Locations
The interaction between Ireland's tax rules and State aid law has garnered worldwide attention in recent years. At the same time, Ireland's environmental policies and commitment to renewables are coming under increasing domestic focus. The EU's General Court has recently delivered a ruling which has shed light on both issues.
Background
In February 2016, the Irish Wind Farmers' Association (the "IWFA") submitted a complaint to the European Commission. In that complaint, the IWFA alleged that Ireland's tax rules gave an illegal State aid to generators of electricity from fossil fuels (oil, gas and peat). In particular, the complainants alleged that the commercial rates charged to fossil fuel generators under the Valuation Act 2001 (as amended) (the "2001 Act") constituted an illegal State aid contrary to Article 107 of the Treaty on the Functioning of the European Union ("TFEU").
State aid rules – recap
State aid is defined under Article 107 TFEU as any transfer of resources from the State, which confers a selective advantage on an undertaking, distorting competition and affecting trade between EU Member States. It is well-settled that favourable tax treatment may constitute a transfer of resources, in the same way as subsidies or other payments from the State. In the majority of cases, whether State aid is granted turns on whether there is a selective advantage to an undertaking (defined in EU case-law as any entity engaged for gain in an economic activity). In general, unless an exemption applies, any proposed State aid must be notified to the Commission and may not be granted until approved by the Commission.
Where a company feels a competitor may have been granted illegal State aid, it may complain to the Commission.
Facts
In essence, the IWFA centred on the method of calculating the net annual value (or "NAV") of fossil fuel generators' business properties. The Valuation Office (Ireland) (the "VOI") calculates the NAV, in order to calculate the business rate payable on a business property. The NAV can be calculated in several ways.
In the IWFA's submission, the VOI's chosen method of calculating the NAV for fossil fuel generators, i.e., the "contractor's method" (which relies on the notional costs of constructing or providing the property or part used for commercial purposes) was more favourable than the "receipts and expenditure method" which was used for calculating the rates for wind farms. (The "receipts and expenditure method" consists in estimating the NAV based on the thought process that a putative tenant might go through when assessing the profitability of a commercial venture involving the renting of a property).
According to the IWFA, due to this differential treatment, the fossil fuel generators paid approximately three times less in business rates than other producers.
After receiving complaint, the Commission engaged with the Irish authorities, who submitted observations. The Commission made a preliminary assessment in July 2016, namely that the measure did not constitute State aid, but that the IWFA could challenge the assessment or provide new information. This was because there was no selective advantage to fossil fuel generators. This was repeated in January 2017. There followed a series of correspondence between IWFA and the Commission including the submission of more information. In July 2019, the Commission adopted its decision that the measure did not involve a selective advantage and therefore was not State aid.
The IWFA together with three wind farm producers thereafter issued proceedings in the General Court seeking to annul the Commission's decision.
Arguments
In their single plea of law, the applicants alleged the Commission infringed their procedural rights by not initiating the formal investigation procedure under Article 108(2) TFEU. That plea was split into five parts, covering both procedural and substantive issues.
On the procedural front, the applicants criticised the length of the Commission's preliminary examination. On the substance, the applicants alleged in particular that the Commission had misunderstood certain fundamental aspects of IWFA's complaint.
Judgment
In its ruling, the General Court decided that the measure at issue did not constitute State aid. The Court found that the Commission had not incorrectly assessed the information provided to it by the IWFA, and had adequately investigated the complaint.
Comment
Naturally, this decision will be disappointing for wind producers. It demonstrates that State aid, in particular where it concerns tax policy, can be a highly complex area.
In February 2016, the Irish Wind Farmers' Association (the "IWFA") submitted a complaint to the European Commission. In that complaint, the IWFA alleged that Ireland's tax rules gave an illegal State aid to generators of electricity from fossil fuels (oil, gas and peat). In particular, the complainants alleged that the commercial rates charged to fossil fuel generators under the Valuation Act 2001 (as amended) (the "2001 Act") constituted an illegal State aid contrary to Article 107 of the Treaty on the Functioning of the European Union ("TFEU").
State aid rules – recap
State aid is defined under Article 107 TFEU as any transfer of resources from the State, which confers a selective advantage on an undertaking, distorting competition and affecting trade between EU Member States. It is well-settled that favourable tax treatment may constitute a transfer of resources, in the same way as subsidies or other payments from the State. In the majority of cases, whether State aid is granted turns on whether there is a selective advantage to an undertaking (defined in EU case-law as any entity engaged for gain in an economic activity). In general, unless an exemption applies, any proposed State aid must be notified to the Commission and may not be granted until approved by the Commission.
Where a company feels a competitor may have been granted illegal State aid, it may complain to the Commission.
Facts
In essence, the IWFA centred on the method of calculating the net annual value (or "NAV") of fossil fuel generators' business properties. The Valuation Office (Ireland) (the "VOI") calculates the NAV, in order to calculate the business rate payable on a business property. The NAV can be calculated in several ways.
In the IWFA's submission, the VOI's chosen method of calculating the NAV for fossil fuel generators, i.e., the "contractor's method" (which relies on the notional costs of constructing or providing the property or part used for commercial purposes) was more favourable than the "receipts and expenditure method" which was used for calculating the rates for wind farms. (The "receipts and expenditure method" consists in estimating the NAV based on the thought process that a putative tenant might go through when assessing the profitability of a commercial venture involving the renting of a property).
According to the IWFA, due to this differential treatment, the fossil fuel generators paid approximately three times less in business rates than other producers.
After receiving complaint, the Commission engaged with the Irish authorities, who submitted observations. The Commission made a preliminary assessment in July 2016, namely that the measure did not constitute State aid, but that the IWFA could challenge the assessment or provide new information. This was because there was no selective advantage to fossil fuel generators. This was repeated in January 2017. There followed a series of correspondence between IWFA and the Commission including the submission of more information. In July 2019, the Commission adopted its decision that the measure did not involve a selective advantage and therefore was not State aid.
The IWFA together with three wind farm producers thereafter issued proceedings in the General Court seeking to annul the Commission's decision.
Arguments
In their single plea of law, the applicants alleged the Commission infringed their procedural rights by not initiating the formal investigation procedure under Article 108(2) TFEU. That plea was split into five parts, covering both procedural and substantive issues.
On the procedural front, the applicants criticised the length of the Commission's preliminary examination. On the substance, the applicants alleged in particular that the Commission had misunderstood certain fundamental aspects of IWFA's complaint.
Judgment
In its ruling, the General Court decided that the measure at issue did not constitute State aid. The Court found that the Commission had not incorrectly assessed the information provided to it by the IWFA, and had adequately investigated the complaint.
Comment
Naturally, this decision will be disappointing for wind producers. It demonstrates that State aid, in particular where it concerns tax policy, can be a highly complex area.