Spain

Author:Th. Jestaedt; J. Derenne; T. Ottervanger
Profession:Jones Day; Lovells; Allen & Overy
Pages:421-451
SUMMARY

2. Outline on the availability of judicial relief under the legal system of Spain. 2.1 Procedures concerning the direct effect of Article 88 (3) EC. 2.1.1 Action for annulment or contesting the legality of the act. 2.1.2 Action for liability and damages from the State. 2.1.3 Action for suspension of the implementation (interim measures). 2.1.4 Procedures concerning the enforcement of negative Commission decisions. 2.2 Procedures concerning the enforcement of positive Commission decisions. 2.3 Special Procedure under Spanish Competition Act.. 2.4 Summary conclusions drawn form the cases below. 2.4.1 Cases relating to the 1988 Basque tax regulations. 2.4.2 Cases relating to other tax measures. 2.4.3 Cases relating to measures other than taxes. 2.4.4 Cases relating to division of competence. 2.4.5 Cases brought by competitors. 2.4.6 Recovery cases. 2.4.7 Preliminary rulings. 2.5 Research Methodology. 2.5.1 Sources. 2.5.2 Key words used for the research of cases. 2.5.3 List of cases and summaries. 2.6 Control of legality of Acts (the Basque tax regulations). 2.6.1 Judgment number 96/2002, 25 April 2002, Annulment of a regulation, Tax/regional aid. 2.6.2 Appeal number 12703/1991, 7 February 1998, Appeal in cassation, Tax sector. 2.6.3 Appeal number 7484/1990, 13 October 1998, Appeal in cassation, Tax sector. 2.6.4 Appeal number 7565/1992, 22 October 1998, Appeal in cassation, Tax sector. 2.6.5 Appeal number 2580/1995, 22 January 2000, Appeal in cassation, Tax sector. 2.6.6 Appeal number 8648/1999, 3 November 1999, Appeal in cassation. 2.6.7 Appeal number 3806/1999, 17 November 2004, Appeal in cassation, Tax/regional aid. 2.6.8 Appeal number 7893/1999. 9 December 2004, Appeal in cassation, Tax/regional aid. 2.6.9 Appeal number 500/2002, 28 June 2002, Annulment of a regulation, Tax sector. 2.7 Control of Legality of Acts (other tax measures). 2.7.1 Court Order number 172/2002, Appeal number 1894/2002, 1 October 2002, Ratification of suspension of law, Tax/Financial Institutions. 2.7.2 Judgment number 10/2005, 20 January 2005, Annulment of a regulation Tax / Financial Institutions. 2.7.3 Judgment number 465/2003, 29 May 2003, Annulment of administrative act, Tax sector. 2.7.4 Appeal number 1178/1989, 9 June 1994, Annulment of a regulation, Tax sector. 2.8 Control of Legality of Acts (measures other than taxes). 2.8.1 Appeal number 241/1996,18 February 1998, Annulment of regulation, Construction/Housing. 2.8.2 Appeal number 930/1998, 24 November 1998, Appeal in cassation, Fishing sector. 2.8.3 Appeal number 7001/1991, 20 April 1999, Appeal in Cassation, Cinematographic Industry. 2.8.4 Appeal number 117/2000, 11 June 2001, Annulment of regulation, Electricity sector (payments of stranded costs). 2.8.5 Appeal number 51/2001, 21 November 2001, Annulment of regulation, Electricity sector (payments for stranded costs). 2.8.6 Appeal number 154/2001, 25 November 2002 Annulment of a regulation, Energy sector (distribution of electricity). 2.8.7 Appeal number 899/1998, 19 December 2001, Proceedings in first instance, Agricultural sector . 2.8.8 Appeal number 729/1998, 4 January 2001, Ordinary Proceedings for the annulment of a regulation. 2.8.9 Appeal number 756/2003, 7 February 2005, Annulment of a regulation, Energy sector. 2.9 Division of Competence. 2.9.1 Judgment number 126/2002, 23 May 2002 Annulment of a regulation, Environment. 2.9.2 Judgment number 175/2003, 30 September 2003, Positive conflict of competences before the Constitutional Court, Industry. 2.10 Actions by Competitors. 2.10.1 Appeal number 7349/1992, 22 February 1999, Annulment of regulation, Civil Aviation. 2.10.2 Appeal number 1251/1997, 11 April 2000, Annulment of administrative act, Transport. 2.10.3 Appeal number 174/1998, 21 May 2002, Annulment of administrative act, Transport. 2.10.4 Exp. R 340/98, 7 May 1999, Administrative proceedings before the Competition Authority - appeal against the decision by the Service for the Defence of Competition (SDC) to close proceedings against RENFE, Railways sector. 2.10.5 Exp. R.311/98, 21 March 2002, Resolution in execution of the judgment of the National Court dated 29 June 2001, Real Estate sector. 2.11 Recovery Cases. 2.11.1 Appeal number 2824/1999, 24 May 2001. 2.11.2 Appeal number 1260/2003, 4 May 2005, Appeal in cassation, Tax. 2.12 Preliminary Rulings. 2.12.1 Appeal number 2250/1997, 22 December 2003, Appeal in cassation, Shipbuilding.

 
INDEX
CONTENT

Page 421

2. Outline on the availability of judicial relief under the legal system of Spain

This chapter sets out the procedures made available by Spanish law in connection with enforcement of the EC law on State aid. Some of those procedures have not been used in the past. However, if cases on suspension or on recovery are brought before Spanish courts, the outlined procedures would apply.

A particular problem arises in Spain due to its quasi-federal structure: the regional entities may also grant State aid but the competence to notify these plans to the Commission remains in the hands of the Central Administration. Therefore, regional organs are obliged by Royal Decree 1755/1987 of 23 December to notify to the competent central organ ("Comisión interministerial para asuntos de la Union Europea") of their plans to grant or to alter aid. They must do so at least three months prior to executing the aid.

The Comisión interministerial para asuntos de la Union Europea was created by Royal Decree 1567/1985 of 2 September and its generic powers include the coordination of the State administration acts in economic matters relating to the European Union and the right to be informed of the decisions adopted by the Ministries relating to the European Union. Nonetheless, the practical role played by the Comisión interministerial is not entirely clear. It is likely that the procedures could benefit from a clear allocation by a centralised, coordinating power, to this or other office or organ.

Generally speaking, any company or entity with a competitive interest is afforded standing to appear in the administrative procedures (Article 31 of Law 30/1992, of 26 November 1992, on administrative procedure) or to appear in judicial proceedings (Article 19 of Law 29/1998, of 13 July 1998, regulating access to the administrative courts). Likewise, as discussed in this section, the laws applicable both to the administrative procedure and to the judicial review of administrative action foresee the possibility, which is often used, of affording interim relief (see also the relevant discussion under part II of this report). It may also be theoretically possible to obtain compensation for damages from the State, although such legal action in State aid cases seems to be rare to date.

Finally, it may be worthwhile to point out, as way of preliminary remark, how litigation in some cases seems to on and on without any specific results. A good example for this is provided by the Basque tax schemes. Subsequent to the action at Community level, substantial litigation took place before the highest instances at national level, but full recovery has apparently not yet taken place. This has resulted in press reports noting that Spain had not taken specific measures against those aid schemes, in spite of the both the Commission and the ECJ's decisions against such schemes369. Litigation in connection with the Basque tax schemes is discussed below.

Page 422

Below, we provide an outline of remedies available under Spanish law in connection with enforcement of EC law on State aid. To date, there are reported legal actions brought under administrative law before administrative courts. As will be discussed, private litigation may take place under some circumstances under the law on unfair trade for instance. However, such actions seem rare to date. This may be due to the fact that the source of State aid is, by definition, a public entity and that the competent courts are normally perceived to be the administrative courts, although the laws on unfair trade may certainly provide for a sound legal basis for private litigation. Regarding actions before the competition authorities, as is pointed out below, the Spanish competition laws give these authorities very limited powers in connection with enforcement of State aid law.

2. 1 Procedures concerning the direct effect of Article 88 (3) EC
2.1. 1 Action for annulment or contesting the legality of the act

* By competitors

The proper procedure to challenge subsidies paid to competitors in breach of the EC Treaty (such as aid which has been paid prior to completion of an investigation by the Commission) is an appeal before the administrative body of superior hierarchy to the body which took the decision to grant the aid. If the appeal is rejected, an action could be brought before an administrative court ("Juzgado de lo Contencioso-administrativo", although the actual court may vary depending on the organ granting the aid). The resulting decision would be subject to appeal before the administrative division of a regional court of appeals ("Sala de lo Contencioso administrativo del Tribunal de Justicia", again, depending on which was the competent ad quem judicial organ). The latter decision would also be subject to appeal, on grounds of law only, before the Administrative division of the Supreme Court ("Tribunal Supremo").

Competitors can also bring an action before a commercial court and request it to order the beneficiary to reimburse the aid to the relevant public Administration. Under Spanish law, such a legal action may be taken under Article 22 of the Unfair Trade Act (Law 3/1991 of 10 January, regarding unfair competition).

The Unfair Trade Act considers as unfair competition certain categories of acts/behaviour (foreseen by the Act), fulfilling the following generic conditions:

- performed by economic operators;

- taking place within the market;

- having anticompetitive purposes.

The infringement of rules intended to regulate competition is foreseen as one of the categories of acts/behaviour which may constitute unfair competition if the above conditionsPage 423 are fulfilled. Therefore, this legal action against the beneficiaries of State aid could be based on the Unfair Trade Law rules, combined with the infringement of Article 88 (3) EC, which has direct effect.

* By the Public Administration

Annulment of the administrative act may also be declared by the Public Administration itself, of its own initiative, under the procedure of "revision de actos de ofício" (revision of administrative acts), foreseen in Article 102 of Law on Administrative Procedure ("Ley de Régimen Jurídico de las Administraciones Públicas y del Procedimiento Administrativo Común"). This procedure requires an opinion of the Council of State and it is rarely used.

2.1. 2 Action for liability and damages from the State

In cases where the administrative decision is declared void but the payment of State aid is not suspended, it is possible to assert the State's liability on the basis that all of the requirements of Article 139 of the Law on Administrative Procedure which regulates claims for damages against the State, have been fulfilled, depending on the particular circumstances of the case.

The requirements are the following:

- damage to the goods or rights of the claimant;

- effective, economically appreciable, and individualised damage regarding one person or group of persons; and

- damage as a consequence of the normal or abnormal functioning of the public services.

The individuals/entities whose interests have been damaged may claim their right to be compensated within one year of the damaging event or of the manifestation of it. They must submit the complaint before the relevant Ministry or the Council of Ministries if provided for by law, the competent bodies of the regional authorities, or the competent bodies of the Public Law Entities, in the event that is provided for by the regulations creating such entities.

The Law on Administrative Procedure has attempted to unify the State's liability under the administrative jurisdiction (as opposed to the pre-existing regime, where the State could be liable under both civil and administrative law) and has therefore eliminated the civil procedure which existed prior to its adoption.

Such a claim to enforce liability against the State could also be brought under the procedure in place for obtaining the nullity of the aid (i.e. prior to applying for judicial review), under Articles 31, 34 and 35 of the Spanish Act on Administrative Jurisdiction ("Ley de la Jurisdicción Contencioso-Administrativa"), which allows the accumulation of claims within thePage 424 same judicial proceedings. The claimant may ask to be put back in the same legal situation as it would have been in if there had been no infringement. This includes compensation for damages.

2.1. 3 Action for suspension of the implementation (interim measures)

In the context of an action for annulment, an interim measure against the aid illegally granted could be requested by invoking Article 129 of the Spanish Act governing judicial review of administrative action ("Ley reguladora de la Jurisdicción Contencioso-Administrativa").

Article 129 allows the suspension of the administrative act (which is the most commonly granted measure). Any other measures deemed necessary to ensure effectiveness may also be granted, although it should to be noted that goods or assets belonging to the Public Administration (to the extent the interim measures requested affect them) may in principle not be frozen or appropriated.

The substantive requirements for the grant of interim measures are:

* the existence of a prima facie case (case where there is a high probability of the existence of the right) which deserves judicial protection (fumus boni iuris); and

* the existence of a risk that the effectiveness of the final judgment may be put at peril if there is not an immediate judicial decision ensuring preservation (periculum in mora).

Audience must be granted within ten days from filing the petition of interim measures, and decided upon within the following five days. The interim measures remain in force until a final judgment is given, although the judge may decide to modify them during the course of the procedure.

Decisions on interim measures may be appealed before the court that issued the decision at first instance and, ultimately, before the Supreme Court, administrative division.

2.1. 4 Procedures concerning the enforcement of negative Commission decisions

Proceedings before administrative bodies

Individuals may seek the enforcement of a negative Commission decision by requesting an order for repayment to the competent administrative bodies, which would differ depending on the nature of the public authority that granted the unlawful aid (i.e. local, regional, central authority, etc.). Where those authorities reject the application, an action before the administrative law courts is necessary.

Proceedings before commercial courts under Unfair Trade Act

Page 425

See section 2.1.1 above.

2. 2 Procedures concerning the enforcement of positive Commission decisions

One could envisage an action brought before an administrative court by a competitor of the beneficiary of aid which had been cleared by the Commission, aiming to prevent the granting of the aid by the State. However, the administrative court would need to refer the case for preliminary ruling to the ECJ under Article 234 EC. Nonetheless, some of the cases analysed show a degree of reluctance on the part of national courts to request preliminary rulings under these circumstances (See case 3.1.11 below). Therefore, it seems that it would be more appropriate and effective to bring an action directly before the European Courts under Article 230 EC.

2. 3 Special Procedure under Spanish Competition Act

Historically, Article 19 of the Competition Act (Law 16/1989 of 17 July) provided that the Tribunal for the Defence of Competition, upon request from the Minister of Economy and Finance, could examine the effects on competition of publicly funded aid granted to an undertaking.

Depending on the report of the Tribunal, the Minister could propose that the public authorities should cease or modify the aid, as well as propose other appropriate measures, if applicable, to maintain or re-establish competition.

It is clear from this provision that the regime initially set up by the Spanish Competition Act differed from the one instituted under the EC Treaty. Whereas the Commission has the power to launch investigations of its own motion and, if applicable, to decide that a Member State must abolish aid which is deemed contrary to Article 87 EC, the Tribunal for the Defence of Competition was only entitled to examine the aid granted to undertakings upon request of the Minister. Furthermore, the functions of the Tribunal for the Defence of Competition were merely consultative, its decision being advisory and having no binding effect over the Minister.

The substantive scope of application of Article 19 of the Spanish Competition Act was also more limited than that of Article 87 EC. Article 19 referred to aid granted to undertakings which was derived from public funds, whereas the concept of aid under Article 87 EC is much wider, and refers to aid granted by a Member State or through State resources. This means that the concept of aid under Article 19 of the Spanish Competition Act (Lay 16/1989 of 17 July 1989 or "LDC") did not include all types of aid entailing a burden on the public finances either in the form of expenditure or of reduced revenue.

Furthermore, the Tribunal for the Defence of Competition was not obliged to examine the aid, even if that examination had been duly proposed by the Minister. Under the EC lawPage 426 provisions on State aid, the Commission has the duty to declare contrary to Article 87 EC aid which distorts or threatens to distort competition.

Article 19 of the LDC has been amended by an Act of the Spanish Parliament of 28 December 1999. The second paragraph of Article 19 states a definition of State aid that narrows the gap between Spanish and EC Competition law by referring to a rather wide notion of 'State aid'.

Its new third paragraph provides that the Tribunal for the Defence of Competition, of its own motion or upon request from the Minister of Economy and Finance, may examine the effects on competition of aid granted to an undertaking.

Depending on the report of the Tribunal, the Spanish Council of Ministers may propose that the public authorities cease or modify the aid, as well as propose other appropriate measures, if applicable, to maintain or re-establish competition.

So far, Article 19 of the Spanish Competition Act has not been applied and has often been the object of criticism, even after its reform. It is clear that the regime set up by Article 19 is still unsatisfactory and requires reforms to raise domestic law to EC standards. This seems to be the will of the new Spanish Government, as stated in its recent "White Book on the Reform of Spanish Competition Law" where, nevertheless, no specific measures have been proposed on this regard.

Even after the 1999 reform, if the Minister considers that aid distorts or may distort competition, the only measure he may adopt is to propose to the public authorities concerned the suppression or modification of the aid, as well as, if applicable, other measures to maintain or re-establish competition. This means that, even if the Tribunal determines in its decision that the aid is restrictive of competition, the Minister may not propose the cessation of the aid to the public authorities concerned.

It has been proposed that Article 19 could be reworded to mirror the EC law provisions. Moreover, it could allow the initiation of proceedings either at the initiative of the national competition authority or at the request of interested third parties. Notwithstanding the Commission's exercise of its competences, the tasks of the Tribunal for the Defence of Competition could be made similar to those of the Commission (to the extent allowed by the distribution of powers between the Community and the Member States). Should that be carried out, the Tribunal should be informed of all plans to grant, alter or extend aid and have the duty to take binding decisions on its cessation.

2. 4 Summary conclusions drawn form the cases below

The cases analysed in section 3 below have been divided into several categories. Below are some conclusions for each heading.

Page 427

2.4. 1 Cases relating to the 1988 Basque tax regulations

Regional Laws 28/1988 of Alava, 8/19888 of Vizcaya and 6/1988 of Guipuzcoa (all territories within the Basque Country) introduced tax incentives in the form of deductions and benefits regarding several taxes, in particular the corporate income tax, personal income tax, transfer tax, and stamp duty. Those incentives were applicable to individuals or legal persons operating and resident in the Basque Country. The measures were not notified to the Commission.

The Commission initiated proceedings regarding those laws, and issued Decision 1993/337 EEC of 10 May 1993, establishing that the above-mentioned regional laws constituted illegal aid and were contrary to the principle of free competition.

The Spanish Central Government issued Law 42/1994 of 30 December, which included an additional clause adapting the tax system in the Basque Country to the requirements set out in the Commission decision, so that the group of companies to be granted the tax benefits would include EU companies non-resident in Spain but operating in the Basque Country. The Commission accepted this solution.

However, in several judgments (3.1.2. to 3.1.4.), the Spanish Supreme Court found that the challenged regional laws should be rendered null since they infringed the principle of equality, because the Spanish companies operating in the Basque Country but established in other Spanish territories, would not be caught by such amendment, and would therefore face a competitive disadvantage.

Later, in 2002, this additional clause was declared unconstitutional by the Constitutional Court, as it was considered discriminatory to all those Spanish companies non-resident in the Basque territory (3.1.1).

Other similar tax schemes in the Basque Country have also been challenged. The Spanish courts recalled the principle of the supremacy of EC Law, the findings of Commission decision 1993/337 EEC, and the Spanish case law on the principles of equality, unity and solidarity, the tax schemes (3.1.5, 3.1.6, 3.1.7 and 3.1.8).

On July 11 2001, the Commission issued Decision 2003/27/EC, finding that some tax incentives granted in the Basque Country had been unlawfully put into effect and were incompatible with the Common Market, and requiring Spain to abolish the aid scheme and recover the aid. Further to the failure to recover the aid by the Spanish authorities, the Commission, on 19 November 2003, brought Article 88 (2) EC infringement proceedings before the ECJ (Cases C-485-490/03), which are still pending.

Page 428

2.4. 2 Cases relating to other tax measures

Two cases concerned appeals before the Constitutional Court. In one of them, the Constitutional Court refused to maintain the suspension of a regional law, as requested by the Spanish Government. The arguments raised by the Attorney General (that the measures could amount to positive discrimination and be contrary to EC State aid provisions) were considered independent issues which should not be analysed together with the question of lifting of the suspension (3.2.1). In the other case, the Constitutional Court ruled that the measure infringed EC State aid law (3.2.2), considering that tax measures favoring some tax payers over others were illegal State aid.

In another case, the Superior Tribunal of Justice of the Canary Islands considered that the tax exemption in question was not covered by a previous decision of the Commission declaring the State aid granted by the relevant legislative provision (Law 19/1994) as being compatible with the EC regime (3.2.3).

In the last case, the Superior Tribunal of Justice of Valencia considered the tax measure as existing aid, thus being legal (3.2.4).

2.4. 3 Cases relating to measures other than taxes

Nine cases were found where measures other than taxes were challenged. The national courts dismissed most of the appeals, concluding on either the existence of duly notified and approved State aid or the inexistence of State aid.

The Spanish Tribunals interpreted the notion of State aid as not including: aid granted to non-economic operators in the sector at issue 3.3.1; payments made directly from consumers to producers 3.3.4; rules on the allocation of costs between economic operators 3.3.6; or subsidies for the functioning of entities as collaborating entities of the General Administration 3.3.7.

In one of the cases, 3.3.8, although the Superior Tribunal of Justice held that any aid granted to the company in question should be notified to the Commission, it declared that a measure modifying the urban plan in order to allow the establishment of such company was not itself contrary to State aid rules, even if it the request for land had been influenced by the possibility of obtaining certain aid.

The Tribunal's conclusions in case 3.3.3 are somewhat intriguing. It related to subsidies to cinematography, and the national court dismissed the appeal, alleging, amongst other things, that a previous Commission decision had recognised that such measures might fall under Article 87 (3) (c) EC. This seems strange, as national courts may not declare measures as compatible with the Common Market under Article 87 (2) EC.

Page 429

The national courts have declared national measures as infringing State aid rules in two cases only. In case 3.3.2, the Supreme Court considered the measure as new aid, therefore being illegal, since it had not been notified to the Commission. In 3.3.9, the Superior Tribunal of Justice found that a modification to previously approved State aid should also be notified to and approved by the Commission, and confirmed the direct effect of Article 88 (3) EC.

2.4. 4 Cases relating to division of competence

Two cases were found regarding the division of competence between the State and the regional authorities to grant aid. In the first case (3.4.1) the Constitutional Court recognised the powers of the regional authorities to grant aid in environmental matters, although it also recognised the general power of the State to coordinate such measures. In the second case (3.4.2), the Constitutional Court held that, although the regional authorities had competence for executing industry matters, the Central Government would keep that competence with respect to granting aid.

2.4. 5 Cases brought by competitors

Five cases brought by competitors have been analysed.

In case 3.5.3, the appellant was partially successful, the national court ruling on the existence of illegal aid but declaring that the beneficiary was not bound to return the aid since it had been found by the Commission to be justified under Article 86 (2) EC.

In another case (3.5.5), the Tribunal for the Defence of Competition ordered the Service for the Defence of Competition to re-open proceedings. This order came further to a judgment from the Audiencia Nacional, which had: (i) annulled the Tribunal for the Defence of Competition's previous ruling; (ii) considered that a measure benefiting State-owned companies could be subject to State aid rules; and (iii) therefore ordered the Tribunal for the Defence of Competition to consider Articles 86 and 87 in its decision.

In the other cases, the national courts dismissed the appeals, either not qualifying the measure as State aid (3.5.1); holding that there was not a presumption of illegality because Commission proceedings relative to those measures were pending (3.5.2); or not even dealing with EC provisions on State aid (3.5.4).

2.4. 6 Recovery cases

The cases regarding recovery of aid concern appeals by the beneficiaries against the decisions ordering the devolution. In those two cases, the national courts dismissed the appeals, therefore upholding the recovery orders. The national courts used the following arguments in order to dismiss the appeals: the fact that an appeal before the ECJ against a Commission decision ordering recovery did not suspend the execution of such decision, unless the ECJ expressly determined such suspension; the enforceable nature of thePage 430 Commission decisions; the national authorities having no possibility of further revising the national measures granting aid; the fact that the principle of legal certainty must be alleged before the Commission, and not before the national authorities; and the existence of a unique limitation period of ten years, from the date of the granting of the aid, foreseen by EC law, and the subsequent inapplicability of all other limitation periods provided for by national laws (claimants had argued that a national limitation period of four years should apply, but the court said that the longer period foreseen under Article 15 of EC Regulation 659/99 should apply).

By reading the above judgments, it becomes apparent that the Spanish courts are reluctant to overrule national measures ordering recovery, mostly because they consider the Commission decisions to be immediately enforceable, and because they consider that it is up to the Commission to evaluate certain criteria as fulfilling the requirements of 'legal certainty' of the parties.

Case 3.6.2 concerned tax incentives granted to several companies of Navarra. Following the Commission decision ordering recovery, the Navarra Government issued several decisions addressed to the companies which had benefited from such incentives, ordering repayment. Only Paneles Eléctricos appealed against these decisions. During the course of the proceedings, the national authorities supervised the tax behavior of the company and examined on a periodic basis its financial situation. This judgment has not, to our knowledge, been appealed.

2.4. 7 Preliminary rulings

In case 3.7.1, the Supreme Court requested a preliminary ruling of the ECJ, since a conclusion on the existence of an obligation to notify the regional decree granting State aid to the shipbuilding sector was dependent on the interpretation of Directive 90/684/EEC.

The national courts seem reluctant to request preliminary rulings, and have refused to do so on several occasions, considering that: only national law was at stake (3.1.9); there was no State aid meriting a preliminary ruling (3.3.6); or that the preliminary ruling was not necessary for the resolution of the appeal, since the measures complied with the Spanish legal regime and the Commission was the sole competent entity to decide on the compatibility of the measures with the EC regime, and was already investigating them (3.5.2).

2. 5 Research Methodology
2.5. 1 Sources

- Westlaw.es (Editorial Thomson-Aranzadi)

- internet website database compiling decisions of the Spanish Courts;Page 431 Nexus (Editorial La Ley)

- internet website database compiling decisions of the Spanish Courts;

- Summa (Editorial La Ley)

- internet website database compiling decisions of the Spanish Courts;

- Database of the Spanish Tribunal for the Defence of Competition, containing a collection of its decisions;

- Association of the Councils of State and Supreme Administrative Jurisdictions of the European Union i.n.p.a (database in French of national administrative courts decisions applying EC law :

- http://193.191.217.21/fr/jurisprudence/jurisprudence_fr.lasso , or

- http://www.raadvst-consetat.be/Juradmin/home.html (link from the Belgian Council of State's site)

2.5. 2 Key words used for the research of cases

In the fields relative to "Text" we inserted the following generic search terms:

- ayuda de estado

- ayudas de estado

- ayudas estatales

- aide* d'état*

In the fields relative to "Subject":

- "subvenciones" (in Westlaw)

- "ayudas y subvenciones" (in Nexus)

From the decisions displayed as a result of the search, we selected those that were relevant to this report

2.5. 3 List of cases and summaries
2. 6 Control of legality of Acts (the Basque tax regulations)
  1. Constitutional Court

Page 432

2.6. 1 Judgment number 96/2002, 25 April 2002, Annulment of a regulation, Tax/regional aid

Facts and legal issues: As a consequence of Commission decision 1993/337, which declared some Basque tax regulations illegal State aid following proceedings under Article 88 (2) EC, the Spanish Legislature enacted Law 42/1994 to conform those tax regulations with Commission decision 1993/337.

Law 42/1994 included a clause which granted EU nationals non-resident in Spain, but operating in the Basque Country, the same tax benefits as those afforded to residents in the Basque Country. The region of La Rioja challenged this clause in 1995, requesting the Constitutional Court to decide on its constitutionality.

Decision: The judgment focused on the analysis of the Spanish law and declared the challenged clause unconstitutional because it generated a sizeable disadvantage for EU nationals based in other Spanish territories, and also those based in the Basque Country, who would not be granted benefits such as freedom of establishment, residence and circulation, in breach of certain constitutional principles.

The Constitutional Court recognised that, although a different tax regime could be established based on the status of "non-resident", this could not be used to release a group from the constitutional responsibility of contributing to the general expenses.

The judgment also referred to the disproportionality of the measure adopted by the government to conform with the Commission decision and considered that the amendment required by the Commission decision should be carried out by the Basque Authorities following the Commission's instructions, as these Authorities were empowered to legislate on tax matters. The Constitutional Court declared the challenged clause unconstitutional and, therefore, void.

  1. Supreme Court (Administrative Division)

2.6. 2 Appeal number 12703/1991, 7 February 1998, Appeal in cassation, Tax sector

Facts and legal issues: By regional law 14/1987 of 7 July 1988, the Region of Vizcaya granted tax incentives for investment. The contested law introduced tax incentives to corporate income tax, personal income tax, transfer tax and stamp duty. The Spanish Central Government brought an action before the Supreme Court against such regional law, alleging that it infringed the constitutional principle of equality, since the established tax regime was more favorable than the general regime, therefore benefiting the people and entities to which it applied.

Decision: Prior to this judgment, the Commission had initiated proceedings under Article 88 (2) EC regarding regional laws 28/1988 of Alava, 8/1988 of Vizcaya and 6/1988 ofPage 433 Guipuzcoa, all territories within the Basque Country. Consequently, it issued Decision 1993/337/EEC of 10 May 1993, establishing that the above-mentioned regional laws constituted illegal aid in breach of Article 52 EC and were contrary to the principle of free competition. The Spanish Central Government issued Law 42/1994 of 30 December, which included an additional clause, adapting the tax system in the Basque Country to the requirements set out in the decision, so that the group of companies granted the tax benefits would include EU companies non-resident in Spain but operating in the Basque Country (note that this additional clause was, nevertheless, declared unconstitutional by the Constitutional Court as it was considered discriminatory to all those Spanish companies non-resident in the Basque territory; see judgment of 25 April 2002 of the Constitutional Court, above).

The Supreme Court found that the challenged regional law, even after the amendment provided in Law 42/1994 would infringe the principle of equality, since the Spanish companies operating in the Basque Country, but established outside it, would not be caught by such amendment, and therefore face a competitive disadvantage.

2.6. 3 Appeal number 7484/1990, 13 October 1998, Appeal in cassation, Tax sector

Facts and legal issues: On April 1987, the Region of Guipuzcoa published regional law number 14/1987, granting tax incentives for investment. The Spanish Central Government brought an action before the Supreme Court against such regional law, alleging that it introduced subsidies that may be considered State aid of a tax nature, having the effect that the effective tax burden for Guipuzcoa was lower than that of other territories of Spain. The contested law introduced tax incentives to corporate income tax, personal income tax, transfer tax, capital duty, stamp duty and local taxes.

Decision: In the judgment, the Supreme Court referred to the proceedings initiated by the Commission under Article 88 (2) EC regarding regional laws 28/1988 of Alava, 8/1988 of Vizcaya and 6/1988 of Guipuzcoa, all territories within the Basque Country.

During the course of these proceedings, the Commission issued decision 1993/337/EEC of 10 May 1993. Such decision established that the above-mentioned regional laws constituted illegal aid in breach of Article 52 EC, and were contrary to the principle of free competition.

As a consequence of this decision, the Spanish Central Government issued Law 42/1994 of 30 December, which included an additional clause adapting the tax system in the Basque Country to the requirements set out in the decision, so that the group of companies granted the tax benefits would include EU companies non-resident in Spain but operating in the Basque Country (please note that this additional clause was, nevertheless, declared unconstitutional by the Constitutional Court as it was considered discriminatory to all those Spanish companies non-resident in the Basque territory; see judgment of 25 April 2002 of the Constitutional Court, above).

Page 434

The Supreme Court found that the challenged regional law should be rendered null since the creation of subsidies established by it reduced free competition between companies and led to discrimination, consisting of an effective lower tax pressure in a specific territory in relation to other territories of Spain, which was contrary to Spanish tax law. The Supreme Court considered as evidence of such discrimination the findings of the Commission in the decision mentioned. In addition, the Supreme Court explained that its judgment was based on the criteria settled by the European authorities, which stated that such laws were discriminatory and that the internal regulations of the Member States should prohibit the creation of incentives promoting the incorporation of companies in a specific territory of the EU, in prejudice of those resident in other territories.

After this decision, the Supreme Court considered that any regional regulation granting tax privileges or benefits, excluding any EU resident operating in a territory under a similar situation, must be considered discriminatory and contrary to free competition in the market.

2.6. 4 Appeal number 7565/1992, 22 October 1998, Appeal in cassation, Tax sector

Facts and legal issues: This appeal referred to regional law 28/1988 issued by the territory of Alava, in the Basque Country, granting only companies operating in the Basque Country under the status of resident for tax purposes certain tax incentives for investment under certain conditions, in the form of reductions/tax relief on income tax..

The Attorney General alleged that these incentives infringed the principle of equality, and also infringed Spanish legislation against the distortion of competition and discrimination because they resulted in a lower tax burden for that particular territory. The Basque Authorities referred essentially to their constitutional autonomy in tax matters to establish differences with the national regime, and the lack of evidence for the Attorney General's allegations.

Decision: The judgment is based on the precedent set by the judgment of this court of 13 October 1998 (see above). Based on that precedent, the Supreme Court considered that a regional regulation granting tax benefits only to some companies operating in the same territory must be considered discriminatory and, as a consequence, annulled it in its entirety. The provision of incentives, promoting the establishment of companies to the prejudice of others in a particular territory in the EU, and distorting free competition between them, must be rejected.

2.6. 5 Appeal number 2580/1995, 22 January 2000, Appeal in cassation, Tax sector

Facts and legal issues: The Spanish Central Government challenged a Decree issued by the Autonomous Region ("Comunidad Autónoma") of the Basque Country, providing for certain tax measures such as tax relief on different taxes (in some cases, over 95 per cent tax relief). These tax benefits were granted to preferred industries and zones within a preferred industrial location based in the Basque territory.

Page 435

Decision: The judgment referred to precedents set by the Supreme Court, annulling other Basque tax regulations (see judgments of 13/10/1998 and 22/10/98 above).

Following its precedent, the Supreme Court found that the challenged tax measures were contrary to free competition in the market, and also to the free movement of capital and labour, prejudicing other companies based in other EU territories and in breach of Spanish tax laws.

The Supreme Court considered, again, as evidence of such discrimination the findings of the Commission in its decision 1993/337, which had declared other tax regulations in the Basque country to be illegal aid (see judgment of 13/10/1998 above) and referred to the principle of the supremacy of EC Law over national law. While the Spanish Central Government had amended the law to conform to the Commission decision (see judgment of 13/10/1998 above) and converted the tax benefit into non-illegal aid under EC Law, the new regime was discriminatory under the national legislation. The Supreme Court declared the relevant provision of the Basque Decree null.

2.6. 6 Appeal number 8648/1999, 3 November 1999, Appeal in cassation

Facts and legal issues: In a previous judgment, the Superior Tribunal of Justice ("STJ") of the Basque country had annulled certain corporate tax reductions established by the corporate tax regulations of each of the three Basque provinces. This case concerned the appeal against that judgment, filed by the legislative and executive bodies of the Vizcaya and Guipúzcoa Provinces and the Chambers of Commerce ("Cámaras de Comercio") of Álava and Bilbao. They all sought the annulment of the previous judgment.

Decision: The Supreme Court found that the Rioja region had locus standi and then considered that the question had already been dealt with in its case law (in particular in its judgments of 7 February 1998, 13 October 1998 and 22 January 2000). Those judgments annulled tax reductions similar to the one established by the Guipúzcoa region on the grounds that they had been declared in breach of Article 87 EC by Commission decisions that had direct effect.

2.6. 7 Appeal number 3806/1999, 17 November 2004, Appeal in cassation, Tax/regional aid

Facts and legal issues: In a previous judgment, the STJ of the Basque country had refused to analyse the validity of certain corporate tax quota reductions established by the Guipúzcoa provincial budget. The STJ had considered that the claimant, the Rioja Region, lacked locus standi. This case concerned the appeal against the STJ's judgment, filed by the Rioja Region, seeking annulment of the previous judgment.

Decision: The Supreme Court found that the Rioja region had locus standi and then considered that the question had already been dealt with in its case law (in particular in itsPage 436 judgments of 7 February 1998, 13 October 1998 and 22 January 2000). Those judgments annulled tax reductions similar to the one established by the Guipúzcoa Region on the grounds that they had been declared in breach of Article 87 EC by prior Commission decisions. This judgment follows a previous judgment by the Administrative Division of the Spanish Supreme Court of 3 November 2004 (see above).

2.6. 8 Appeal number 7893/1999 9 December 2004, Appeal in cassation, Tax/regional aid

Facts and legal issues: In a previous judgment, the STJ of the Basque country had annulled Article 26 of the Basque tax regulation on corporate income. Pursuant to that provision, certain tax based reductions had been granted for new companies created in the Basque country. This case concerned the appeal against that judgment filed by (i) the three territorial entities of the Basque country, which sought annulment of the previous judgment, and (ii) the Federation of Entrepreneurs of the region of La Rioja, which sought the annulment of the entire tax regulations.

Decision: The Supreme Court stated that any citizen of the EU may claim the application of EC law on State aid (Article 88 (3) EC) before national courts and that it may not be held that, in the absence of any specific preliminary ruling by the ECJ on the matter, Spanish citizens were excluded from that benefit.

The Supreme Court recognised that the territorial entities of the Basque country had some legislative autonomy in relation to tax. However, that autonomy should not conflict with (i) recognised constitutional principles (equality, unity and solidarity) or (ii) EC State aid law.

The Supreme Court found that some of the provisions of the Basque tax rules, apart from the annulled Article 26, may be initially considered State aid according to the case law of the ECJ, and that they had not been notified to the Commission. Following the principle that national courts may not rule on the compatibility of national measures constituting State aid under EC law, but may, for the application of Article 88 (3) EC, decide whether those measures may qualify as State aid, the Supreme Court annulled certain provisions of the tax rules on the grounds that the State aid had not been notified to the Commission.

  1. Superior Tribunal of Justice (Administrative Division) of the Basque Country

2.6. 9 Appeal number 500/2002, 28 June 2002, Annulment of a regulation, Tax sector

Facts and legal issues: The region of La Rioja (a region bordering the Basque Country) disputed several tax regulations issued by the Basque regional authorities that provided for several tax advantages for companies based in the Basque country. Those tax advantages included a number of benefits which improved the company tax conditions that applied in the rest of Spain. The decision lists the following tax benefits as amounting to an improvement in the tax conditions commonly applicable in Spain: deduction for investments in fixed assets;Page 437 special financial reserve for investments; capitalisation of small companies; venture capital firms; special tax breaks.

The region of La Rioja considered that the tax regulations were contrary inter alia to the EC law on State aid.

Decision: The Tribunal addressed the issue of EC State aid law and discussed the possibility of requesting a preliminary ruling on whether or not the tax regime should have been notified to the Commission. On that particular point, the Tribunal noted the direct effect of Article 88 (3) EC. The judgment concluded that it would not be of use to request such preliminary ruling, given that what must be at stake in the application of the Community rules on State aid is inter-State trade. In this case, there was no effect on inter-State trade; the economic effect of the relevant regulations had its impact on trade within Spain, and therefore it was an internal matter to be resolved under national law.

The judgment concluded by annulling the relevant tax provisions for being contrary to a number of Spanish constitutional law principles: the measure was deemed not proportionate and liable to impact on the free circulation of persons and goods.

2. 7 Control of Legality of Acts (other tax measures)
  1. Constitutional Court

2.7. 1 Court Order number 172/2002, Appeal number 1894/2002, 1 October 2002, Ratification of suspension of law, Tax/Financial Institutions

Facts and legal issues: The Constitutional Court considered whether the suspension of a law on tax on deposits of credit entities (the Law) passed by the Autonomous Region ("Comunidad Autónoma") of Extremadura should continue. The Law had been suspended by the Spanish Government before coming into force.

Under Article 161 of the Spanish Constitution, the Spanish Government has the power to suspend laws of the Autonomous Regions of Spain, preventing the laws from coming into force, on the basis that the courts must decide whether to either ratify or lift such suspension within a period of five months.

At the end of this five-month period in relation to the law, the case was considered by the Constitutional Court. The Attorney General argued that the suspension should continue. One of the Attorney General's arguments was that the Commission was at that time considering whether the law was prohibited by EC State aid law. In particular, the Attorney General argued that the tax deductions set out in the law could amount to positive discrimination and thus be contrary to EC State aid provisions. He further argued that continuation of the suspension might avoid the Commission later finding the law contrary to EC State aid law.

Page 438

Decision: The Constitutional Court held that the alleged positive discrimination and breach of EC State aid law related to the basic question of constitutionality of the law. This was an independent issue which should be considered separately from that of whether or not the suspension should be lifted. The Constitutional Court therefore did not take the Attorney General's argument into account.

The action of the Attorney General was dismissed; suspension of the law was lifted.

The Constitutional Court did not consider the requirement under Article 88 (3) EC which has direct effect, that no Member State should put its proposed measures to grant or alter aid into effect until the Commission has been notified and come to a final decision.

2.7. 2 Judgment number 10/2005, 20 January 2005, Annulment of a regulation Tax / Financial Institutions

Facts and legal issues: The STJ of Cataluña requested that the Constitutional Court decide on the legality of an exemption from the tax on economic activities granted to saving banks ("Cajas de Ahorro").

The background to the proceedings was that the Spanish tax authorities had refused to accept that the savings banks were exempt from the tax. The savings banks who had been refused the exemption then appealed before the STJ of Cataluña against the decision of the tax authorities.

Decision: The Constitutional Court ruled that the exemption, as far as it concerned the commercial activity of the savings banks (as opposed to charity and social activities), infringed the constitutional principle of equal contribution to public expenses. The Constitutional Court further stated (without this having been alleged by any of the parties) that this conclusion was also reached under EC law, pursuant to Article 88 EC. For this purpose, the Constitutional Court quoted the ECJ's judgment of 15 March 1994370 concerning tax exemptions in favour of public financial institutions in Spain, where tax exemptions in favour of public or private entities that place them in a more favourable situation in relation to other tax payers, were considered State aid, contrary to EC law.

  1. Superior Tribunal of Justice (Administrative Division) of the Canary Islands

2.7. 3 Judgment number 465/2003, 29 May 2003, Annulment of administrative act, Tax sector

Facts and legal issues: The regional government of the Canary Islands brought an action against the State General Administration and the entity Cumbre Nueva SL, complaining that a property bought by this entity should be treated as an "investment good" under the Law 19/1994 on Modification of the Fiscal and Economic Regime in the Canary Islands andPage 439 should not therefore be subject to exemption from certain taxes. It was alleged that the State General Administration had therefore misapplied Law 19/1994 in relation to this entity.

Decision: The Tribunal noted that Law 19/1994 had been considered by the Commission. The Commission had held that the Law contained provisions for "State aid for regional purposes" which was only compatible with the EC regime on State aid to the extent that such aid was for an "initial investment" (i.e. an "initial investment into the total capital in relation to the creation of a new establishment, the development of an existing establishment or the initiation of a activity which entails a fundamental change in the products or methods of production of an existing establishment").

The Tribunal found that this "initial aid" exception did not apply to the property bought by Cumbre Nueva SL as it considered that the Commission had intended that this should only apply in exceptional cases. The Tribunal therefore found that the Spanish Government had misapplied Law 19/1994 and that the entity was not eligible for the tax exemption.

  1. Superior Tribunal of Justice (Administrative Division) of Valencia

2.7. 4 Appeal number 1178/1989, 9 June 1994, Annulment of a regulation, Tax sector

Facts and legal issues: The question concerned a Resolution of the Municipality of Valencia on the partial liquidation of a municipal establishment tax for the financial years of 1983 to 1986. Banco de Crédito Industrial, S.A. challenged that resolution, arguing that it was contrary to Article 29 of Law 13/71 of 19 June 1971 on the Organisation and Regime of the Official Credit, which established an exemption from taxes payable to the State, regions, municipalities and other entities of public law, applicable to public credit institutions.

Regarding the tax liquidation of 1986, the question of the compatibility of the above mentioned provision with Articles 81 to 90 EC was raised.

Decision: The Tribunal recalled the Ruling of the ECJ of 15 March 1994371, issued in a preliminary ruling addressed to the STJ of Valencia on June 24 1991, according to which "a measure through which a Member State grants a tax exemption to public companies is State aid under article [88] (1); when such aid is an existing aid, it can continue being executed until the moment the Commission declares its incompatibility with the Common Market."

Therefore, the tax exemption provided in Article 29 of Law 13/71 of 19 June 1971 was legal State aid.

2. 8 Control of Legality of Acts (measures other than taxes)
  1. Supreme Court (Administrative Division)

Page 440

2.8. 1 Appeal number 241/1996,18 February 1998, Annulment of regulation, Construction/Housing

Facts and legal issues: The National Association of House Builders ("Associación Nacional de Promotores Constructores de Edificios") requested the annulment of Royal Decree 2028/1995 of 22 December 1995, regulating the conditions of access to the State-qualified financing of the works promoted by housing cooperatives and owners' communities under the national housing plans. The appellant argued that such Royal Decree infringed, amongst other national provisions, Articles 87(1) and 87(2) a EC.

Decision: The Supreme Court held that the Royal Decree only intended to establish protection for the benefit of members of communities or cooperatives in relation to the correspondent entities, and with regard to the latter in relation to the entities charged with the actual building of the houses. Therefore, the appeal intended to combat the existence of the State-qualified financing regime itself, which had not been established by that Royal Decree.

The Supreme Court recalled previous decisions on this matter, according to which Article 87 was not considered to be infringed by such a financing regime, since the State aid did not hinder competition. It decided that this was the case because promoters of buildings aimed at self-use could not be considered to be economic operators in the building sector (i.e. they were not putting the buildings on the market for sale, but rather constructing). The fact that professional constructors faced a restriction on the housing market was a mere consequence of the economic policy choices made by the State.

2.8. 2 Appeal number 930/1998, 24 November 1998, Appeal in cassation, Fishing sector

Facts and legal issues: The Order of 19 November 1990 of the Galicia Assembly ("Junta de Galicia") approved aids for the modernisation and renovation of the fishing fleet for the year 1991. This Order was challenged before the Superior Tribunal of Justice of Galícia ("Tribunal Superior de Justicia de Galicia"). This Tribunal held that such order was (i) null, since it infringed Regulation EEC 4028/1986, modified by Regulation 3944/1990; (ii) illegal, as the aid, being new (since the order modified the Autonomic Decree 191/1987 of 2 July), should have been notified to the Commission. The Galicia Assembly appealed to the Supreme Court.

Decision: The Supreme Court upheld the decision of the Superior Tribunal of Justice of Galícia regarding the nullity of the order and its illegality. It considered that the Order, establishing a system of new aids, should have been notified to the Commission, so that the latter could examine its compatibility with the Common Market.

Page 441

2.8. 3 Appeal number 7001/1991, 20 April 1999, Appeal in Cassation, Cinematographic Industry

Facts and legal issues: The Region of Cataluña decided to revoke aid granted to Ganesh, S.A., a cinematographic company, due to of the non-fulfillment of one of the obligations underlying the granting of the aid - the exploitation of the movie in its Catalan version only, within the Catalan territory. The appellant argued that the decision infringed Community law, in particular Articles 7, 48, 52, 56, 59 and 92 EC, such infringement resulting from the considerations of the Commission decision of 21 December 1988, relative to the granting of aid by the Greek Government to the cinematographic industry for the production of Greek movies.

Decision: The Supreme Court considered that the decision did not infringe Community law, stating that: (i) contrary to the facts in the mentioned Commission decision, in the present case there was no discrimination by reason of nationality; (ii) the Commission decision itself recognised that aid to cinematography may fall under Article 87 (3) (c) EC, provided that all the conditions of the Treaty were observed, especially those relating to the free movement of people and services; (iii) evidence of the infringement of such freedoms had not been found; (iv) the consequence of the legal arguments of the appellant would be the annulment of the provisions relative to the granting of aid, and not the annulment of the revocation decision; and (v) the obligation to exploit the film in its Catalan version should be understood as the expression of the intention of stimulating both cinematographic production in Cataluña and the diffusion of the knowledge and use of the Catalan language within Catalan territory.

2.8. 4 Appeal number 117/2000, 11 June 2001, Annulment of regulation, Electricity sector (payments of stranded costs)

Facts and legal issues: The facts are identical to those of Appeal number 51/2001, below. The main difference with regard to that case is that the Commission State Aid decision of 25 July 2001, cited, had not yet been issued at the time of the judgment.

Decision: Given that Commission decision of 25 July 2001, declaring the compatibility with EC law of the Spanish stranded costs regime, had not yet been issued, the Supreme Court was faced with the issue of whether it should apply Article 88 (3) EC. The Supreme Court noted that the scheme had been notified to the Commission. The Supreme Court also noted that, pursuant to the Preussen Elektra case law, the type of payment in the case at hand (which was made directly from consumers to producers) did not qualify as State aid; likewise, the Supreme Court noted the Lorenz case law, and given that two years had gone by since notification had been made to the Commission, the Supreme Court considered that it could not stop application of the compensation system.

Page 442

2.8. 5 Appeal number 51/2001, 21 November 2001, Annulment of regulation, Electricity sector (payments for stranded costs)

Facts and legal issues: The claimants, private individuals, challenged the regulation for the electricity tariff that includes, as part of that tariff, an amount as compensation for stranded costs. The claimants argued that the system for compensation of the stranded costs was State aid, granted in breach of the EC Treaty.

Decision: Regarding the matter of State aid, the Supreme Court recalled that the Commission had dealt with the matter of the Spanish compensation payments for stranded costs in its Decision of 25 July 2001 (NN49/1999), approving the stranded costs system in its existing status at the time of the judgment. Therefore, the claimant's request was dismissed.

2.8. 6 Appeal number 154/2001, 25 November 2002 Annulment of a regulation, Energy sector (distribution of electricity)

Facts and legal issues: The claimant, the Spanish Association of Builders, filed an appeal against the provisions of Royal Decree 1955/2000 of 1 December, regulating the activities of transmission, distribution, commercialisation and supply, and authorisation procedures for electrical power installations.

Royal Decree 1955/2000 established a system for the allocation of costs of the power distribution installations between distribution companies and the landowner. In some instances, the landowner was to bear the cost for the distribution installation. The claimant argued, inter alia, that this was an unjustified benefit given to distribution companies and constituted State aid contrary to Community law.

Decision: The Supreme Court considered that Royal Decree 1955/2000 only had the purpose of establishing a just allocation of costs between distribution companies and landowners; distribution companies were not receiving any benefit since they were taking care of the functioning costs, while landowners' costs were being compensated through capital gains in the value of land and landowners were being released from paying the running costs of the distribution grid.

The Supreme Court dealt with the claimant's argument that the regulation was contrary to EC law by declaring that there was no State aid which merited a request to the ECJ for a preliminary ruling (as was requested by the claimant). The Supreme Court did not enter into any analysis of the formal requirements of State aid as set out under Community law (although it did declare that, under Spanish law, there had not been unjust enrichment).

  1. National Tribunal ("Audiencia Nacional") (Administrative Division)Page 443

2.8. 7 Appeal number 899/1998, 19 December 2001, Proceedings in first instance, Agricultural sector

Facts and legal issues: The Association of wine makers of La Rioja ("Agrupación de Artesanos Bodegueros de La Rioja") brought an action against the Spanish Central Government, alleging that the Order issued by the Minister of Economy on 4 March 1998 granting subsidies to exporters' associations contravened Article 87 EC.

Decision: The Tribunal considered that the prohibition of Article 87 EC deals with aid to companies or manufacturers, provided that they operate in the market and the aid may distort competition. It found that the Order did not contravene that provision of the EC Treaty. The Order specifically determined that the aid was directed at exporters' associations due to the important role these associations played in export activities. The purpose of the subsidies was the functioning of the exporters' associations as collaborating entities of the General Administration. In addition, the Tribunal noted that the costs that may be financed were: staff expenses, offices, fees of international entities, processing and transmission of information, legal advice to solve conflicts in multilateral fora and any other expenses that were not considered a subsidy for the export activity. The Tribunal noted that the Order financed an association activity, especially in the international context, and expressly prohibited that this may imply subsidies to companies. Therefore, the Tribunal concluded that the Order did not amount to State aid, and therefore did not infringe EC law.

  1. Superior Tribunal of Justice (Administrative Division) of the Basque Country

2.8. 8 Appeal number 729/1998, 4 January 2001, Ordinary Proceedings for the annulment of a regulation

Facts and legal issues: On 3 December 1997, the regional authority of Alava, in the Basque Country, issued Administrative Order 932/97. The Order approved the creation of a new sector in the industrial area of Lantarón by the zoning reclassification of land for residential development to land for industrial use.

The Order was challenged by the local authority of the town of Leciñana del Camino and two individuals. The claimants alleged that the reason behind the modification of the land was to favour the installation of Transpapel, a paper manufacturing company, and that this company would receive land at a price much lower than the market price (nearly free). The claimants alleged that this would constitute illegal aid in breach of Article 87 (1) EC. The regional authority of Alava alleged that when the granting of land at that price took place, the question should be raised before the competent authorities.

Decision: The Tribunal recognised that, according to the system established under in Articles 87 and 88 EC, any project for granting or amending aid should be notified to the Commission and that such projects should not be implemented until the Commission had decided on their compatibility. The Tribunal also declared that national courts could notPage 444 decide on the compatibility of the aid and that the prohibition of Article 88 (3) EC had direct effect. In relation to the challenged Order, the Tribunal found that, even if the request for land from Transpapel had been influenced by the possibility of obtaining certain aid, and that any eventual decision from the Commission on the compatibility of the aid could lead to the withdrawal of the installation of that company and a finding of no justification for the reclassification of the land, it was not for the Tribunal to decide on the principles for controlling the discretionary powers of the Administration in the present case. The Tribunal dismissed the appeal.

2.8. 9 Appeal number 756/2003, 7 February 2005, Annulment of a regulation, Energy sector

Facts and legal issues: The private company Eolica Navarra S.L. ("ENSL") requested the annulment of an addendum to Decree 91/2003. The addendum had been passed by the defendant, the Autonomous Region of Navarre ("ACN"). The addendum sought to establish a new regime of aid and investment in relation to solar and biomass projects in Navarre. The addendum also purported to have retrospective effect from 2001. ENSL argued that this was a breach of EC law on State aid as the new regime had not been notified to nor considered by, the Commission.

The ACN argued that, on the basis that the original decree had been notified to and approved by the Commission under Article 88 EC, the addendum should be considered approved since it was part of the same decree.

Decision: The Tribunal found that the addendum was in clear breach of Article 88 (3) EC as it had not been informed to or considered by the Commission. The Tribunal noted that Article 88 (3) EC applied equally to grants or modifications of State aid. The Tribunal further noted that Article 88 (3) EC had direct effect, despite any internal laws purporting to override its provisions. The Tribunal declared that the addendum should be annulled.

2. 9 Division of Competence
  1. Constitutional Court

2.9. 1 Judgment number 126/2002, 23 May 2002 Annulment of a regulation, Environment

Facts and legal issues: This case related to a dispute between the Autonomous Region ("Comunidad Autónoma") of Cataluña and the Spanish Central Government regarding distribution of legislative powers. The distribution of legislative powers in environmental issues between the State and the different regions established in the Spanish Constitution grants the basic regulatory powers to the State and allows the regions to create additional regulation. In the ministerial order challenged by the Spanish region of Catalonia, the Spanish Central Government had established a plan for granting aid and concessions toPage 445 those companies concerned with waste management. The region of Catalonia believed that the plan exceeded that constitutional distribution of legislative powers.

Decision: The Constitutional Court recognised the Autonomous Region's powers to grant aid in environmental matters in accordance with the constitutional distribution of powers, and attributed the disputed legislative power to those authorities. In spite of this statement, the Constitutional Court recognised the State the general power to coordinate and assure the homogeneity of the aid granted.

2.9. 2 Judgment number 175/2003, 30 September 2003, Positive conflict of competences before the Constitutional Court, Industry

Facts and legal issues: The Constitutional Court was asked by the Catalan Government to adjudicate on the division of competences between the Autonomous Region of Cataluña and the Spanish Central Government. The case concerned certain aid in the industry sector for the grant of which both parties considered themselves competent.

Decision: The Constitutional Court's judgment was based mainly on Spanish constitutional law and will be referred to here only inasmuch as EC law is concerned. The Constitutional Court stated inter alia that, although the competence for executing "industry" matters would normally belong to the Autonomous Region of Cataluña, that was not the case regarding State aid. The Constitutional Court held that in the case of State aid, account should be taken of the fact that all aid granted by a given State, regardless of whether this is granted by national, regional or local entities, will be considered by the EU when appraising whether that aid is or not legal under EC law. Hence, the Constitutional Court held that the competence for executing industrial policy, including the granting of aid, would exceptionally remain with the Central Government.

2. 10 Actions by Competitors
  1. Supreme Court (Administrative Division)

2.10. 1 Appeal number 7349/1992, 22 February 1999, Annulment of regulation, Civil Aviation

Facts and legal issues: The Association of Aeronautic Training Schools ("Agrupación de Escuelas de Formación Aeronáutica") requested the annulment of Article 3 of Royal Decree 990/1992 of 31 July 1992, granting the State Society for the Civil Aeronautic Formation ("Sociedad Estatal para las Enseñanzas Aeronauticas Civiles, S.A.") ("SENASA") the increase of its capital with the revenue of the transfer of movable assets, and the use of real estate and facilities, with access from third parties under conditions to be determined by SENASA. According to the appellant, this would affect the principles relative to free competition and infringe Articles 87 and 88 EC.

Page 446

Decision: The Supreme Court considered that the measures did not have the characteristics of a decision adopted with the object or effect of favouring a certain company; rather, those measures were logical in view of: the reorganisation of the Directorate General of Civil Aviation; the assumption by SENASA of the performance of the activities previously carried out by the Directorate General; and its obligation of teaching courses of general interest.

  1. National Tribunal ("Audiencia Nacional") (Administrative Division)

2.10. 2 Appeal number 1251/1997, 11 April 2000, Annulment of administrative act, Transport

Facts and legal issues: Fred Olsen, S.A. and the Professional Association of Naval Companies for Regular Lines ("Asociación Profesional de Empresas Navieras de Líneas Regulares") ("ANALIR") brought two separate actions against the Central Administration. These actions challenged the decision issued by the Secretary of State for Infrastructure and Transport on 16 December 1997, opening a tender for sea transportation services for passengers and vehicles. Following the tender procedure, the company Transmediterranea, S.A. was awarded the contract. Under that contract, Transmediterranea, S.A. would receive subsidies of up to euros 40 million approximately. At the time of these proceedings, the Commission was investigating the subsidies received by Transmediterranea, S.A. under Article 88 (2) EC. The claimants alleged, inter alia, that because of the Commission's proceedings there was a presumption of breach of the EC law on State aid.

Decision: In the judgment, the Tribunal did not focus much on the question of infringement of EC State aid rules. It found that the infringement alleged by the claimants was only a presumption and that it was for the Commission to establish whether the subsidies granted to Transmediterranea, S.A. were compatible with EC law or not and if such subsidies should be deemed an obligation of public service under Article 86 (2) EC, or State aid, subject to the EC legal regime. The Tribunal also found that it was not necessary to submit a preliminary ruling to the ECJ regarding the interpretation of EC law on State aid for maritime transport as the case could be solved under Spanish law. The Tribunal dismissed the appeal on the basis that the tender was not in breach of the applicable national administrative regulations, and recognised that its findings were subject to the conclusion of the Commission proceedings.

2.10. 3 Appeal number 174/1998, 21 May 2002, Annulment of administrative act, Transport

Facts and legal issues: This case regards the same measure as case 3.5.2. above. Fletamentos de Baleares, S.A. brought an action against the Central General Administration. The action challenged the resolution issued by the Secretary of State for Infrastructure and Transport on 16 December 1997, establishing a request for tenders for contracting sea transportation services for passengers and vehicles. Following the tender procedure, the company Transmediterranea, S.A. was awarded the contract.

Page 447

Decision: The Tribunal found that the challenged resolution was in breach of certain procedural rules for this type of tender. The contract with Trasmediterranea, S.A. meant for this company the receipt of subsidies to compensate the low tariffs paid by end-users (political prices). The Tribunal declared that political prices covered by aid must be authorised by the Commission under Article 88 (3) EC. The Tribunal annulled the bid for tenders on the basis, among others, that there was not a previous authorising decision from the Commission. It concluded that this understanding was confirmed by a Commission decision of 27 February 2001, which declared that Transmediterranea, S.A. had received illegal aid.

The claimant had requested the return of the aid by Transmediterranea, S.A. and to be indemnified for damages resulting from the breach by the State of EC law. The Tribunal referred, in relation to the first request, to the Commission decision mentioned above and declared that Transmediterranea, S.A. was not bound to return the aid because the Commission had found that such aid was justified for public interest reasons under Article 86 (2) EC. Regarding the second request, the Tribunal found that the conditions required under Spanish administrative law on administrative responsibility, consisting mainly of an effective damage, were not met. The Tribunal based this conclusion on the findings of the Commission decision mentioned above, where the Commission declared that the aid granted to Transmediterranea, S.A. compensated unfavorable conditions resulting from public interest concerns. The Tribunal declared that such conditions were not present in the activities carried out by the claimant, and therefore it was not possible to conclude that Transmediterranea, S.A. enjoyed a privileged position.

  1. Tribunal for the Defence of Competition ("TDC")

2.10. 4 Exp R 340/98, 7 May 1999, Administrative proceedings before the Competition Authority - appeal against the decision by the Service for the Defence of Competition (SDC) to close proceedings against RENFE, Railways sector

Facts and legal issues: The National Association of Bus Transportation ("FENEBUS") filed a complaint with the Spanish SDC against the National Railway Company ("RENFE"), accusing the latter of unfair prices affecting competition in the passenger transportation business.

FENEBUS made the subsidiary argument that RENFE funded its deficit with public subsidies, and that this public finance constituted unfair competition. However, FENEBUS did not (according to the information available in the decision) rely on any Community law reasoning such as that flowing from Article 88 (3) EC.

Decision: The Tribunal for the Defence of Competition ("TDC") made a brief reference to the issue of State aid, but did not deal with the issue of notification of the subsidy to the Commission, nor did it deal with the EC Treaty provisions on State aid in any other way.

Page 448

The TDC dealt with the issue on subsidies only by stating that the Spanish Legislature has decided on the financing on RENFE in view of its public interest and universal service obligations.

2.10. 5 Exp R.311/98, 21 March 2002, Resolution in execution of the judgment of the National Court dated 29 June 2001, Real Estate sector

Facts and legal issues: On 20 July 1998, this Tribunal had rejected the appeal filed by the Trade Association ("Asociación de Empresarios") against the Service for the Defence of Competition's ("SDC") rejection of a claim against several city councils of Gran Canaria for conduct contrary to Articles 1, 6 and 7 of Law 16/1989 of 17 July on the Defence of Competition. Such conduct consisted of the free assignment of land to a company wholly owned by the Government of Gran Canaria to build State-subsidised houses. The SDC had found that this conduct did not infringe national law, but did amount to State aid, which was only forbidden if it infringed Article 87 EC and which could only be assessed by the Commission.

The TDC decision was appealed before the Audiencia Nacional and annulled by the latter, which ordered re-opening of the proceedings and completion of all the information necessary for the TDC to issue a new resolution. The Audiencia Nacional found that there existed reasonable evidence of infringement of national law and that the TDC should also consider in its decision Articles 86 EC and 87 EC because it could be the case that the company owned by the Government of Gran Canaria was subject to competition rules, including those on State aid. The Audiencia Nacional agreed with the SDC that only the Commission was competent to decide on the compatibility of State aid with the Common Market.

Decision: The Tribunal ordered the SDC to re-open proceedings and gather enough evidence for the Tribunal to issue a new resolution.

2. 11 Recovery Cases
  1. Central Economic-Administrative Tribunal

2.11. 1 Appeal number 2824/1999, 24 May 2001

Facts and legal issues: As part of an arrangement with creditors within a temporary receivership process, the Spanish Central Government cancelled a debt against a company which was subject to such process. The Commission declared such cancellation of debt as illegal State aid and ordered the Spanish State to recover the aid. This case consisted of the appeal filed by the beneficiary of the aid against the decision issued by the National Tax Authority ("Agencia Estatal de Administración Tributaria"), ordering recovery of the cancelled debt.

Page 449

Decision: The Tribunal found that the beneficiary could not oppose the execution of the Commission decision on the basis that an appeal against this decision had been filed before the ECJ and that a suspension of the Commission decision had been requested to the ECJ (Articles 256 and 243 EC). Also, the beneficiary could not rely on the argument that the cancellation of the debt was an act which was covered by the national legislation on temporary receivership. The tribunal held that actions for recovery would infringe the national principle under which the Public Administration may not act against its own actions ("doctrina de los actos propios de la Administración", a variant of the principle of legitimate expectations) (Articles 10 and 256 EC). Finally, the Tribunal stated that the competent entity for the recovery of illegal State aid resulting from a negative decision of the Commission was the National Tax Authority (Article 8.4 of Royal Decree 225/1993, Articles 4 and 7 of General Regulation on Tax Collection and Article 103.1 of Law 31/1990)

  1. Superior Tribunal of Justice (Administrative Division) of Navarra

2.11. 2 Appeal number 1260/2003, 4 May 2005, Appeal in cassation, Tax

Facts and legal issues: As referred to above, this case refers to illegal aid granted by the regional government of Navarra and consisting of a tax benefit of a 50% deduction in the total tax due for those companies active in and complying with several requirements related to investment and the creation of jobs. The illegality of such aid was declared by the Commission in Decision 11/07/01. Although this decision affected different companies located in the region of Navarra, Paneles Eléctricos, S.A. was the only company who appealed against the recovery order, ordered by virtue of a Regional Decree issued by the competent authority.

Regarding the specific actions of the beneficiary company to oppose the recovery action, in this case, Paneles Eléctricos, S.A. firstly applied for an administrative remedy against the Decree 53/03 of 26 February relating to recovery of the aid, in order to exhaust the available administrative procedures, as is obligatory under Spanish law ("recurso de alzada").

After this appeal was rejected by an agreement of 15 September 2003 issued by the regional government, the company initiated judicial proceedings and asked for suspension of the execution of the contested decree. The Tribunal in this case consented to stay the execution, but required a bank security, in order to guarantee the purpose of proceeding.

Paneles Eléctricos appealed again, this time against the order for a bank security. Given that the Government of Navarra did not oppose this appeal, the Tribunal decided to continue with the proceeding.

Decision: Decision 446/2005, issued by the Tribunal on 4 May 2005, finally solved the judicial proceeding initiated by Paneles Eléctricos, S.A. against the order of recovery held in Decree 53/03. The Tribunal decided to reject this appeal, based on different arguments.

Page 450

Once the jurisdiction of the Tribunal had been affirmed, the Tribunal considered the General Decree an appropriate measure to enforce the Commission decision. Although under Spanish law there was not a common procedure established for the recovery of illegal aid, the decision had to be considered as an executory order, compulsory for the State.

The appellant applied for annulment of Decree 53/03, alleging that the benefit obtained from the State aid prevented Paneles Eléctricos, S.A. from obtaining other economic incentives under Spanish law that were incompatible with the illegal aid (which incentives the company had renounced in order to obtain the aid). The Tribunal stated that this argument was not valid and that Paneles Eléctricos, S.A. would be able to claim for the other incentives should the granting of the State aid have damaged the company. In fact, the agreement of 15 September 2003 showed the favourable position of the Government of Navarra regarding the availability of those incentives.

Finally, regarding the application to the case of the statute of limitations, declared by Paneles Eléctricos, S.A. for the fiscal years of 1998 and 1999, the Tribunal stated that the time limits to be followed in the proceeding were those applicable under the Community legal order. That meant a time limit of ten years from the date of granting of the aid, and not the four-year period established under Spanish law for this kind of proceedings.

For all these reasons, the Tribunal decided in Resolution 446/2005 to reject the appeal of Paneles Electricos, S.A. and considered the agreement adopted by the government to be in accordance with law.

2. 12 Preliminary Rulings
  1. Supreme Court (Administrative Division)

2.12. 1 Appeal number 2250/1997, 22 December 2003, Appeal in cassation, Shipbuilding

Facts and legal issues: The Spanish Central Government contested the passing of Decree 217/1994 of 23 June to the STJ of Galicia by which the Council of the Government of Galicia regulated aid to the shipbuilding sector, because it considered that (i) the Decree should have been notified to the Commission and (ii) the Government of Galicia was not competent to adopt the Decree. The STJ of Galicia considered that the Decree was not incompatible with EC law as Article 88 (3) EC does not impose a notification obligation for each project involving State aid to small and medium shipbuilders. The Spanish Central Administration appealed to the Supreme Court.

Decision: The Supreme Court stated that according to Article 87 EC, any aid granted by a Member State or through State resources that distorts competition is incompatible with the Common Market. However, paragraph 3 of Article 87 states that some categories of aid may be compatible if they are specified by the Council, acting by a qualified majority. Therefore,Page 451 the Supreme Court examined Council Directive 90/684/CEE of 21 December 1990 (hereinafter the Directive), on aid to shipbuilding, which established that State aid also includes aid granted by regional or local authorities and any aid elements contained in the financing measures taken by Member States in respect of the shipbuilding or ship repair undertakings which they directly or indirectly control and which do not represent the provision of risk capital according to standard company practice in a market economy.

The Directive also states that the following types of aid to the shipbuilding sector shall be notified to the Commission in advance and authorised by the Commission before they are put into effect: (i) any aid scheme - new or existing - or any amendment of an existing scheme covered by the Directive; (ii) any decision to apply any general or regional aid scheme to the undertakings covered by the Directive; and (iii) any individual application of aid schemes in the cases referred to in the Directive or when specifically provided for by the Commission in its approval of the aid scheme concerned. As the present case dealt with the possibility of a regional Decree regarding State aid to shipbuilding being incompatible with EC law without previous notification to the Commission, the Supreme Court considered that it was the ECJ who should take the decision. Therefore, the Supreme Court submitted a preliminary ruling to the ECJ about the possibility of approving a Decree by a regional authority concerning State aid to the shipbuilding sector without previous notification to the Commission.

-----------------------------

[369] El Pais, 22 December 2005.

[370] Case C-387/92, Banco Exterior de España [1994] ECR I-877.

[371] Case C-387/92, Banco Exterior de España [1994] ECR I-877.