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EDF Dealt Billion Dollar Blow In Latest EU Tax Court Ruling

by Ulrika Lomas, Tax-News.com, Brussels

16 January 2018


The General Court of the European Union has ruled that EDF, the energy company, was right to repay unlawful state aid granted to it by the French state, bringing to a close a long-running case dating back to 2003.

The case concerned whether, in absolving EDF from liability to corporate tax of EUR888.89m, the company had been granted unlawful state aid, as the European Commission argued, or whether, as a stakeholder in EDF, the French state had acted at arm's length such that relieving EDF of the tax liability was tantamount to an investor forgoing a debt in favor of recapitalizing the company to benefit from the company's future enhanced prosperity.

On December 16, 2003, the Commission adopted a decision finding that, in the context of the restructuring of EDF's balance sheet and increasing its capital, the French state had waived a tax claim valued at EUR888.89m, corresponding to the corporation tax due from EDF. According to the Commission, the effect of that waiver had been to strengthen EDF's competitive position in relation to its business rivals and the waiver constituted state aid incompatible with the common market. The Commission calculated that the aid to be paid back by EDF amounted in total to EUR1.217bn, including interest. EDF has repaid that sum to the French State.

EDF, supported by France, brought an action before the General Court for the annulment, in part, of that decision. By judgment of December 15, 2009, upheld by a judgment of the Court of Justice June 5, 2012, the General Court annulled the Commission's decision, holding that the Commission was not entitled to refuse, simply because the measure taken was fiscal in nature, to examine whether the French state had acted as a "private investor in a market economy."

The private investor test is intended to establish whether, in participating in the capital of the recipient undertaking, or in taking action in connection with that capital, the state is pursuing an economic objective that might also be pursued by a private investor and is accordingly acting in its role as economic operator, in the same way as a private operator. A finding in line with such would mean that the French state had not granted unlawful state aid.

Following the judgments of the General Court and Court of Justice, the Commission adopted a new decision on July 22, 2015. It argued the private investor test was not applicable in this case. EDF, supported by the French state, again argued against the Commission's case before the General Court, seeking annulment of the Commission's decision.

In a judgment released January 16, 2018, the General Court ruled in favor of the Commission. The General Court concluded that the Commission was right to find that the private investor test was not applicable, given that neither EDF nor France submitted evidence to establish unequivocally that the French state had, before or at the same time as conferring the advantage at issue, taken the decision to make an investment in EDF and had evaluated, as a private investor would have done, the profitability of the investment that would be made by conferring such an advantage on EDF.

The Court rejected EDF's argument that the French decision was a measure recapitalizing EDF, finding instead it to have been a waiver of the tax on the reclassification of the grantor's rights in capital. The General Court also rejected EDF's argument – that the Commission wrongly concluded that the private investor test was inapplicable because the French State mixed its capacities as public authority and shareholder.

The judgment was released on January 16, 2018, in EDF v. Commission (Case T-747/15).

TAGS: tax | investment | business | European Commission | interest | energy | law | corporation tax | France | Europe

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