Joined Cases C‑197/11 and C‑203/1, Libert et al.

Flemish Decree on land and real estate policy liable to be classified as State aid, constituting restriction on fundamental freedoms


>>In Belgium, a decree of the Flemish Region of 27 March 2009 on land and real estate policy made the transfer of immovable property in the target communes subject to verification, by a provincial assessment committee, that there exised a ‘sufficient connection’ between the prospective buyer or tenant and those communes. The decree also provided for several tax incentives and subsidy mechanisms.

The Constitutional Court of Belgium  inter alia asked whether this requirement was compatabile  Articles 21 TFEU, 45 TFEU, 49 TFEU, 56 TFEU and 63 TFEU and Articles 22 and 24 of Directive 2004/38.

Fundamental freedoms

The Court first of all reiterated that article 21 TFEU and, in their respective areas, Articles 45 TFEU and 49 TFEU, and Articles 22 and 24 of Directive 2004/38, prohibited national measures which precluded or deterred a national of a Member State from leaving his country of origin in order to exercise his right to freedom of movement within the European Union. Such measures, even if they applied without regard to the nationality of the individuals concerned, constituted restrictions on the fundamental freedoms guaranteed by those articles (see, to that effect, Case C‑152/05 Commission v Germany [2008]; Case C‑253/09 Commission v Hungary [2011]; and Case C‑46/12 L.N. [2013]).

The Court noted that the Flemish Decree prevented persons without a ‘sufficient connection’ with a target commune, within the meaning of Article 5.2.1(2) of that decree, from purchasing land or buildings thereon, or from taking out a lease of more than nine years or from acquiring rights to a long lease or building lease. In addition, those provisions deterred Union citizens who owned or rented a property in the target communes from leaving them to reside in another Member State or pursue a professional activity there. The Court held that these provisions constituted restrictions on the fundamental freedoms guaranteed by Articles 21 TFEU, 45 TFEU and 49 TFEU and Articles 22 and 24 of Directive 2004/38.

As regards the freedom to provide services under Article 56 TFEU, the Court held that these provisions might also hinder the business activities of undertakings active in the property sector, as regards both undertakings established in Belgium which offered their services to, inter alia, non-residents and undertakings established in other Member States.

Furthermore, they were likely to discourage non-residents from making investments in immovable property in one of the target communes in the Flemish Region, reason for which they constituted a restriction of the free movement of capital under Article 63 TFEU.

State aid
The referring court also asked whether, in the light of Articles 107 TFEU and 108 TFEU, read in conjunction with the SGEI Decision, the tax incentives and subsidy mechanisms provided for in the Flemish Decree must be classified as State aid subject to the obligation to notify the Commission.

The Court pointed out some of the measures in question were designed specifically to compensate for the social obligation to which subdividers and developers were subject and consisted in: (i) a reduced rate of VAT on the sale of housing and reduced stamp duty for the purchase of building land; (ii) a purchase guarantee in respect of the housing developed; and (iii) infrastructure subsidies.

Other measures aimed to ‘reactivate’ the use of land and buildings and consisted in a tax reduction applicable to natural persons who concluded a renovation agreement  and reduction of the tax base for stamp duty. The Court pointed out that, while it was true that the beneficiary of those measures was a natural person, the fact remained that undertakings active in the property renovation sector nevertheless derived an advantage indirectly.

The Court reiterated that  the classification as State aid required all the conditions set out in Article 107(1) TFEU to be 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 confer an advantage on the recipient. Fourth, it must distort or threaten to distort competition (Case C‑140/09 Fallimento Traghetti del Mediterraneo [2010] and Case C‑417/10 3M Italia [2012]).

While the referring court considered that the measures established by the Flemish Decree fulfilled the first and fourth condition, it had doubts as to the second condition relating to the impact of the measures on trade between Member States and concerning the third condition relating to the selective nature of those measures.

Effect on interstate trade
The Court held that for the purpose of categorising a national measure as State aid, it was necessary, not to establish that the aid had a real effect on trade between Member States and that competition was actually being distorted, but only to examine whether that aid was liable to affect such trade and distort competition (Case C‑148/04 Unicredito Italiano [2005] and Case C‑222/04 Cassa di Risparmio di Firenze and Others [2006]).

In particular, when aid granted by a Member State strengthens the position of an undertaking compared with other undertakings competing in intra‑Community trade, the latter must be regarded as affected by that aid. It was not necessary that the beneficiary undertaking itself be involved in intra‑Community trade. Where a Member State granted aid to an undertaking, internal activity might be maintained or increased as a result, so that the opportunities for undertakings established in other Member States to penetrate the market in that Member State were thereby reduced.

The Court furthermore held that the strengthening of an undertaking which, until then, was not involved in intra‑Community trade might place that undertaking in a position which enabled it to penetrate the market of another Member State.

The Court held that it could not be ruled out that the measures established by the Flemish Decree strengthened the position of beneficiary undertakings compared with other undertakings competing in intra‑Community trade. In addition, the advantage, in terms of competitiveness, conferred by the subsidies granted to the operators concerned might make it more difficult for undertakings established in other Member States to penetrate the Belgian market and indeed might make it easier for the Belgian undertakings in question to penetrate other markets.

The Court moreover reiterated that a national measure by which the public authorities granted certain undertakings a tax exemption which, although it did not involve a transfer of State resources, places those to whom it applied in a more favourable financial position than other taxpayers constituted State aid within the meaning of Article 107(1) TFEU (see Joined Cases C‑393/04 and C‑41/05 Air Liquide Industries Belgium [2006]).

THe Court however noted that, in accordance with Commission Regulation 1998/2006, aid not exceeding a ceiling of EUR 200 000 over any period of three years was deemed not to affect trade between Member States and not to distort or threaten to distort competition. Such measures were excluded from the concept of State aid and were thus exempt from the notification requirement of Article 108(3) TFEU.

It was for the referring court to determine, in the light of the foregoing guidance on interpretation and by reference to all the relevant circumstances of the case, whether trade between Member States was liable to be affected by the measures established by the Flemish Decree and whether Regulation No 1998/2006 applied to the present case.

Selectivity of measures
The Court held that  measures which, whatever their form, were likely directly or indirectly to favour certain undertakings or were to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions were regarded as aid (see, inter alia, Case C‑451/03 Servizi Ausiliari Dottori Commercialisti [2006]).

By contrast, 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 Article 107(1) TFEU. However, for such compensation to escape classification as State aid in a particular case, a number of conditions must be satisfied  (Case C‑280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003]).

The Court held that as regards the conditions that must be satisfied for the measures in question to escape classification as State aid, it should be borne in mind that, first, the undertaking receiving such compensation must actually have public service obligations to discharge, and the obligations must be clearly defined.

The Court held that in that regard, on account in particular of the wide discretion enjoyed by the Member States, it was not inconceivable that the social obligation might be regarded as a ‘public service’. In that context, the fact, alluded to by the referring court, that the social obligation did not directly benefit individuals – the applicants for social housing – but rather the social housing companies, was irrelevant with regard to the classification of the service in question.

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.

The Court found that while the provisions of the Flemish Decree made it possible to identify the beneficiaries of the measures established by that decree, they did not however made it possible to identify, in a sufficiently objective and transparent manner, the parameters on the basis of which such compensation was calculated.

Third, the compensation paid 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 obligation.

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.

It was for the referring court to determine whether the conditions relating to the existence of State aid were met and, if so, to ascertain whether, as regards the measures whereby compensation was provided for the social obligation to which subdividers and developers were subject, the SGEI Decision was nevertheless applicable to such measures.

Text of judgment