The adoption by France of an aid measure whereby airlines holding a French licence can, due to the economic disruption brought about by the COVID-19 pandemic, defer the payment of taxes, is not in breach of EU law, the General Court of the European Union (GC) has recently affirmed. Such a measure can be considered as fulfilling the criteria to qualify for an exemption from the stringent state aid rules in terms of EU law.
The treaty prohibits, as a rule, any advantage in any form whatsoever, granted on a selective basis to undertakings by national public authorities, if such a measure distorts competition and is likely to effect trade between member states.
Despite such a general prohibition, the law does make provision for some exceptions. One such exception is aid which makes good the damage caused by natural disasters or exceptional occurrences. Member states are obliged to notify any aid measures to the European Commission and any such measures can only be implemented after approval by the said institution.
The facts of this case were briefly as follows. In March 2020, France notified the European Commission of an aid measure in the form of a deferral of the payment of civil aviation tax and solidarity tax on airline tickets due on a monthly basis during the period from March to December 2020. This deferral benefitted airlines holding a French licence and involved postponing the payment of such taxes to January 1, 2021, and then spreading payments over a period of 24 months. The precise amount of the taxes is determined by reference to the number of passengers carried and the number of flights operated from a French airport. In its decision, the commission approved the French measure and classified the deferral of the payment of the taxes as state aid compatible with the internal market, in terms of Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU).
The latter article provides that aid to make good the damage caused by natural disasters or exceptional occurrences is to be considered as compatible with the internal market. Airline Ryanair brought an action for the annulment of this commission decision before the General Court, alleging discrimination and other irregularities in the commission’s decision.
The court observed that though Article 18 TFEU prohibits any discrimination on grounds of nationality within the scope of application of the treaties, this is without prejudice to any special provisions contained therein. The treaty provisions regulating state aid are to be considered as special provisions. Hence, any assessment of the legality or otherwise of the measure adopted by France must be made in terms of the said state aid provisions, the court upheld.
The court affirmed that the COVID-19 pandemic and the travel restrictions and lockdown measures adopted by France to deal with it constitute an exceptional occurrence within the meaning of Article 107(2)(b) TFEU. Such an occurrence has caused economic damage to the airlines operating in France. The objective of the deferral of the payment of the taxes is clearly to make good the damage in question.
The aid did not breach treaty rules regulating state aid
The court then went on to assert that limiting the deferral of the payment of the taxes to airlines possessing a French licence is appropriate for achieving the objective of making good such damage.
In terms of the EU’s acquis regulating the operation of air services within the EU, the possession of a French licence means in practice that the principal place of business of the airlines is on French territory and that they are subject to financial and reputational monitoring by the French authorities. This means that there are reciprocal obligations between the airlines holding a French licence and the French authorities and, therefore, a specific, stable link between them. This link, which permits France to make the necessary checks and balances in so far as the grant of the relevant aid is concerned, does not subsist in the case of airlines which do not have a French licence. Hence, the reservation of the aid in question to airlines with a French licence is permissible.
The court also considered the measure in question to be proportionate since the airlines eligible for the aid scheme are those most severely affected by the travel restrictions and lockdown measures adopted by France. The extension of the aid measure to companies not established in France would not have contributed to the attainment of the objective of making good the economic damage suffered by the airlines operating in France and might also have resulted in a risk of overcompensation. The court, therefore, affirmed that the aid in question was not in breach of the treaty rules regulating state aid nor those prohibiting discrimination.
Ryanair also requested the court to examine the relevant measure for consistency with Article 56 TFEU relating to the free provision of services. However, the court observed that this was not possible, since the air transport sector does not fall within the purview of the said legal provision but is rather regulated by its own set of rules in so far as the principle of the free provision of services is concerned.
Allegations of overcompensation were also considered by the court to be unfounded. On the contrary, the court opined that the amount of damage suffered by the beneficiaries of the relevant aid is probably higher than the total nominal amount of the deferral. The fact that France committed to provide the commission with a detailed methodology of the way in which it intends to quantify, ex post facto and for each beneficiary, the amount of the damage associated with the crisis was deemed by the court as an additional safeguard for avoiding any risk of overcompensation.
As the pandemic continues to wreak economic havoc, judgments such as these serve to provide some peace of mind to those industries, such as the airline industry, which have been impacted the most. The number of member states that are seeking to redress the damage suffered by their local industries via the provision of state aid are on the increase. Hence, the importance for such member states to ensure that any such support given is in line with EU law and guidance on the matter.
Mariosa Vella Cardona, Freelance legal consultant