Judgment of the Court of Justice of the European Union on July 25, 2018. Back on the naval tax lease regime

• Author: Cesar Garcia Novoa
• Pages: 273-307

Studi Tributari Europei 1/2017

!

© Copyright Seast – Tutt i i d iri tti ri se rva ti!

!

273!

Judgment of the Court of Justice of the European Union on

July 25, 2018. Back on the naval tax lease regime*

César García Novoa 1

ABSTRACT: The judgment of the Grand Chamber of the European Union

Court of Justice of July 25, 2016 on the tax lease nullifies the judgment of

the General Court of 2015. The Grand Chamber argues that there is a lack

of motivation. In addition, the Court questions that investors are the

unique possible State aids beneficiaries and not the Economic Interest

Groups or the shipping companies.

KEY WORDS: tax lease, State aid, Tonnage Tax, European Union Law,

European Justice Court, bareboat charter.

Table of Contents

1. Introduction 2. State aids and the doctrine of the European Commission

3. The called tax lease 4. Content of the decision that partially declares as

State Aid the tax lease regime 5. The resolution of the action for annulment

of December 17, 2015 by the General Court of the Union 6. The content of

the judgment of the Grand Chamber of July 25, 2018 (As. C-128/16P) 7.

Consequences of the judgment of the Grand Chamber of July 25, 2018

1.Introduction

On 25th of July of 2018, the Grand Chamber of the Court of Justice of the

European Union (hereinafter, ECJ) published the sentence C-128/16 P

Commission/Spain, concerning the so-called naval tax lease. The sentence

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

* How to quote this article: C. Garcia Novoa, Judgment of the court of justice of the European

Union on July 25, 2018. back on the naval tax lease regime, translated by JOSÈ MIGUEL MARTIN

RODRIGUEZ, Universidad Pablo de Olavide Sevilla, in Studi Tributari Europei, n. 1/2017

(ste.unibo.it), pp 273-307, DOI:!10.6092/issn.2036-3583/8781.

1 César García Novoa, Full Professor of Tax Law and Public Finance at the University of

Valencia, Spain.!

Studi Tributari Europei 1/2017

!

© Copyright Seast – Tutt i i d iri tti ri se rva ti!

!

274!

solved the appeal brought by the European Commission against the

previous judgement of the General Court of 17th December 2015, nullifying

the Commission's Decision on aids to the naval sector. It addressed the

decision of 17 July 2013 dictated, after hearing to the parties, by the

College of Commissioners of the European Commission concerning the state

aid SA. 21233 C/2011 (ex NN/2011, ex CP 137/2006). The decision ended a

procedure initiated as a result of a complaint made to the European

Commission by an association of Dutch shipyards and another of Danish

shipyards. This Decision was published in the Official Journal of the

European Union on 16 April 2014.

When it comes to resolve the aforementioned complaint, the Commission

understood that it should carry out an individualized analysis, which led it to

go in depth in the various advantages of the tax lease regime.

Consequently, the Commission proceeded to declare the tax lease scheme

partially inconsistent with the European Union rules on state aids,

distinguishing what were considered to be illegal aids from those that were

esteemed as compatible. Although we will see in detail in what this figure of

tax lease consists and how it is formalized through a Economic Interest

Grouping (EIG). We advance that this structure included five advantageous

tax measures: early amortization before the asset (the vessel) enters into

service, the accelerated amortization once the asset entered into service,

the non-encumbrance of the surplus value in the transmission of the ship at

the time of its sale to a shipping company (which neutralized the reversal of

the amortization), the special tonnage taxation regime and the fiscal

transparency of the EIG's, that results a transfer of advantages to shipping

companies and investors2.,

Among these measures, as we shall see, the Commission considered state

aids three of them: the anticipated amortization, the non-encumbrance of

the surplus value and the application of the tonnage regime. The illegality of

them would be based on the infringement of Article 108.3 of the Treaty of

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

2.- CALVO, R.-PASTORIZA VÁZQUEZ, S.-“Últimos expedientes españoles en materia de

ayudas de Estado fiscales. El tax lease y el fondo de comercio financiero en adquisición de

holdings”, Actualidad Jurídica Aranzadi, nº 869, 2013, p. 8.

Studi Tributari Europei 1/2017

!

© Copyright Seast – Tutt i i d iri tti ri se rva ti!

!

275!

Functioning of the European Union since Spain had not notified that scheme

to the European Commission to obtain its authorization.

The Decision was appealed in front of the General Court and it was annulled

because, from the subjective point of view, the selectivity criteria concurs,

and the resolution suffered of insufficient motivation. In this regard, the

General Court recalls that, due to the fiscal transparency of the EIG, the tax

measures applied to the latter could only benefit its members, that is to say,

investors. Then the economic advantage of which they benefited was not

selective, from the moment that any company in any sector could invest in

the aforementioned EIG. Therefore, the Judgement of the General court,

nullifying the decision of the Commission questioned its qualification as a

state aid.

The sentence of the Grand Chamber that we will comment on, of 25 July

2018, voided this mentioned resolution of the General Court who had

questioned the decision of the Commission.

Before confronting the content of the judgement, it should be briefly

recalled the European Commission's position on illegal state aids. Later we

will do a succinct description of the fiscal structure questioned, called Tax

Lease. Thirdly, we will summarize the procedural Iter that resulted in the

appeal currently resolved by the ECJ. Finally, we will mention the content

and the doctrine of the court of Luxembourg concerning state aids in

relation to the item covered by this resolution.

2. State aids and the doctrine of the European Commission

We should remember briefly that the concept of “state aid” in the European

context is regulated in the article 107 paragraph 1 of the Tr eat y on

Functioning of the European Union (former article 87 of the Treaty of the

European Constitution), which defines them as “aid granted by a Member

State or through State resources in any form whatsoever which distorts or

threatens to distort competition by favoring certain undertakings or the