Don’t Challenge Staggered Government-Aid Decisions: EU Court

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By Linda A. Thompson

A May 31 judgment from the EU’s second-highest court sends a message that European governments have little chance of appealing government-aid decisions by alleging a short-term competitive disadvantage from staggered edicts, practitioners said.

State-aid decisions can’t merely be appealed on the grounds that similar tax breaks continue to exist in other EU countries, even if they provide a temporary advantage or disadvantage, the EU’s General Court of the Court of Justice said in the ruling.

Raymond Luja, professor at Maastricht University in the Netherlands and of counsel to law firm Loyens & Loeff in Amsterdam, told Bloomberg Tax the ruling highlights that state-aid decisions don’t have to exist in a broad, coordinated view.

“What the Court is saying with this judgment is: ’Look, we’re faster in some countries than others; we need to prioritize because we have limited resources and we focused on the Netherlands first—so be it,’” he said May 31.

Staggered Approach

The case ( T160/16) centers on the commission’s 2016 order that the Netherlands scrap legislation that exempted certain public companies, such as seaports, from the country’s corporate tax regime, while not simultaneously ordering France, Germany, and Belgium to revoke similar exemptions.

After the decision, six publicly owned Dutch port companies were required to start paying corporate income tax from Jan. 1, 2017, while their competitors in Belgium and France only had to do so a full year later, on Jan. 1, 2018, as a result of two separate state aid decisions. Belgian port companies are appealing this state aid decision before the European Court of Justice.

The appeal was made by the six Dutch seaport companies, which included the Port of Rotterdam Authority and the Amsterdam Port Authority, and was supported by the Dutch government.

Jasper Korving, senior tax manager at Deloitte Netherlands, said the arguments by the Dutch government showed it realized fully well that the corporate tax exemption for ports couldn’t be maintained.

“The entire argumentation is based on this fundamental idea: ’Yes, we can see that this constitutes state aid, but it is so unreasonable to only punish us for this, while giving more time to other countries that aren’t responding to requests for information’” from the commission, he said May 31.

“I hope that this will send a message to Brussels that countries do understand that something can be state aid. But when a relatively small sector is at stake such as the port industry, it might be advisable to say: ’OK, let’s investigate them all at the same time’ rather than taking a staggered approach,” Korving said.

‘Coordinated Approach’

A spokesman for the Rotterdam Port Authority told Bloomberg Tax in a May 31 email that the company was disappointed the Court didn’t hold up its arguments for a “coordinated approach.”

“Such a coordinated approach, in our view, would have led to one common starting date for the levying of corporate tax” on seaports in concerned member countries, Port Authority spokesman Leon Willems said. As a result, Dutch seaports have had to become liable for tax before competing ports in neighboring countries, he said.

The obligation to start paying corporate tax should apply to all European ports at the same time, he said, adding that “when this is not the case, the competitiveness of Dutch seaports is affected.”

Global Competitors

Tthe Port of Rotterdam authority has estimated it will face an annual tax bill of 60 million euros under the new regime.

Because of the new costs, Dutch ports are likely to charge those costs onto clients and hike up their prices for storage and transshipment services. “That is a possibility,” Korving said.

So though the competitiveness of Dutch ports shouldn’t be influenced at the European level, given that Belgium and France also are being forced to subject their ports to corporate income tax, it remains to be seen what the recent state-aid decisions will mean for the competitiveness of European ports regarding their global competitors, Korving said.

“The question is: how will this change the international picture? We’ll have to see whether European seaports will have a competitive disadvantage compared to Shanghai, Hong Kong and U.S. seaports,” he said, noting that ports in these locales aren’t having to grapple with government-aid questions.

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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