Article 39 C of the French “Code General des Impots” (General Tax Code) provides that the tax-deductible depreciation of assets leased by an economic interest grouping (EIG) may not exceed the amount charged for the leasing operation, while Article 39 CA provides for an exception to this rule, subject to ministerial approval.

Financing operations of "significant economic and social interest" are thus not subject to the above restriction. They must involve the purchase by the EIG at market rates of a depreciable asset over a period of at least eight years.

In practice, the EIG, which is generally made up of financial institutions, purchases the asset and leases it to the end-user, which must be a company that uses the asset as part of its day-to-day activities and which must have the right to purchase the asset outright at the end of the lease.

The EIG can write off deficits incurred in the first few years of operation against the taxable profits made by its members from their current activities. It must also pay back two thirds of the tax advantage gained to the end-user. This usually takes the form of a reduction in the leasing charge. Lastly, the resale of the asset to the end-user is exempted from capital gains tax.

The Commission’s view at this stage is that the advantage conferred on members of EIGs (the companies which purchased the asset) and end-users (the lessees) by this exception mechanism might constitute state aid incompatible with the Community rules in force and might therefore give beneficiary companies an unfair advantage over their competitors in other Member States.

State aid is prohibited in principle by the EC Treaty but the Commission may authorise it if it can be demonstrated that the positive contribution the state aid makes to the fulfilment of other Community objectives outweighs its negative effect on competition and intra-Community trade.