Case C-206/06, Essent

>> Court of Justice reiterates electricy is product, recaps criteria Art. 87(1) EC

The process of liberalising the Dutch electricity sector in implementation of Directive 96/92 was initiated by a 1998 Law on electricity.

A Transitional Law on Electricity provided that “Every customer, not being a protected customer, shall, in addition to what he contractually owes to the net operator for the area in which he is established, pay to that net operator an amount of NLG 0.0117 per kWh, calculated on the basis of the total amount of the electricity which the net operator distributed to the customer’s connection over the period from 1 August 2000 to 31 December 2000.”


A second paragraph of this provision provided that “every protected customer shall, in addition to what he contractually owes to the licence holder for the area in which he is established, pay to that licence holder an amount of NLG 0.0117 per kWh, calculated on the basis of the total amount of electricity which that licence holder supplied to the customer over the period from 1 August 2000 to 31 December 2000.” The present case concerned the question whether this provision was compatible with Articles 25, 87 and 90 EC.

The Court of Justice first of all reiterated that Articles 25 and 90 EC complemented each other in pursuing the objective of prohibiting any national fiscal measure that was liable to discriminate against products coming from or destined for other Member States by constituting a restriction on their free movement within the Community in normal conditions of competition (see also
Joined Cases C-393/04 and C-41/05 Air Liquide Industries Belgium [2006] and Case C‑221/06 Stadtgemeinde Frohnleiten and Gemeindebetriebe Frohnleiten [2007]).

The Court reiterated that any pecuniary charge, however small and whatever its designation and mode of application, which was imposed unilaterally on goods by reason of the fact that they crossed a frontier, and which was not a customs duty in the strict sense, constituted a charge having equivalent effect.

By contrast, pecuniary charges resulting from a general system of internal taxation applied systematically, in accordance with the same objective criteria, to categories of products irrespective of their origin or destination fell within Art. 90 EC.

A charge which was imposed on domestic and imported products according to the same criteria might nevertheless be prohibited by the Treaty if the revenue from such a charge was intended to support activities which specifically benefitted the taxed domestic products. If the advantages which those products enjoyed wholly offset the burden imposed on them, the effects of that charge were apparent only with regard to imported products and that charge constituted a charge having equivalent effect.

If, on the other hand, those advantages only partly offset the burden borne by domestic products, the charge in question constituted discriminatory taxation for the purposes of Art. 90, the collection of which was prohibited as regards the proportion used to offset the burden borne by the domestic products. (see:
Joined Cases C-78/90 to C-83/90 Compagnie commerciale de l’Ouest and Others [1992]).

The Court reiterated that electricity constituted a product for the purposes of the provisions of the Treaty. (
Case C-393/92 Almelo [1994] and Case C-158/94 Commission v Italy [1997]).

A charge which was imposed not on a product as such, but on a necessary activity in connection with the product might fall within the scope of Articles 25 and 90 EC. The Court held that for the purposes of the application of Articles 25 and 90 EC, it was of little account that the financial charge was not levied by the State.

The Court held that the classification as “aid” within the meaning of Art. 87(1) of the Treaty required that all the conditions set out in that provision were fulfilled. First, there must be intervention by the State or through State resources. Second, the intervention must be liable to affect trade between Member States. Third, it must conferred an advantage on the recipient. Fourth, it must distort or threaten to distort competition.

Where a State measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings did not enjoy a real financial advantage and the measure thus did not have the effect of putting them in a more favourable competitive position than the undertakings competing with them, such a measure was not caught by Art. 87(1) EC

However, for such compensation to escape classification as State aid in a particular case a number of conditions must be satisfied.

First, the recipient undertaking must actually have public service obligations to discharge, and the obligations must be clearly defined.

Second, the parameters on the basis of which the compensation was calculated must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage which might favour the recipient undertaking over competing undertakings.

Third, the compensation could not exceed what was necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations.

Fourth, the compensation must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with the requisite means so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations.

As regards the charge on the electricity transmitted, that taxes did not fall within the scope of the provisions of the EC Treaty concerning State aid unless they constituted the method of financing an aid measure, so that they formed an integral part of that measure.

The Court held that for a tax to be regarded as forming an integral part of an aid measure, it must be hypothecated to the aid measure under the relevant national rules, in the sense that the revenue from the tax was necessarily allocated for the financing of the aid and had a direct impact on the amount of that aid.

That appeared to be true of the case in the main proceedings, subject to the verification by the national court. Where a tax was hypothecated to an aid measure, the notification of the aid must also cover the method of financing.

Text of Judgment

Further cases of importance:

Case 132/82 Commission v Belgium [1983]
Case C‑280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003]
Joined Cases C-34/01 to C-38/01 Enirisorse [2003]
Case C‑451/03 Servizi Ausiliari Dottori Commercialisti [2006]