Joined Cases C‑428/06 to C‑434/06, UGT‑Rioja et al.

>> Court articulates three criteria according to which, in the context of state aid, a decision taken by a regional or local authority could be regarded as having been adopted in the exercise of sufficiently autonomous powers, reiterating much of its judgment in Case C‑88/03 Portugal v Commission [2006].

The Autonomous Community of the Basque Country was made up of three Historical Territories. The institutional political structure of that Autonomous Community was comprised of two different levels, namely, that of institutions common to the whole territory of the Basque Country (autonomous government and parliament) and that of “foral” institutions and bodies, the competence of which was restricted to the Historical Territories.

The three foral authorities adopted a tax measure which set the rate of corporation tax “generally at 32.5%” and introduced a series of fiscal deductions in connection with that tax.

Legislation common to the Spanish State in this respect set the basic rate of corporation tax at 35% and did not provide for such deductions.

The national court asked whether Art. 87(1) EC must be interpreted as meaning that tax measures which were adopted by infra‑State bodies, were to be considered to be selective measure and, accordingly, State aid within the meaning of that provision on the sole ground that they did not apply to the whole territory of the Member State concerned.

The Court of Justice first of all reiterated that it followed from the wording and the scheme of Art. 234 EC that a national court or tribunal was not empowered to bring a matter before the Court of Justice by way of a reference for a preliminary ruling unless a case was pending before it in which it was called upon to give a decision which was capable of taking account of the preliminary ruling (see
Joined Cases C‑422/93 to C‑424/93 Zabala Erasun and Others [1995]; Case C‑314/96 Djabali [1998]; and Case C‑225/02 García Blanco [2005]).

The Court of Justice furthermore reiterated that where the answer to a question referred to the Court for a preliminary ruling might be clearly deduced from existing case-law and where it left no scope for any reasonable doubt, first, a court or tribunal against the decisions of which there was no judicial remedy under national law was not required, in certain circumstances, to make a preliminary reference and, second, this Court might give its decision by reasoned order pursuant to Art. 104(3) of its Rules of Procedure. However, those circumstances in no way prevented a national court from making a reference for a preliminary ruling to this Court and did not have the effect of depriving this Court of jurisdiction to rule on such a question. (see
Case 283/81 Cilfit and Others [1982]).

Criteria of institutional, procedural, and economic and financial autonomy
With regard to the substance of the case, the Court reiterated much of its famous
Case C‑88/03 Portugal v Commission [2006], concerning tax measures adopted by the Autonomous Region of the Azores, on which I wrote this post.

The Court reiterated that in order to determine whether the measure at issue was selective, it was appropriate to examine whether, within the context of a particular legal system, that measure constituted an advantage for certain undertakings in comparison with others which were in a comparable legal and factual situation.

The reference framework needed not necessarily be defined within the limits of the Member State concerned, so that a measure conferring an advantage in only one part of the national territory was not selective on that ground alone for the purposes of Art. 87(1) EC. Furthermore, it was possible that an infra-State body enjoyed a legal and factual status which made it sufficiently autonomous in relation to the central government of a Member State, with the result that, by the measures it adopted, it was that body and not the central government which played a fundamental role in the definition of the political and economic environment in which undertakings operated.

The Court reiterated In order that a decision taken by a regional or local authority could be regarded as having been adopted in the exercise of sufficiently autonomous powers, that authority must first have, from a constitutional point of view, a political and administrative status which was distinct from that of the central government.

Next, the decision must have been adopted without the central government being able to intervene directly as regards its content.

Finally, the financial consequences of a reduction of the national tax rate for undertakings in the region must not be offset by aid or subsidies from other regions or central government.

These three conditions are commonly considered to be the criteria of institutional, procedural, and economic and financial autonomy.

Importance of Judicial Review
Before examining whether these three autonomy criteria were satisfied in the cases in the main proceedings, the Court first of all found it necessary to state on what basis review by national courts should be taken into account. Certain of the parties to the main proceedings which had submitted observations claimed that the foral laws had the status of administrative provisions and were subject to judicial review by the administrative courts -which had an effect on the procedural autonomy of the Historical Territories -, whereas other parties contended that that review was not relevant for the assessment of the autonomy criteria.

The Court of Justice held that, in the context of Art. 234 EC, the Court did not have jurisdiction to apply Community law, but solely to interpret it or to assess its validity. The Court argued that it was, thus, not appropriate to ask whether the foral laws at issue in the cases in the main proceedings constituted State aid within the meaning of Art. 87(1) EC, but rather to interpret that provision in order to verify whether legislation such as the foral laws adopted by the Historical Territories within the limits of their areas of competence might be termed rules of general application within the meaning of the concept of State aid arising from that provision or whether those laws were selective in nature.

The Court held that it was apparent that the boundaries of the areas of competence of the Historical Territories were laid down in the Constitution and in other provisions, such as the Statute of Autonomy and the Economic Agreement. The Court stated that it was not the review by the national court which was relevant for the purpose of verifying the existence of autonomy, but the criterion which that court used when carrying out that review.

The Court argued that the purpose of reviewing the legality of acts was to enforce compliance with the pre‑established limits on the areas of competence of the different State authorities, organs or bodies, not to determine those limits. The existence of judicial review was inherent in the existence of the rule of law.

The Court held that the review decision was limited to interpreting the law establishing the limits of the areas of competence of such a body and could not generally call into question the exercise of those powers within those limits. It followed that it was the applicable laws as interpreted by the national courts which determined the limits of the areas of competence of an infra‑State body and which must be taken into account for the purpose of verifying whether that body had sufficient autonomy.

Consequently, it could not validly be found that an infra‑State body lacked autonomy solely on the ground that the acts which it Adopted were subject to judicial review.

Applying the three aforementioned criteria, the Court concluded that Article 87(1) EC was to be interpreted as meaning that, for the purpose of assessing whether a measure was selective, account was to be taken of the institutional, procedural and economic autonomy enjoyed by the authority adopting that measure.

It was for the national court, which alone had jurisdiction to identify the national law applicable and to interpret it, as well as to apply Community law to the cases before it, to determine whether the Historical Territories and the Autonomous Community of the Basque Country had such autonomy, which, if so, would have the result that the laws adopted within the limits of the areas of competence granted to those infra‑State bodies by the Constitution and the other provisions of Spanish law were not of a selective nature within the meaning of the concept of State aid as referred to in Art. 87(1) EC.

Text of Judgment