Selective and General Measures

The third criterion, selectivity, is quite often the most substantial one in the ECJ’s test on prohibited state aid, and therefore deserves a detailed examination. The criterion is crucial not only in tax related cases,175 but in most other State aid cases as well.176 Selectivity indicates that the tax measure in question favours certain undertakings or the production of certain goods based on, inter alia, an exception from a tax provision of a legislative, regulatory or administrative nature or the practice of the tax authorities.177 Despite different versions being presented by the Commission and the European Courts, the most cited definition of selectivity seems to be that of a selective tax measure being one that favours certain undertakings or the production of certain goods in comparison with others which are in a comparable legal and factual situation.178 In more recent cases, the ECJ has added to the definition the notion of the undertakings treated differently having to be comparable in ‘light of the objective pursued by the measure in question’.179

Furthermore, a tax measure can be selective either to its material or geographic scope, which are addressed separately in the following chapters.180 According to established case law of the ECJ, a measure is selective also if the authority issuing it has significant discretion over choosing the recipients, since a wide discretion makes it impossible to predict whether the measure will, in fact, end up favouring certain undertakings or certain goods.181 Selectivity can also be described as a counterpart to the notion of discrimination, essential to Internal Market law, as selectivity implies positive treatment of an undertaking as opposed to discrimination which implies negative treatment.182

175 _{Nicolaides – Rusu 2012, 791} 176 _{Bartosch 2011, 178}

177

See Commission notice on the application of the State aid rules to measures relating to direct business taxation OJ C 384, 10.12.1998, pp. 3-9, para. 12; Nicolaides et.al. 2005, 24

178 _{See inter alia joined Cases C-106/09 P and C107/09 P Gibraltar [2011], (not yet reported), para. 101; and}

joined cases C‑182/03 and C‑217/03 Forum 187 [2006] ECR I‑5479, para. 119; case C-308/01 GIL

Insurance [2004] ECR I-04777, para. 68; and case C-143/99 Adria-Wien [2001] ECR I-8365, para. 41

179

See inter alia case T-308/00 Salzgitter [2013], not yet reported, para. 116; Case C‑279/08 P Commission v

the Netherlands [2011], not yet reported, para. 52; but also e.g. case C-409/00 Spain v Commission [2003]

ECR -01487, para. 47

180 _{Report on the implementation of the Commission notice on the application of the state aid rules to}

measures relating to direct business taxation, C(2004) 434, 9 February 2004, p. 8-9

181 _{See inter alia case C-256/97 Déménagements-Manutention Transport SA (DMT) [1999] ECR I-3913, 27} 182

Moreover, in relation to tax matters selectivity is often described by distinguishing selective measures from general tax measures, which are not prohibited under the rules concerning State aid.183 According to the Commission, a general tax measure is one that is applicable to all operators on equal terms and where the tax authority has no discretion over granting the tax benefit.184 Despite its common language connotations, it noteworthy that the term ‘general measure’ is not related to the number of eligible undertakings nor the diversity and size of the sectors touched by the measure.185 The Commission has clarified the notion of a general measure in its notice on business taxation in 1998. According to the Commission, technical measures as well as pursuing national policies by means of tax measures is in principle allowed as being general measures even if they might confer some advantages on certain sectors. Measures such as depreciations are therefore allowed,186 as well as for instance reducing the tax burden of labour even though that indirectly favours labour intensive sectors.187 Other technical tax measures include progressivity of a tax, which is normally considered to be a general measure.188 In contrast, regressive taxation has been interpreted as an indication of selectivity.189 In the case law of the ECJ, examples of general measures include measures an Italian tax measure promoting regularisation of firms in the black economy and a Dutch measure reducing the tax burden of the employer of employees in R&D –projects.190

Furthermore, the generality of a tax measure can be viewed as an element related to the how the national tax system is constructed. Hence, the ECJ has consistently held that a tax measure which can be justified by the general scheme of the taxation system in the Member State in question does not satisfy the condition of selectivity.191 Adhering to the

183 _{Alkio 2010, 69} 184

Commission notice on the application of the State aid rules to measures relating to direct business taxation OJ C 384, 10.12.1998, point 13

185 _{Case C-143/99 Adria-Wien, [2001] ECR I-08365, paras. 48-49. See also Nicolaides – Rusu 2012, 798.} 186 _{Commission notice on the application of the State aid rules to measures relating to direct business taxation}

98/C 348/03, para. 13

187 _{Commission notice on the application of the State aid rules to measures relating to direct business taxation}

98/C 348/03, para. 14. Cf. joined cases C-106/09 P and C107/09 P Gibraltar [2011], not yet reported, where the ECJ held that the changed tax scheme where labour become more heavily taxed than before amounted to a selective measure since it conferred an advantage on offshore companies.

188 _{Alkio 2010, 72} 189 _{Alkio 2010, 80} 190 _{Quigley 2009, 67-68} 191

Referred to already in joined cases C-72/91 and C-73/91 Sloman Neptun [1993] ECR I-00887, para. 21 and case C-200/97 Ecotrade [1998] ECR I-07907, para. 36, although in both cases the justification of a measure being inherent in the system was considered in connection with the criterion of aid being granted through State resources. See for a more recent reference, case T-210/02 RENV British Aggregates [2012], not yet reported, para. 48, where the system test is considered in connection with selectivity.

general scheme of the taxation system, or passing the ‘system test’ as it is often referred to, means in essence that a tax measure is a direct result of the guiding principles of the national tax system.192 Justifying a prima facie selective tax measure by the fact that it adheres to the general taxation system of the Member State is a test developed by the ECJ to assess selectivity in tax cases.

The notion of ‘justifying’ the tax measure can be misleading as concept in this context, since as Englisch puts it quite convincingly, it is rather a question of ruling out the need for any justification under Article 107 TFEU.193 If the tax measure is a consequence of the national tax system, the Article should not become applicable at all. This approach has in turn been criticised for going beyond the wording of the Treaty and for allowing Member States to circumvent the application of article 107(1) TFEU, whose wording includes no reference to the possibility of such justification.194 However, excluding the possibility to refer to the national tax system as an indication of the generality of a tax measure would in my mind be rather restrictive on Member States’ fiscal autonomy. Therefore, I agree with

Englisch to the extent that the system test can be seen as a test for the generality of a tax

measure, and not as a separate justification for a measure which is prima facie selective. In other words, a tax measure which pursues the general economic policy of a Member State by adhering to the guiding principles of that particular national tax system is a general tax measure by definition, and cannot be regarded as selective in the first place.195