APPENDIX 1
50. Paragraph 2(c)—Extract from European
Court of Justice decision in the case of The Portuguese Republic
v The Commission of The European Communities (C-88/03)
51. It is clear from the foregoing that
in order to determine whether the measure at issue is selective
it is appropriate to examine whether, within the context of a
particular legal system, that measure constitutes an advantage
for certain undertakings in comparison with others which are in
a comparable legal and factual situation. The determination of
the reference framework has a particular importance in the case
of tax measures, since the very existence of an advantage may
be established only when compared with "normal" taxation.
The "normal" tax rate is the rate in force in the geographical
area constituting the reference framework.
52. In that connection, the reference framework
need 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 is not selective on that
ground alone for the purposes of Article 87(1) EC. [ . . . ]
53. In paragraph 50 et seq of his
Opinion, the Advocate General specifically identified three situations
in which the issue of the classification as State aid of a measure
seeking to establish, in a limited geographical area, tax rates
lower than the rates in force nationally may arise.
54 In the first situation, the central government
unilaterally decides that the applicable national tax rate should
be reduced within a defined geographic area. The second situation
corresponds to a model for distribution of tax competences in
which all the local authorities at the same level (regions, districts
or others) have the autonomous power to decide, within the limit
of the powers conferred on them, the tax rate applicable in the
territory within their competence. The Commission has recognised,
as have the Portuguese and United Kingdom Governments, that a
measure taken by a local authority in the second situation is
not selective because it is impossible to determine a normal tax
rate capable of constituting the reference framework.
55. In the third situation described, a
regional or local authority adopts, in the exercise of sufficiently
autonomous powers in relation to the central power, a tax rate
lower than the national rate and which is applicable only to undertakings
present in the territory within its competence.[ . . . ]
56. It follows that political and fiscal
independence of central government which is sufficient as regards
the application of Community rules on State aid presupposes, as
the United Kingdom Government submitted, that the infra-State
body not only has powers in the territory within its competence
to adopt measures reducing the tax rate, regardless of any considerations
related to the conduct of the central State, but that in addition
it assumes the political and financial consequences of such a
measure.
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