C-156/98

* Original language: Italian. 1 — OJ 1998 L 212, p. 50. 2 — BGBl. 1995 I, p. 1250.

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cation. The entry into force of the new Legal framework provisions took place without the Commis- sion's having given its view; the Commis- sion therefore registered the scheme as unnotified. A circular issued by the Federal Ministry of Finance on 2 January 1996 postponed the application of the scheme pending a decision by the Commission.

(a) National law

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OPINION OF MR SAGGIO — CASE C-156/98

capital or the formation of new companies, to prevent combination of the measure with provided that these companies: other State aid.

(a) have their registered office and central administration in the new Länder or (b) Community law West Berlin and on the date the shares are acquired do not have more than 250 employees, or

8. In its decision, the Commission states that the tax concession provided for in Paragraph 52(8) of the EStG to companies with up to 250 employees and having their registered office and central administration in the new Länder or West Berlin consti- (b) they are holding companies whose tutes State aid which is incompatible with the object, under their own statutes and common market pursuant to Article 92(1) articles of association, consists exclu- of the EC Treaty, and Article 61(1) of the sively of acquiring holdings for a EEA Agreement (Article 1(1)); the Com- limited period of time or administering mission therefore calls upon Germany to or selling those holdings to companies repeal the aforementioned provision (Arti- which, at the time those holdings are cle 1(2)). In the grounds for the decision, acquired, have their office and central the Commission also argues that the provi- administration in the new Länder or sion in the EStG infringes the prohibition of West Berlin and do not have more than restrictions on freedom of establishment 250 employees. under Article 52 of the EC Treaty, as the aid scheme lays down, as a requirement for tax concessions, that the companies in which holdings are purchased must have their registered office and central adminis- tration in the new Länder or West Berlin.

companies in the new Länder and West only in areas assisted pursuant to Arti- Berlin with no more than 250 employees cle 92(3)(a) of the EC Treaty. In any case, (indirect beneficiaries). The Commission these areas do not include West Berlin argues, on one hand, that the tax conces- which, according to the Commission Deci- sion in favour of taxpayers is a general sion (N 613/96) on the designation of measure with no aid component because all assisted areas for the years 1997 to 1999, taxpayers who invest gains in a way is an assisted area only pursuant to Arti- specified in the legislation qualify for the cle 92(3)(c). In addition, given that there is concession; those concessions are therefore no link between the granting of aid and the compatible with Community law as they investment measures, according to the are laid down by a general measure of Commission there is a substantial danger economic policy; on the other hand, how- that the measure may have an effect outside ever, the measures in favour of companies the assisted areas. with share capital which have their regis- tered office and central administration in the new Länder or West Berlin, in which a holding must be acquired in order to qualify for the tax concession, constitute State aid within the meaning of Arti- cle 92(1) of the EC Treaty. 11. Later in the decision the Commission describes in detail the presence of factors which the Treaty and the case-law of the Court require for a State measure to be considered as 'aid', within the meaning of Articles 92 and 93 of the Treaty. Those factors will be examined below, in assessing "Such a measure has undoubted economic whether the submissions put forward by advantages for the recipients as it has the the applicant are valid. effect of increasing the profitability of holdings in companies whose registered office and central administration are in the new Länder and West Berlin, compared to that of holdings in companies whose registered office and central administration are in the rest of the territory of Germany or outside German territory. Merits of the case

13. In the alternative, the applicant also indicated is partially transferred to the alleges failure to comply with the de latter by a legal provision which aims to minimis rule, infringement of Arti- direct the investments of private investors, cle 92(2)(c) of the EC Treaty, incorrect the German Government considers that it is exercise of discretion in the application of not clear from the text of the decision how Article 92(3)(a) and (c) of the EC Treaty, the beneficiary of the fiscal measure could and infringement of Article 52 of the EC pass on his advantage to the companies in Treaty. which he acquires holdings. In addition, in the opinion of Germany, the Commission has omitted to quantify the alleged aid, confining itself to referring to a general economic advantage which the companies which benefit indirectly from the aid obtain by the application of the disputed scheme. (1) Compliance with the obligation to state reasons

14. Germany argues that the decision (b) Insufficient reasons with respect to the which is challenged here is vitiated by risk of distortion of competition and the infringement of the obligation to state impediment to trade between Member reasons laid down in Article 190 of the States EC Treaty. In its opinion, the decision does not comply with this obligation in various ways which will be examined below.

16. Secondly, Germany argues that the Commission has not demonstrated that the measure under discussion is capable of (a) Insufficient reasons with respect to the producing distortions of competition and identification and quantification of the damaging trade between Member States, as element of aid required by Article 92 of the Treaty.

is State aid; in actual fact, Germany argues, in question is necessary to alleviate the since it is a constituent of Article 92(1), the economic disadvantages caused by the threat of distortion to competition should division of Germany. In fact, Germany be the subject of a separate and thorough states, the Commission is in possession of analysis. documents which would prove the opposite and should, therefore, have indicated spe- cifically on what grounds it considered Article 92(2)(c) not to operate. If the Com- mission did not consider this information sufficient, the onus was upon it to ask for more information from the German Gov- With respect to the damage to trade, the ernment. Commission states in the decision that the modest nature of the aid is not sufficient to exclude the risk of effects on trade between Member States; in the opinion of the applicant, it is a general statement which is not sufficient to release the Commission from the obligation to state reasons.

(d) Insufficient reasons for the statement of incompatibility within the meaning of Arti- cle 92(3) of the Treaty (c) Insufficient reasons with respect to the absence of the conditions for the applica- tion of Article 92(2)(c) of the Treaty

21.1 would point out that, according to the 19. Finally, Germany disputes the fact that, settled case-law of the Court, the reasons in its decision, the Commission exclusively for a Community act must disclose in a calls for the repeal of Paragraph 52(8) of clear and unequivocal fashion the reason- the EStG, rather than its amendment. In an ing followed by the Community authority assessment based on the principle of pro- which adopted the measure, to allow the portionality, enacted in Article 3b of the persons concerned to know the reasons for EC Treaty (now Article 5 EC), the Com- the measure and allow the Court to exer- mission should, in the opinion of the cise its supervisory jurisdiction fully. 4It applicant, request the repeal of a system should also be noted that, in order to of aid only if it is totally incompatible with comply with the requirement to state the the common market, while it is sufficient to reasons for a measure within the meaning call for amendment if the incompatibility of Article 190 of the EC Treaty, it is not involves only a part of national measures. necessary for all the elements of fact and In this case, the Commission should, there- law taken into consideration before the fore, have considered the possibility of adoption of the decision to be specifically amendment before demanding repeal of stated. As the Court has stated on several the provision. For that reason also, there- occasions, in order to assess whether the fore, the contested decision does not com- reasons given for a measure are such as to ply with the obligation to state reasons as comply with the obligations laid down by laid down in Article 190 of the Treaty. the Treaty, account must be taken of the general context, the adoption procedure and all the Community rules governing the matter, including any measures adopted previously. 5 Indeed, from that point of view, it is quite clear that some assessments contained in the text of the decision, whose peremptory nature is taken by the applicant to be a flaw in the reasoning, have for some 20. I consider that the arguments put time been the subject of disputes between forward by Germany do not call into the Commission and Germany, for which question the legality of the decision from reason I consider that, apart from the the point of view of compliance with the obligation to state reasons. I do consider, however, that the decision indicates in a 4 — Case C-350/88 Delacre and Others v Commission [1990] ECR I-395, paragraph 15; Case C-360/92 P Publishers thorough way and in sufficient depth the Association v Commission [1995] ECR I-23, paragraph 39. reasons why the tax scheme adopted in 5 — See on all those points, Case 185/83 University of Gronin- gen [1984] ECR 3623, paragraph 38, and Case C-350/88, Germany involves aid for the beneficiaries cited above, paragraph 16.

merits of the assessments, the Member would have been obtained if the measure State involved was perfectly able to under- had not been introduced' (Part IV, sixth stand the scope of some statements which, paragraph). The Commission therefore at first sight, might appear not to be states that the measure in question is likely supported by adequate reasoning. 6 to give, without adequate consideration, an economic advantage to the undertakings which are indirect beneficiaries of the measure laid down in Paragraph 52(8) of the EStG, which have their registered offices in the new Federal Länder or West Berlin, an advantage which they would not have enjoyed without the State measure in

. . which advantage, in terms of tax concessions, if arises as a result of the State measures, the they acquire certain assets from particular financial investment behaviour of share undertakings, indirectly benefiting the com- purchasers as a whole will be affected, panies, established in the favoured terri- other things being equal, to the extent that tories, whose holdings are particularly they will now acquire holdings on terms desirable on the market: 'The economic more favourable to the share seller than advantage conferred is the greater demand they would have been without the intro- for shares in the indirect beneficiary com- duction of Paragraph 52(8) of the EStG, panies as compared with the legal situation holdings which in the absence of the tax which existed before Paragraph 52(8) concession they would not have acquired at entered into force; investors, the direct all or would have acquired on terms less beneficiaries, will consequently be prepared advantageous to the share seller' (Part IV, to acquire holdings in East German and fourth paragraph). The Commission bases Berlin companies on terms more favourable its argument on this comparison, corrobor- to those companies than the terms which ating its conclusion with other observa- tions — relating to the impact of the measure on the common market or the 6 — I refer in particular to the applicability of the derogation stated in Article 92(2)(c) of the Treaty, concerning aid use of the advantage by the direct benefi- intended to compensate for the economic disadvantages ciaries — which do not deny or contradict resulting from the division of Germany.

the negative assessment made in the pas- favouring certain companies with regis- sages of the decision cited above. tered offices and central administration on its territory, systematically puts companies established in other Member States in an unfavourable position, making them less attractive on the share market. 7Indeed, with a system of aid whose clear and stated purpose is to sustain economically compa- 23. However, as regards the quantification nies established in a particular area of of the aid, I agree with the observation of German territory, it is sufficient to demon- the Commission that a precise quantifica- strate that its application is potentially able tion could not be made in the text of the to distort competition: as the Court has decision; this is because the German tax stated, when State aid strengthens the provision which is the subject of the position of an undertaking compared with decision does not provide for individual other undertakings competing in intra- aid granted to a particular company, but Community trade, the latter must be regar- for a general system of aid, taking the form ded as affected by the aid. 8 of an income tax rule, which is applied to an unspecified number of beneficiaries, that is to all companies which wish to invest in the holdings of other companies with registered offices in the territories indicated in the legislation. It is therefore not possible to determine the effects of this aid system ex ante, and before the measure is actually in force, as would have been possible if it had been an individual aid measure. In an 25. The reasons adopted by the Commis- assessment concerning the effects on com- sion also appear to be sufficient with petition, including potential effects, such a respect to the absence of conditions for circumstance obviously does not exclude the applicability, in this case, of the dero- the possibility that the scheme laid down by gation under Article 92(2)(c) of the EC German law, taken in an abstract way, may Treaty. As we know, the article in question be described as contrary to the terms of the considers 'aid granted to the economy of Treaty on matters of State aid. certain areas of the Federal Republic of Germany affected by the division of Ger- many, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division' to be compatible with the common market. In that connection, while it is true that in the 24. Next, concerning the alleged insuffi- text of the decision the Commission merely ciency of the statement of reasons with points out that it could not ascertain on the regard to the impact of the measure on basis of the information available that the competition and the effect on trade between Member States, I consider that, even though it does so in a summary way, 7 — See the contested decision, 15th paragraph, p. 54. the Commission stated in its decision that 8 — Case 730/79 Philip Morris v Commission [1980] ECR 2671, paragraph 11; Joined Cases C-278/92 to C-280/92 Spain v the tax scheme adopted by the applicant, Commission [1994] ECR I-4103, paragraph 40.

scheme was necessary to compensate for decision indicates sufficiently the reasons those disadvantages, I consider that that why the tax system, set up under Paragraph assessment, which hinges on the Member 52(8) of the EStG, cannot be declared States' duty of cooperation, is justified in compatible with the common market the light of the case-law of the Court 9 within the meaning of Article 92(3)(a) and which states that it is up to the Member (c) of the EC Treaty. Since Paragraph 52(8) State to provide all the information to of the EStG provides for an aid scheme and enable the Commission to verify that the not individual aid, the Commission was conditions for the derogation sought are able initially only to examine the potential fulfilled. I consider that, in this case, it was scope of application of that scheme. As it is for the applicant to provide the Commis- operating aid, the Commission rightly sion with the information necessary to pointed out that the conditions of applica- demonstrate that the measures adopted tion are such that they do not exclude the were necessary to compensate for the possibility that companies which operate in negative effects of division, while it is clear sensitive sectors or are in difficulty may from the information available that during benefit from it, or that the capital made the course of the administrative procedure available to companies is used in economic the applicant merely raised the need for a activities outside the assisted area. Like- tax concession for companies established in wise, there cannot be compatibility under the territory in question because of the lack Article 92(3)(c) of the EC Treaty, since of equity capital. Also as a result of the West Berlin is not an assisted area under position taken with respect to the substan- that provision, except for a limited part of tive applicability of the derogation — a the period covered by the legislation at position which I will examine in more issue. In addition the Commission rightly, detail below — the applicant does not seem in the decision, sought the repeal rather to have put before the Court any assess- than amendment of the scheme, since the ment of the causal link between the mea- components of aid indicated in the text of sures adopted and the economic disadvan- the decision are such a significant and tages directly caused by the division of determinant feature of the measures Germany. Therefore, I consider that the adopted by Germany that they cannot be Commission was properly able to state removed without draining the measures in merely that it was not in possession of question of their content. information which would show that the conditions required under Article 92(2)(c) of the Treaty were met.

(2) Nature of aid in the contested measure obtained, in terms of a reduction of the ordinary tax burden. The economic advan- tage granted by the public authorities to alleviate the tax burden to which a com- pany is normally subject must be consid- ered to be aid. The tax measure which is the subject of the decision procures for the companies which are indirect beneficiaries 28. Germany submits on the substance that an advantage which they would not have the Commission, in regarding the tax obtained under normal market conditions, measure intended to benefit companies by attracting participation in the capital of with share capital under Paragraph 52(8) those undertakings with the remission of of the EStG. as State aid incompatible with taxes. I am therefore in agreement with the the common market, has contravened Arti- position of the Commission where it states cle 92 of the EC Treaty. The German that the aid influences the behaviour of Government puts forward a series of argu- private investors. Therefore the observation ments in support of that submission; how- by the applicant is not relevant inasmuch as ever, I do not consider that they conclu- it maintains that the tax rules at issue do sively justify an assessment that the con- not automatically mean that a private tested decision is unlawful. investor has an interest in acquiring shares in the capital of companies with their registered offices in favoured areas, since that decision depends on other factors, of a purely economic nature, which are not altered by the tax concession measures.

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ened by a system of aid, that favourable size. In the decision, however, the Commis- treatment is in principle likely to affect sion excludes application of that rule, trade between Member States. 1 1The mea- pointing out that, in the light of the case- sure laid down in Paragraph 52(8) of the law of the Court, the fact that the aid is EStG clearly improves the position of the small is not sufficient to exclude the companies which are indirect beneficiaries possibility that there are effects on trade compared to their competitors, which can- between Member States. In addition, in the not offer the same advantages to taxable decision the Commission states that Ger- persons who intend to purchase shares in many has not undertaken to comply with their capital. It therefore favours the the de minimis rule. The German Govern- strengthening of equity in the companies ment replies by arguing that, in this case, it in question. There is nothing to indicate was not possible to apply the criterion that that economic advantage may produce followed in the Commission notice con- its effects solely within German territory, cerning de minimis aid, as any economic since in principle any company established advantage attributed to the undertakings in another Member State and not partici- established in the favoured sectors cannot pating in the system offers its shares on the be measured in concrete terms. The Com- market under less favourable conditions. mission should not therefore have excluded application of the de minimis principle on the basis that there was no direct under- taking to comply with it by the applicant Member State.

below that maximum limit, or that it has to compensate undertakings with registered excluded cumulative application with any offices in favoured territories for the eco- other interventions in favour of companies nomic disadvantages caused by the division established in the territories taken into of Germany. consideration by the disputed provision of the EStG. In addition, the case-law of the Court shows that the small amount of State aid does not as such exclude the possibility that the measure adopted might distort competition or affect trade between the Member States, within the meaning of Article 92(1) of the EC Treaty. 13 In this case, while on one hand, the generalised scope of the measure does not allow, as On the assumption that that provision is stated, a precise assessment ex ante of the still applicable, notwithstanding the reuni- economic advantage granted to the under- fication of the two Germanies, the appli- takings which are indirect beneficiaries, on cant states that, following the division, the the other hand it makes it plausible that the system of small and medium-sized private limit indicated above may easily be excee- businesses in the Länder of the former East ded in the actual application of the mea- Germany was systematically dismantled. sures in question. I therefore consider that Consequently, at the time of reunification, the Commission correctly considered that it individuals who wished to carry out busi- could not apply the de minimis principle in ness activity were unable to obtain the this case. capital necessary to finance their activity with their own resources. The measures adopted by Germany, therefore, were inten- ded to compensate for that situation of economic disadvantage, which in the final analysis stems from the consequences of division.

37. Having said that, I consider that the system of tax concessions laid down in the legislation in question does not comply with the conditions indicated above. Indeed, as stated by the Commission, the backwardness of the new Länder, which means that it is difficult for undertakings 36. I therefore consider that, on one hand, established there to obtain capital on the its scope must be limited to the conse- market, is due not to the division of quences caused directly by the division of Germany into two different States, but to German territory into two parts, at the the new political and economic system moment in history when that division adopted, when the division had ended, in occurred (for example, the problems caused the territory of the former East Germany. to German companies, situated in particu- The obliteration of the old system, follow- lar areas of the old Länder and West Berlin, ing reunification, with the consequent re- by the creation of an internal frontier, the adaptation to the market economy, requi- breaking of communication links, or the red the entire economic system of the new loss of some markets as a result of the Länder to deal with outside competition, breaking off of commercial relations with from which it was protected for years. The the areas subject to a State-planned econ- backwardness of this economic system omy 15 ); on the other hand, the measure compared to that of the rest of Germany adopted is strictly aimed at remedying the cannot, however, be considered to be a economic disadvantages which this division direct effect of division, except by constru- caused. However, the provision in question ing the derogation stated in Article 92(2)(c) cannot be used to justify any intervention of the Treaty as an extremely wide-ranging to support the economy of areas which, exception — geographically and substan- before reunification, were part of East tively — to the principle that aid granted Germany, in order to compensate fully for by the States which affects trade is incom- the undeniable economic backwardness patible with the common market. I there- suffered by the new Länder; such an fore consider that the Commission has not interpretation as shown by the Court of exceeded the limits of its discretion by First Instance in the recent judgment on arguing for the inapplicability of the dero- German aid to the automobile sector, 16 gation stated in Article 92(2)(c) since, in an assessment based on the principle of direct causality, it does not appear that the 14 — See, to that effect, the recent decision of the Court of First measures adopted under the contested Instance, Joined Cases T-132/96 and T-143/96, Freistaat Sachsen and Others v Commission [1999] ECR II-3663, system are aimed at compensating for the paragraph 132. 15 — Freistaat Sachsen, cited above, paragraph 134. economic disadvantages resulting from the 16 — Loc. cit., paragraph 135. division of Germany.

(5) Applicability of the derogation in Arti- of the aid system is to strengthen the cle 92(3)(a) and (c) of the EC Treaty resources of the beneficiary undertakings, those resources could subsequently be diverted outside the territory of the assisted regions, while the communication provides that aid can be granted only if it can contribute to a durable and balanced development of the economy of the assisted 38. Also in the alternative, the applicant areas, and if it decreases and is limited over argues that the contested decision is ultra time. There are therefore risks of abuse, vires and therefore invalid, inasmuch as the since the increase in capital could encou- measures adopted should have been rage the beneficiary undertakings to carry declared compatible with the common out activities outside the new Länder as market within the meaning of Arti- well; the risk exists because the aid system cle 92(3)(a) and (c) of the Treaty. is not tied to particular investment projects in the region. Secondly, the Commission argues that the measures adopted by Ger- many do not exclude the possibility that the tax concession may benefit persons who invest in undertakings operating in sensitive sectors, for which specific provisions are 39. In the opinion of the German Govern- laid down as regards aid; nor is it excluded ment, the Commission has incorrectly that that tax system will be applied to exercised the power of assessment given undertakings in difficulty. In both cases, the to it under the provision. The Commission aforementioned Commission communica- argues, in part V of the decision, that as the tions preclude the possibility of the measure tax system is not aimed at initial investment benefiting from the derogation laid down in within the meaning of the Commission Article 92(3)(c). In addition, the decision communication on regional aid systems, 17 states that the system of aid does not fall but is designed to overcome specific struc- within the scope of the derogation, in so far tural disadvantages, it must be treated as as it is also applicable in favour of under- operating aid which, according to the takings with their registered office in West practice of the Commission, can be Berlin, whose territory is only partially declared compatible with the common included in the assisted areas. market only in exceptional cases, including that in respect of the areas indicated in Article 92(3)(a) of the Treaty. While acknowledging that the five Länder of the former East Germany and East Berlin were designated as assisted areas under that provision until the end of 1999, 1 8the Commission argues that the derogation cannot be applied in this case, for a number of reasons: firstly, in so far as the purpose

called into question in the light of the munications on regional aid systems and arguments put forward by the applicant. the method for the application of Arti- Firstly, I do not believe that the circum- cle 92(3)(a) and (c) of the Treaty, preclude stance, relied on by Germany, that the a finding that such aid is compatible with contribution of capital to undertakings the common market. established in the favoured territory takes place by way of a synallagmatic type of relationship — since shares are acquired for consideration — means that it should not be regarded as operating aid in this case. In any event, the measures under discussion make holdings in the assisted undertakings more attractive, by compen- sating for the pre-existing structural dis- advantages. In addition, the arguments presented by the applicant — that the risks (6) Freedom of establishment of abuse, as indicated in the decision, are just as slight as the probability that under- takings operating in sensitive sectors might benefit from the aid — do not appear to be relevant in an assessment ex ante — and the Commission can make only an assess- ment ex ante in order to avoid risks of distortion in the operation of the market being translated into reality — in which it 42. With regard to the alleged infringement is sufficient to note that the system adopted of Article 52 of the Treaty, I consider that does not preclude its being applied in a way Germany is right in its contention that this that is prohibited. There is no discussion of article cannot be used as a legal basis for the fact that the geographical application of the contested decision. It should not be the derogation, in so far as the territory of forgotten that the decision was adopted West Berlin is included, does not in any following a special 'abbreviated' procedure event allow recourse to that derogation. referred to in Article 93(2) of the Treaty, which provides for derogation from the general infringement procedure referred to in Articles 169 et seq. of the EC Treaty (now Articles 226 et seq. EC). In particular, Article 93 allows the Commission, if it finds that aid granted by a Member State or through State resources is not compatible with the common market having regard to Article 92, to decide that the State con- 41. Therefore, I do not believe that the cerned is to abolish or alter the aid within a Commission has used its discretionary prescribed period of time. If the State does powers incorrectly, as it respected the not comply with that decision within the procedural requirements laid down in the prescribed period, the Commission or any relevant rules and based the decision on other State concerned may, in derogation precise circumstances of fact and of law. from the procedure laid down in Arti- The assessments made, which are based on cles 169 and 170, refer the matter to the the guidelines already set out in the com- Court of Justice direct.

(2) order the applicant to pay the costs of the case.

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