The European Commission (Commission) decided in July 2016 that four Spanish professional football clubs had received illegal State aid. FC Barcelona, listed among these clubs, had brought an action against that decision before the General Court. The General Court consequently annulled the Commission’s decision. However, the Court of Justice of the European Union (CJEU) has set aside the judgment of the General Court with its own judgment in case C-362/19, thus upholding the Commission’s earlier decision.
This ruling effectively means that the Spanish tax authorities will have to recover any illegal state aid that the four football clubs received. The Spanish government announced it has “absolute respect” for the CJEU’s decision.
A Spanish law adopted in 1990 obliged all Spanish professional sports clubs to convert into public limited sports companies, except for professional sports clubs that had achieved a positive financial balance during the financial years preceding adoption of that law. FC Barcelona, and three other professional football clubs (Real Madrid, CA Osasuna and Athletic Bilbao) fell within the ambit of the exception. They decided to continue operating in the form of not-for-profit legal entities, enjoying a special income tax rate. As this tax rate remained below the rate applicable to public limited sports companies until 2016, the Commission took the view that the Spanish law (de facto introducing a preferential corporate tax rate for the four clubs concerned) constituted unlawful and incompatible State aid.
In the case at hand, the question is whether the Spanish measure conferred an advantage to the football clubs. The General Court annulled the Commission’s decision on the ground that it had not proved to the requisite legal standard the existence of an economic advantage. In particular, the General Court found that the Commission had not sufficiently assessed whether the advantage resulting from the reduced tax rate could be offset by another less favourable deduction rate that applies to not-for-profit legal entities.
Findings of the CJEU
The CJEU has ruled on two main issues in its decision: (1) the difference between individual aid and an aid scheme and (2) the burden of proof as regards the existence of an advantage.
- Difference between individual aid and an aid scheme
Contrary to the General Court, the CJEU draws a distinction between the adoption of an aid scheme and the individual aid granted on that basis. The CJEU observes that the measure at issue constitutes an aid scheme since the preferential corporate tax rate could benefit each of the eligible football clubs defined in a general and abstract manner, without further implementing any measures. The General Court was wrong in finding that the individual aid granted influenced the examination to be carried out by the Commission. The reasoning is in fact that the state aid regime is at stake and not the financial advantage to an individual football club.
- Burden of proof as regards the existence of an advantage
Because of this error in law committed by the General Court, the CJEU finds, secondly, that the burden of proof imposed on the Commission as regards the proof of the existence of an advantage was wrong. Admittedly, the Commission should take into account all components (both favourable and unfavourable to beneficiaries) of the aid scheme – but only at the stage of the possible recovery of the individual aid granted under the aid scheme. However, the examination of the existence of an advantage cannot depend on the financial situation of the beneficiaries at the time of the subsequent grant of individual aid on that basis. In particular, the impossibility of determining the exact amount of the advantage cannot prevent the Commission from finding that that scheme was capable of conferring an advantage on those beneficiaries.
In the present case, the aid scheme was liable to favour clubs operating as not-for-profit entities over clubs operating in the form of public limited sports companies, thereby conferring on them an advantage capable of falling within the scope of Article 107(1) TFEU. However, to demonstrate this advantage, the Commission was not required to examine the effect of other, less favourable deduction rates that could potentially neutralise the advantage resulting from the aid scheme.
The ruling of the CJEU shows that the legislator should exercise caution when drafting a bill that obliges legal entities to switch legal form. The tax rate applicable to a specific legal form could confer an economic advantage resulting in illegal state aid.
For more information about State aid or any questions related to this article, please contact Pieter Kuypers, Tom Binder or Octave Schyns.