C-36/00

2. Council Directive 90/684/EEC of 21 De- cember 1990 on aid to shipbuilding 3as ' 1 . Notwithstanding the provisions of Regulation (EC) No 3094/95, for the yards

1 — Original language: Dutch. 2 — OJ 2000 L 37, p. 22. 4 — OJ 1995 L 332, p. 1. 3 — OJ 1990 L 380, p. 27. 5 — OJ 1997 L 148, p. 1.

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under restructuring specified in paragraphs All other provisions of Directive 90/684 2, 3 and 4 of this article the Commission shall apply to these yards. may declare additional operating aid com- patible with the common market for the specific purposes and up to the amounts specified.

..., The Spanish Government agrees to carry out according to a timetable approved by the Commission and in any case before 31 December 1997 a genuine and irrevers- ible reduction of capacity of 30 000 cgrt.'

8. The authorising decision specifies that 6. In 1995 the Spanish authorities sub- the maximum amount of aid authorised per mitted a restructuring plan containing an category may not be exceeded. Moreover, aid package to the Commission. In 1996, in the decision imposes certain conditions accordance with Directive 90/684, the such as capacity reduction, production Commission initiated the formal procedure limits and compliance with the monitoring applying inter alia to the proposed tax provisions. credits in the package. In June 1997, on the basis of Article 92(3)(e) of the EC Treaty (now Article 87(3)(e) EC), the Council adopted Regulation No 1013/97 approving aid to shipyards under restructuring in a number of countries including the Kingdom 9. During a periodic monitoring visit, it of Spain. This regulation allowed the transpired that the Spanish Government granting of tax credits. might have paid out too much in tax aid to the shipyards concerned. From 1997 these yards had once again become part of a holding company with a tax consolidation system, so from then on tax credits were again available to them. The Commission therefore first obtained further infor- mation, and then, in the letter dated 15 February 1999, initiated the procedure pursuant to Article 93(2) of the EC Treaty (now Article 88(2) EC). 7 7. In letter D/6715 dated 6 August 1997 6 (hereafter the 'authorising decision'), the Commission approved a total of ESP 229.008 million in State aid, ESP 93.980 million was authorised under Articles 6 and 7 of Directive 90/684, and ESP 135.028 million pursuant to Article 4(1) of Regulation No 1013/97. In accordance C — The contested decision with Regulation No 1013/97, this decision provides inter alia that a maximum of ESP 58 billion in special tax credits may be paid to the shipyards in question for the 10. In its decision, the Commission con- period 1995 to 1999. The reason for the cludes that the publicly-owned shipyards

11. The Commission observes that a total of ESP 70.062 billion in special aid has been paid out to the shipyards, ESP 58 14. The application is based on four pleas billion of which was special tax credits. ESP in law, of which two are procedural and 39.549 billion of the total ESP 58 billion two substantive. was paid out in 1997, relating to claims arising in 1995 and 1996, when the ship- yards could not claim tax credits under general tax legislation. However, the situ- ation was different in 1997, when they were eligible under general tax legislation. From that year on, there therefore ceased to 15. Under its first plea in law the Spanish be any justification for the granting of aid Government complains that the Commis- in the form of special tax credits under sion has breached the principle of the special tax rules. Thus in 1997 there was no protection of legitimate expectations, the longer any basis for the payment of the principle of legal certainty and the principle ESP 18.451 billion relating to that year, but of sound administration by wrongly fol- disbursed in 1998 under these specific lowing the procedure applying to new aid provisions. rather than that governing existing aid.

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16. Under its second plea in law the according to the Spanish Government, Spanish Government complains in the is contrary to Article 87(1) EC. alternative that the Commission has failed to state reasons, since in the contested decision it, wrongly, fails to deal with the consequences of declaring the aid in ques- tion unlawful. 18. The fourth plea in law, put forward in the alternative, concerns the infringement of the principle of the protection of legit- imate expectations and a manifest error of assessment. The Spanish Government con- tends, under this plea, that even if the 17. Under the third plea in law the Spanish ESP 58 billion in aid approved cannot exist Government complains that the Commis- concurrently with general tax credits, it has sion: still been justifiably approved.

23. Furthermore, the Spanish Government is of the opinion that even if the application of existing aid were to require independent 21. The Spanish Government further justification, the inadequacy of the state- observes that it is to be inferred from the ment of reasons and the complexity of the contested decision that the Commission authorising decision itself require that the considers one of the conditions attached Commission notify them thereof in due to the authorising decision to have been time. All the more so in this instance, since infringed, since the shipyards again fall the Commission was aware of the dissol- under the general tax consolidation regime. ution of Agencia Industrial del Estado It argues that any justification for the ('AIE') and the integration of the yards special tax credits thereby ceases; these into a new undertaking with effect from had been authorised on the assumption that 1997. In the contested decision, the Com- the shipyards would no longer be eligible mission finds, without any prior notice, for the offsetting of losses under the general that an aid already authorised is incom- scheme. The Commission failed to inform patible with Community law. In so doing it the Spanish Government of this. It waited has infringed the principles of legal cer- until the last payment was made in 1988, tainty and the protection of legitimate before initiating the procedure under expectations and that of sound adminis- Article 88(2) EC alleging that the granting tration. of special tax credits in 1997 was equival- ent to new aid. In so doing, the Commis- sion has infringed the principle of legal certainty and the principle of sound admin- istration.

25. The Commission contests the Spanish Government's point of view. Aid granted in B — Second plea in law: inadequate state¬ accordance with all the rules governing the ment of reasons authorisation of such aid may be con- sidered to be existing aid. It is deemed to be authorised with the rules on which it is based. If, however, aid is in fact granted in 1. Arguments of the parties breach of the conditions governing these rules, then the protection afforded by the authorisation lapses. It would then be 'new' aid which must be notified and assessed according to the provisions of Article 88(2) and (3) EC. 27. In its second plea in law, the Spanish Government argues, as an alternative claim, that once the Commission had determined that this was a case of new aid, it should have assessed the aid on the basis of all the criteria in Article 87(1) EC. However, in the contested decision, no statement of reasons is given at all for two of the concurrent requirements specified in 26. The Commission also considers that it the decision for aid to be declared incom- has followed the correct procedure in this patible, namely 'influencing trade between case. Its opinion is based both on Article 6 Member States' and 'distortion or of Regulation No 659/1999 9 and on rel- threatened distortion of competition'. evant case-law. 10 In this case the appli- cation of aid is not covered by conditions governing the authorisation of special tax aids, precisely because the shipyards were not eligible for tax credits under the general tax system. The aid must therefore be 28. The Commission's view is that this is deemed new aid, with all the consequences undeniably a case of aid. In this respect, it refers to its decision of 6 August 1997 which declared the aid compatible with the 9 — Council Regulation (EC) No 659/1999 of 22 March 1999, common market under the conditions set laying down detailed rules for the application of Article 93 down in that decision. Such an authori- of the EC Treaty (OJ 1999 L 83, p. 1). 10 — See Case C-294/90 British Aerospace and Rover v Com- sation presupposes the existence of aid. The mission [1992] ECR 1-493. Commission goes on to refer to the relevant

(a) Preliminary comments 29. In response to this line of defence from the Commission, the Spanish Government remarks that case-law does not suggest that the Commission is completely free of its obligation to demonstrate the effects of the aid in trade between Member States and on competition. The Spanish Government believes that no arguments can be drawn 30. The emergence of the so-called new from the above decisions since the con- industrial countries since the end of the tested decision does not refer to the 1960s has had a major impact on the world respective statements of reasons of those shipbuilding industry. The capacity of ship- decisions. The reference to case-law, in yards for both construction and repair has particular Siemens v Commission 11 is, outstripped demand world-wide, whilst according to the Spanish Government, shipyards in Japan and later South Korea misconceived. In that case the Court held and Taiwan could manufacture at costs that a partial statement of reasons supple- considerably below those in North America mented by the facts and context of the case and Western Europe. As a result, since the was sufficient. That judgment does not beginning of the 1970s the European ship- however imply that the Commission is building industry has been in a state of completely freed of its obligation to give a virtually permanent crisis, with all the statement of reasons. Finally in this concomitant economic and social con- instance, the Commission wrongly cites sequences thereof. With a view to protect- case-law relating to non-notified aids. The ing this industry, considered to be of vital Commission was aware that the shipyards importance, and to avoiding as far as possible the shock waves caused by sudden yard closures, a number of States began to 11 — Case C-278/95 P [1997] ECR 1-2507. subsidise their shipbuilding industry as

32. Directive 90/684 is thus now con- sidered to be a sectoral derogation to the general State aid scheme. Regulation No 1013/97 introduces a further deroga- tion from the sectoral rules for the Spanish shipyards amongst others. It opens up the possibility of special aid for those yards being declared compatible with the com- mon market, aid which otherwise would be incompatible with Directive 90/684 cited above. This extra aid facility was made available so that the Spanish yards con- cerned could undergo extensive restructur- ing which would restore their competitive- ness. Since this is a derogation, the con- 31. In order to prevent a costly and point- ditions under which the aid is granted must less battle over subsidies in this highly be strictly construed. sensitive sector, the Community took the initiative early on via Article 87(3)(e) EC, imposing strict conditions on national sub- sidies to shipbuilding. The first shipbuild- ing directive dates back to 1969 and has since been replaced several times. Directive 90/684 applies to the case in hand. The (b) The first plea in law initial directive had a two-fold aim: main- taining competitiveness of European ship- yards in the world market without distort- ing competition between Community ship- yards. Subsequently the emphasis shifted towards the necessary restructuring of 33. The first plea in law raises the question shipbuilding so as to enhance its competi- of whether the Commission followed the tiveness on the world market. This objec- correct procedure. To answer this question, tive is underpinned by OECD agreements one must first ascertain whether what is providing for a general reduction in production aid to shipbuilding, and leading ultimately to its complete abolition. The 12 — OJ 1998 L 202, p. 1.

37. This special law was expressly men- tioned, as an integral part of the plan, in the Spanish Government's notification of restructuring measures in November 1995. Since the Commission viewed it as a specific measure benefiting the shipyards 35. The Court has adopted a similar and therefore as aid, it examined the approach in its judgment in 'Italgrani' 14 measure more closely. After being 'em- which centred on the individual application powered' to do so by the Council Regu- of previously approved aid. In its judgment, lation No 1013/97 the Commission finally the Court held that if the Commission approved the aid in the form of tax credits, establishes that the decision authorising the albeit subject to a ceiling. scheme does not cover any individual aid measure, that aid should be deemed new aid.

13 — See Case British Aerospace and Rover (cited i n footnote 10) and Case T-140/95 Ryanair v Commission [1998] ECR II-3327. 1 4 — Case C-47/91 Italy v Commission ECU [1994] 4635, 38. The relevant passage from the auth- paragraph 26. orising decision reads as follows: 'As to the

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40. The Commission contends that the justification for the aid had therefore become invalid, and that the ESP 18.451 billion, paid by the Spanish Government as special tax credits, was in breach of the earlier authorising decision, since the aid was only approved because the shipyards had ceased to be part of an undertaking with profits which could be used for tax 42. In the light of the above, I therefore consolidation purposes, so were therefore agree with the Commission that the aid is unable to use general tax rules to offset not covered by the earlier authorising their losses. The aid was approved with decision. Once the shipyards again became that aim in mind. The intention never was part of a holding company to which general to give the shipyards the right to both tax legislation on taxation applies, and credits. received tax credits under this law, the aid

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43. As the Commission correctly observes, every authorising decision must contain a justification of the aid. If this justification ceases to exist, the authorisation itself becomes inoperative. In this case, the 45. In the light of the above, I conclude justification for the granting of special tax that in this instance the procedure of aid to the shipyards lay in the fact that they Article 88(2), first subparagraph, EC is were to become part of a loss-making the appropriate procedure. I do not there- holding company and would therefore fore share the Spanish point of view that cease to benefit from tax credits available the Commission should have followed the under the general tax legislation. This type procedure for existing aid under of fiscal offsetting of losses was required in Article 88(1) EC. order to give the yards sufficient financial scope for successful restructuring. The Council and the Commission therefore authorised the Spanish Government to provide specific tax facilities to compensate the shipyards for the tax credits they would otherwise lose. However, when the ship- (c) The second plea in law yards became part of a profit-making holding company the justification for granting special tax facilities ceased to exist. Consequently the special tax aid subsequently granted to the shipyards by the Spanish Government falls outside the scope of the authorising decision. It is 46. On the Spanish Government's argu- therefore a new aid measure within the ment that since this is a new aid, the meaning of Article 88(2) EC. Commission should have dealt with the

effect on trade between Member States and Regulation No 1013/97 and Directive distortion of competition in its statement of 90/684. It follows from Directive 90/684 reasons I can be brief, given the sector that given the difficulties experienced by involved and its past history. European shipbuilders on the world mar- ket, State aid can distort competition between Community shipyards and hence influence the placing of orders and trade between Member States. This directive therefore regulates the granting of State aid very closely, and subjects it to stringent controls. Derogations from the directive are subject to the stringent procedural require- 47. In a comprehensive judgment, the ment of prior approval by the Council. In Court has stated that in assessing whether this instance, approval was given in Regu- an adequate statement of reasons is given lation 1013/97. This stringent procedural for a decision, not only the text and the requirement stems from the fact that any context of a decision, but also the whole specific derogation from the general rules complex of legal rules governing the case of the directive would affect competition must be considered. 15 between Member States on the shipbuilding market. The sensitivity of the market is likewise reflected in the authorising decision of 1997, which imposes a series of precisely defined conditions on both the entire aid package and the individual com- ponent measures which are designed to ensure that the package attains its defined objective, namely, far-reaching restructur- 48. As previously stated, this is a sector ing of the shipyards concerned and a return characterised by structural overcapacity to competitiveness, without unduly strain- and highly sensitive competitive relations ing competitive relations within the Com- both within and outside the Community. munity. It may be seen from this context Thus clearly any sectoral aid can distort that unilateral derogations from the competition and affect trade between approved package which result in the yards Member States. receiving substantially more public money than was envisaged in the package, will almost by definition distort intra-Commu- nity competition in the shipbuilding sector, and affect trade between Member States — the placing of orders. A Commission decision finding that a Member State has granted more aid to its shipyards than was authorised can in this market and mana- 49. The contested decision must be read in gerial context be concise. The recipient the context of the authorising decision,

A ·—· Third plea in law: infringement of 53. According to the Spanish Government, Articles 87(1) and (3)(e) EC, of Regulation the parties negotiated on the total sum of No 1013/97 and breach of the principle of aid and this total was taken into account in the protection of legitimate expectations determining the quid pro quo on the part of the recipient yards, namely an irreversible capacity reduction of 30 000 cgrt. Regu- lation No 1013/97 would not have set the Submissions of the parties same conditions for a quid pro quo had the total sum not been that fixed by the regulation itself. The Spanish Government submits that it has fulfilled the conditions of the regulation and the authorising decision, both regarding the capacity reduc- 51. Under the third plea in law the Spanish tions and compliance with the maximum Government claims that Article 87(1) and aid ceiling. (3)(e) EC, Regulation No 1013/97 and the principle of the protection of legitimate expectations have been breached. This plea falls in three parts.

54. The Spanish Government furthermore 52. In the first part, the Spanish Govern- submits that the sum payable to the yards ment claims that the ESP 58 billion auth- under a tax consolidation scheme cannot be

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56. In summary, the Spanish Government submits that the Commission position is 58. The Commission submits that no inherently contradictory. Either the ESP 58 decision authorising aid in general terms billion in aid is justified as compensation or is subject to the sole restriction of com- it is part of a package of aid measures pliance with a ceiling. In its decisions it conditional on a substantial and irrevers- always indicates the maximum sum auth- ible capacity reduction, on various aspects orised and the underlying objective. A of which the parties had had the oppor- complete aid package has never been tunity to negotiate. The first view, as approved without further detailed con- defended by the Commission, implies the ditions, particularly not in a sensitive sector option of paying out sums greater than that such as this where aids are generally

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categorically prohibited. In this context, not demand further detail from the Spanish the Commission refers to the detail of the authorities. It would have been impossible authorising decision which describes each to obtain more accurate calculations in category of aid separately, and expressly advance since they would have been sub- lists the conditions under which each may stantially influenced by the future results of be approved. This would have been point- the undertaking, which were by definition less if only the total sum of aid approved uncertain. and the corresponding capacity reduction were relevant.

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compensation under Law 13/96 were the authorising decision, by implication a greater than anticipated, then the sum quid pro quo to offset to an extent the actually paid out in tax credits could not adverse effects of aid on competition. This in any event exceed ESP 58 billion, since does not mean that there is an automatic this was expressly stated to be a maximum. relationship or link between capacity This mechanism therefore guarantees that reduction and the level of aid authorised. competition is not affected beyond the authorised limit, irrespective of the deve- lopment of the undertaking

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68. In its response to the second part of the 70. The Commission responds that in the third plea in law, the Commission points contested decision it merely observed that out that fiscal compensation is to a great the justification for aid in the form of tax extent dependent on developments within credits lapsed on 1 January 1997 and that the undertakings concerned and therefore it the existence of the authorisation itself is logical that the precise amount is not cannot be justified. Consequently, the aid specified. Since it was impossible to fix the must be considered unauthorised from that amount in advance, the Commission has set point on. The Commission has not there- a ceiling in order to prevent an undertaking fore aggregated any amounts, nor investi- with extremely bad results from automati- gated the cumulative effect of these two cally receiving aid and thereby adversely types of tax aid, but has merely observed affecting competition. It is equally logical that the 'special' tax credits previously that where results are better than expected, authorised are no longer justified. less compensation should be received under Spanish Law 13/96 (calculated on the basis of 28% of the taxable base). It cannot therefore be submitted that the authori- sation is temporary in nature. The actual sum to be paid out may be unspecified, but the same is not true of the mechanism for calculating it with the ceiling of ESP 58 B — The fourth plea in law: infringement billion linked to it. of the principle of the protection of legit- imate expectations and error of assessment

75. Regulation No 1013/97 and the auth- orising decision are clear regarding the total amount granted, the maximum sum 73. The Commission however considers per category of aid and the Kingdom of that the aid paid in 1998 is devoid of Spain's obligation to cut capacity by 30 000 justification. It observes in this context that cgrt. the aid approved does not correspond to '28% of forecast losses during the period under consideration' as asserted by the Spanish Government, but rather to the sum, albeit a maximum, which the ship- yards could otherwise have received under the general tax rules. The basis for this was 76. I recall that Regulation No 1013/97 in Law 13/96. This law preceded the and the authorising decision empower the adoption of Regulation No 1013/97 and Spanish Government to grant exceptional the authorising decision. The latter there- aid to a number of shipyards in order to fore, in authorising the tax credits, refers to facilitate restructuring by, inter alia, capac- the Spanish law. The aid paid out under ity reduction. The linear relationship this law does not correspond to 28% of asserted by the Spanish Government losses before tax but rather to the sum between the total aid deemed permissible which could have been claimed if the and the extent of the capacity reduction is shipyards had remained in a tax consoli- neither mentioned in Regulation dation scheme. The Commission therefore No 1013/97 nor in the authorising believes that it used the only correct decision. Article 1(1) of the regulation criterion. provides that with a view to restructuring the publicly-owned shipyards in Spain, the Commission may authorise additional operating aid. Under Article 1(4) of the regulation, it may only do so bearing in mind the objectives and the maximum 2. Assessment of the third and fourth pleas amounts laid down in that text. For these in law purposes and within these maximum limits, the aid measures may be deemed compat- ible with the common market provided they are necessary to attain the said objec- tives. As to the special tax credits at issue here, as is evident from the authorising 74. The Spanish Government fails to decision, they were justified because of the appreciate that this case concerns not fact that the yards concerned were no whether the aid paid was above or below longer eligible for tax credits under the

77. The Spanish Government's submission that the Commission's reasoning implies that the authorisation granted is in fact provisional is also unfounded. The auth- orisation was granted definitively, clearly 79. Nor do I consider the Spanish Govern- under the assumption that the special ment's complaint regarding the Commis- grounds justifying the various parts of the sion's method of calculation to be tenable. package of exceptional measures would In setting the maximum aid in special tax continue to exist. It was precisely the credits the Commission used information exceptional nature of the measures that supplied by the Spanish Government. These obliged the Commission to continue to data were based on estimated net results monitor the need for measures strictly. before tax (losses). The Commission has indicated that an estimate based on the future taxable base would have been more accurate, but also considerably more prob- lematic and uncertain. Since the Commis- sion had to set a maximum and had in any event to do so on the basis of estimates, the Commission deemed it neither necessary nor possible to exact greater accuracy of the Spanish authorities. The level of tax credits for which the yards were eligible 78. The Spanish Government's assertion was calculated on the basis of Law 13/96, that general credits under general measures using the taxable base. In calculating the

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80. The Spanish Government's arguments according to which the Commission's basic premiss should have been the criteria used 82. I therefore conclude that the third and for calculating the maximum permissible fourth pleas in law are unfounded.

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VI — Conclusion

83. In the light of the foregoing I propose that the Court should:

(a) dismiss the application of the Kingdom of Spain as unfounded;