Relief from property tax is State aid - UEPC welcomes Spanish Court of Justice decision
On 9 October 2014, the Court of Justice examined, in case C 522/13, Ministerio de Defensa, Navantia SA v Concello de Ferrol, an exemption from property tax relating to public land that was put at the disposal of Navantia in Spain.
Navantia was an undertaking wholly owned by the Spanish state. It constructed naval vessels and manufactured and repaired various products for the private sector, principally in the maritime and energy fields. Navantia owned a shipyard located in the region of Concello de Ferrol. The land of the shipyard was owned by the Spanish state. The right to use the land was made available to Navantia on payment of EUR 1 per year.
Regional authorities, like Concello de Ferrol, levy property taxes. The property tax for the land used by Navantia was normally payable by the Spanish state, as the owner of that land. However, when the Spanish state gave Navantia the right to use the land, it also transferred to it the burden of bearing that tax.
Subsequently, the Spanish state and Navantia applied to the Concello de Ferrol for an exemption from the property tax, but the application was refused. The refusal was contested before a national court and it was that dispute which was the subject of the proceedings in case C-522/13. The question that was referred by the national court for preliminary ruling by the Court of Justice was whether the tax exemption could entail the granting of State aid to Navantia.
After reviewing the relevant tax provisions, the Court of Justice found that “27 … the property tax constitutes a tax normally payable by Navantia and that the exemption enjoyed by that undertaking has the effect of mitigating directly, without any other measure being necessary, the charges that would ordinarily be borne by an undertaking in the same situation. Consequently, it appears that a tax exemption of that nature confers an economic advantage on Navantia.”
The Spanish state contended that the objective of the exemption was not to confer a benefit to an undertaking such as Navantia, but exclusively to benefit the Spanish state in its capacity as owner of land and, moreover, that the land was used for national defence purposes. The Court replied that the aims of a measure were irrelevant in the context of Article 107(1) TFEU and that the exemption mitigated the charges that would normally be borne by Navantia. [paragraphs 28-29]
Then the Court turned its attention to the issue of the selectivity of the exemption. “35 It follows that, in order to categorise a domestic tax measure as ‘selective’, it is necessary to begin by identifying and examining the common or ‘normal’ regime applicable in the Member State concerned. It is in relation to that common or ‘normal’ tax regime that it is necessary, secondly, to 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 in as much as it differentiates between economic operators who, in the light of the objective attributed to the tax system of the Member State concerned, are in a comparable factual and legal situation”.
The Court acknowledged that according to Spanish law, ownership or use of land entailed liability to property tax. The regime to which that tax belonged was, therefore, taken to be the reference or normal regime and the exemption was obviously a deviation from that normal regime.
The last issue that remained to be examined by the Court was whether the differentiation caused by the tax exemption in favour of Navantia arose from the nature or the overall structure of the reference tax system.
“43 A measure which creates an exception to the application of the general tax system may be justified by the nature and overall structure of the tax system if the Member State concerned can show that that measure results directly from the basic or guiding principles of its tax system. In that connection, a distinction must be made between, on the one hand, the objectives attributed to a particular tax regime, which are extrinsic to it, and, on the other hand, the mechanisms inherent in the tax system itself, which are necessary for the achievement of such objectives”.
The Court concluded that “44 … in the present case, it does not appear from the information before the Court that the Spanish Government has adduced any arguments to show that the tax exemption sought results directly from the basic or guiding principles of the Spanish tax system or that it is necessary for the functioning and efficiency of that tax system. Moreover, as the European Commission pointed out, an exemption for immovable property owned by the State and used for the purposes of national defence does not appear to be directly related to the objectives of the property tax itself.”
In the rest of the judgment, the Court found that the other criteria of Article 107(1) could hold as well and concluded that the exemption from property tax could amount to State aid.
This Court Decision could be interesting for questioning the tax exemptions for public entities related to national, regional or local real estate taxes in your country.