European Union: ECJ Sets Aside General Court's Judgment In "Spanish Tax Lease System" Case

Last Updated: 24 September 2018
Article by Markus Wellinger

On 25 July 2018, the Court of Justice of the European Union ("ECJ") handed down its judgment in a case arising from the European Commission's 2013 decision on the "Spanish tax lease system" ("STLS") (Case C-128/16 P, Commission v Spain and others). In the new judgment, the Court sets aside the earlier judgment of the General Court of the European Union ("GC") (see VBB on Competition Law, Volume 2016, No. 1, available at and refers the case back for further consideration by the GC.

The STLS consisted of five fiscal measures that stimulated the sale of sea-going ships by Spanish shipbuilding companies due to a 20%-30% rebate for ship-owning companies that purchased such a vessel. The system was based on a complex structure, whereby a bank introduced an intermediate leasing company and an Economic Interest Grouping ("EIG") between the seller and the purchaser of a ship. The gains generated by the agreement between the shipbuilder and the ship-owner were, through the leasing companies, transformed into tax credits for the investors in the EIGs. The STLS thus benefitted EIGs and their investors, whose investments in turn benefitted shipbuilding companies and ship-owners.

On 17 July 2013, the European Commission (the "Commission") issued a decision finding that three out of the five fiscal measures in the STLS constituted illegal state aid to EIGs and to investors in the EIGs. Thereafter, in response to actions brought by Spain and other parties, the GC annulled the Commission's decision in a judgment of 17 December 2015. The GC ruled that: (i) as a result of the tax transparency of the EIG's, only the EIG's investors were beneficiaries of the aid and not the EIGs themselves; (ii) although only investments in particular assets to the exclusion of other assets or other types of investments were eligible for the STLS, the advantage conferred on the EIG's investors was not selective since it was open to all undertakings, without distinction; and (iii) the Commission gave insufficient reasons for its finding that the measures were likely to distort competition and affect trade between Member States.

The Commission appealed the GC's judgment before the ECJ. In its judgment of 25 July 2018, the ECJ disagreed with the GC's ruling on each of the three points.

First, the ECJ ruled that the GC was wrong to find that the EIGs could not be the beneficiaries of the advantages arising from the STLS. In reaching this conclusion, the ECJ firstly considered that the EIGs carried on an economic activity and were accordingly "undertakings" within the meaning of Article 107(1) TFEU. Secondly, while the ECJ recognised that because the EIGs are fiscally transparent, their profits or losses were automatically transferred to their members, it stated that the tax measures at issue were applied to the EIGs and therefore they were the direct beneficiaries of the advantages arising from those measures.

Second, in accordance with its above conclusion, the ECJ found that the GC had erred in its assessment of the selectivity criterion as the GC had only examined selectivity by reference to the EIG investors and not the EIGs. Furthermore, the ECJ reviewed the GC's examination of the condition of selectivity as regards EIG investors. In this respect, the ECJ relied on its judgment of 21 December 2016 in Joined Cases C-20/15 P and C-21/15 P, Commission v. World Duty Free Group and Others, which had been handed down since the GC judgment concerning the STLS (see VBB on Competition Law, Volume 2016, No. 12, available at In accordance with this case law, the GC should ascertain whether the Commission has established that the tax measures at issue, by their practical effects, introduce differentiated treatment of operators, where the operators which benefit from the tax advantages and those which are excluded from it, are, in view of the objective pursued by that tax system, in a comparable factual and legal situation. As the GC did not make this assessment, but rather merely took account of the fact that the STLS was available, on the same terms, to any undertaking, the ECJ concluded that the GC committed an error of law.

Third, the ECJ found that there was no failure to state reasons in the Commission's decision or contradictory reasoning.

For the above reasons, the ECJ set aside the judgment of the GC and referred the case back to the GC.

The judgment of the ECJ is interesting as it confirms the ECJ's expansive interpretation of the criterion of selectivity as opposed to the strict interpretation that had been advocated by the GC. According to the interpretation of the ECJ, the selectivity criterion is fulfilled when a category of economic transactions (such as investments in particular assets), rather than a particular category of undertakings, benefit from aid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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