The Court of Justice holds that a tax levied on pay-TV operators to finance the competing State-owned broadcaster Corporación de Radio y Televisión Española (RTVE) is not State aid within the meaning of Article 107 TFEU. The Court acknowledges that the tax constitutes an additional competitive disadvantage for pay-TV operators—different from that resulting from the public resources transferred to RTVE. It finds, however, that the tax is not aid within the meaning of the Laboratoires Boiron case law. According to the Court, the amount of the aid granted to RTVE would be determined by the net costs of fulfilling the public service mandate and the possible incompatibility of the tax with EU law would not call into question the aid, due to the obligation of the Spanish State to cover the shortfall between the sources of funding available to RTVE and the net costs of the public service obligation.
In 2009, Spain amended the former dual funding scheme of the State-owned broadcaster RTVE, whereby RTVE had until then been financed by both commercial—mainly, advertising—revenues and the compensation received by the State for the fulfilment of its public service mandate. RTVE was no longer allowed to rely on advertising revenues as a source of financing and, as ‘compensation’ for the loss of these revenues, three new taxes were introduced to contribute to its financing, including a new tax of 1.5 per cent on the revenues of pay-TV operators.
The Commission authorised the new funding scheme under Article 106(2) TFEU, without analysing the compatibility of the new taxes with the Treaty, since it held that they were not an integral part of the aid granted to RTVE (Commission Decision 2011/1/EU of 20 July 2010 on the State aid scheme C 38/09 (ex NN 58/09) which Spain is planning to implement for RTVE, OJ 2011 L 1, p. 9).
DTS challenged the Commission's decision before the General Court, alleging that the Commission infringed Article 107 TFEU authorising the aid without taking into account the new tax levied on pay-TV operators, which formed an integral part of it. It also alleged that the decision infringed Article 106(2) TFEU, since the tax distorted competition contrary to the common interest, and Articles 49 and 63 TFEU since the tax restricted the freedom of establishment and the free movement of capitals.
The General Court confirmed the Commission's decision, dismissing DTS’ allegations of infringement of Articles 107 and 106(2) TFEU (T-533/10, EU:T:2014:629). It also held that, since the tax was not an integral part of the aid, the Commission was not required to examine its compatibility with Articles 49 and 63 TFEU.
In its judgement of 10 November 2016, the Court of Justice upheld the General Court's judgement, thus confirming that the tax imposed on DTS to finance its competitor RTVE does not constitute aid within the meaning of Article 107 TFEU.
The DTS case raises the interesting question of whether a tax can be deemed aid within the meaning of Article 107 TFEU.
In the decision authorising RTVE's new funding scheme, the Commission invoked the Régie Networks case law (C-333/07, EU:C:2008:764, para 99), according to which for a tax to be regarded as forming an integral part of an aid measure, the revenue from the tax must be necessarily allocated to the financing of the aid and have a direct impact on the amount of the aid. The Commission found that these conditions were not fulfilled, because the new tax had no direct impact on the amount of the aid granted to RTVE. According to the Commission, the amount of the aid depended exclusively on the net costs of the public service obligation imposed on RTVE, since Spanish legislation provided that when the revenue from the new tax was insufficient to cover these costs, the gap would be filled by contributions from the general state budget and when the revenue from the taxes exceeded these costs, the surplus would be paid back to the general state budget.
The Court of Justice, in upholding the General Court's judgement, confirmed the finding that the tax on pay-TV operators did not form an integral part of the aid under the Régie Networks case law. It also dismissed DTS’ allegation that the tax at issue is aid pursuant to the Laboratoires Boiron case law (C-526/04, EU:C:2006:528), in that it is an asymmetrical tax imposed on a category of operators—pay-TV operators—which are in competition with the beneficiary of the aid—RTVE. DTS argued that the aid granted to RTVE had two limbs: the public funds transferred to RTVE—of which the tax at issue was an integral part pursuant to the Régie Networks case law—and the asymmetric tax levied on pay-TV operators, which was aid pursuant to the Laboratoires Boiron case law.
The Laboratoires Boiron case concerned a tax which was levied on pharmaceutical companies as a percentage of the revenues obtained from selling medicines directly to pharmacies, but was not levied on pharmaceutical wholesalers, which competed with them for these sales. The revenue from the tax was assigned to the Caisse nationale d'assurance maladie. The Court held that pharmaceutical companies were entitled to claim that an asymmetrical tax such as the one at issue, imposed on only one of two categories of competing operators, constitutes State aid and claim its reimbursement. The Court found that in case of asymmetrical taxes, the aid is the tax itself. It distinguished asymmetrical taxes from aids consisting in exemptions granted to certain operators from taxes of general application. Pursuant to the Court's case law, an operator liable to pay a tax of general application cannot claim that the exemption enjoyed by other operators constitutes State aid to avoid payment of the charge or obtain reimbursement (see, in particular, C-390/98, Banks, EU:C:2001:456). Indeed, if the aid is the exemption, the reimbursement of the tax paid would not eliminate the distortion of competition, but rather increase the number of recipients of the aid. However, if the aid is the tax itself—which occurs in case of asymmetrical taxes levied on only one category of competing operators—, the reimbursement would reduce the number of operators harmed by the aid and thus limit its anticompetitive effects.
In the DTS judgement, the Court of Justice confirms that a tax can be aid when it is levied only on one of two categories of competing operators and that in these cases of asymmetrical tax liability the aid measure is the tax itself. It also confirms that asymmetrical taxes of this kind are different from exemptions for certain operators from taxes of general application (para 75).
Nonetheless, the Court refuses to assess the tax levied on DTS under the Laboratoires Boiron case law, ultimately in deference to the Member States’ competence in the field of taxation. The Court starts and concludes its reasoning recalling that taxes are not, in principle, subject to the rules on State aid (paras 65 and 83).
The Court dismisses DTS’ argument that the 1.5 per cent tax is an asymmetrical tax, which is aid under the Laboratoires Boiron case law, because of two differences between this tax and the one at issue in the Laboratoires Boiron case. However, these differences do not relate to the second limb of the aid, which DTS claimed to be aid pursuant to the Laboratoires Boiron case law.
The Court states that, unlike in the Laboratoires Boiron case, the possible incompatibility of the 1.5 per cent tax with EU law would not call into question the aid, since the Spanish State is required to cover the shortfall between the sources of funding available to RTVE and the net costs of the public service obligation (para 77). Nonetheless, a derogation of the tax due to its incompatibility with EU law would eliminate the additional advantage that RTVE obtains by the very fact that a competitor is deprived of resources which it could otherwise use to compete with it, which is the second limb of the aid that should have been assessed under the Laboratoires Boiron case law. As a matter of fact, the Court acknowledges that ‘The obligation to pay that tax thus causes DTS an additional competitive disadvantage on the markets on which it operates in competition with RTVE […]’ (para 79, emphasis added).
Similarly, the Court states that in Laboratoires Boiron the amount of the aid was determined only by the amount of the tax, while in the present case the amount of the aid would be determined by the net costs of fulfilling the public service mandate (para 78). But again the Court ignores the difference between the first limb of the aid—the public resources transferred to RTVE, which should not exceed or be lower than the net costs of the public service—and the second limb of the aid—the tax levied on pay-TV operators. In relation to this second limb, DTS alleged that the amount of the aid depended on the tax since, similarly to the Laboratoires Boiron case, the higher the tax imposed on pay-TV operators, the bigger the competitive advantage obtained by RTVE.
Finally, the Court acknowledges that DTS competes with RTVE and that the obligation to pay the 1.5 per cent tax constitutes an additional competitive disadvantage—other than the one resulting from the public resources transferred to RTVE—, but concludes that this is not sufficient to demonstrate that the tax is an integral part of the aid. However, it comes to this conclusion by invoking the case law on exemptions from taxes of general application, without explaining why the 1.5 per cent tax could eventually be assimilated to such an exemption. DTS never claimed it did.
The DTS judgement confirms that, in principle, a tax can constitute State aid in two different situations. A tax may form an integral part of an aid measure when the revenue from the tax is necessarily allocated to the financing of the aid and has a direct impact on the amount of the aid, pursuant to the Régie Networks case law. A tax may also constitute aid when it is levied asymmetrically on only one category of competing operators, in which case the aid is the tax itself pursuant to the Laboratoires Boiron case law.
However, the DTS judgement also seems to indicate that the Court of Justice is inclined towards maintaining the Laboratoires Boiron case as an isolated precedent. Thus, the Court refused to apply this precedent to a situation which was not only very similar to the Laboratoires Boiron case but in which the selective advantage shouldered by a competitor was even clearer so that Laboratoires Boiron should have applied a fortiori. It seems that the Court of Justice did not want to impinge on Member States’ competence in the field of taxation.
It now remains to be seen what the Spanish Supreme Court will rule on the compatibility of the 1.5 per cent tax with Articles 49 and 63 TFEU in the context of the application for annulment of this tax brought by DTS. Once that the Court of Justice has confirmed that the tax is not part of the aid granted to RTVE and thus the Commission was not obliged to assess its compatibility with EU law, this task now rests with the national court that is called upon safeguarding the rights of individuals conferred by directly applicable Treaty provisions.