selectivity, it cannot embark upon the third and final stage of its assessment, as otherwise it will go beyond the limits of that review. Such an approach would be liable, first, to enable the Commission to assume the role of the Member State with regard to determination of that State’s tax system and of the common or ‘normal’ regime under it, including in relation to the objectives, the tax system’s inherent mechanisms for achieving those objectives and its bases of taxation, and second, thus to make it impossible for the Member State to justify the differentiations in question on the basis of the nature and of the general scheme of the tax system notified, since the Commission would not first either have identified the common or ‘normal’ regime under that system or have established that those differentiations constitute derogations from that regime.

(see paras 141, 143-145)