Application of the private investor test in State aid cases: lessons from the EDF saga.

We are grateful to Sophie Bertin, Rolf Ali, and Geoffrey Kalantari of Covington & Burling for the following note.  We welcome similar contributions (which could be in the form of a case note or article) on any State-aid related topic (including policy and economics as well as law): email 


On 13 December 2018, the European Court of Justice (“ECJ”) rejected an appeal by Electricité de France (“EDF”) against a General Court (“GC”) judgment confirming a Commission decision ordering France to recover EUR 1.37 billion in State aid from EDF (Case C-221/18 P EDF v Commission). The ECJ judgment confirms that the aid, which had been granted back in 1997, had to be recovered. The EDF saga provides several lessons on how the private investor test should be applied by the Commission and on the burden of proof imposed on the Member State under this test.


The facts


In 1997, the French State restructured EDF’s balance sheet and increased its capital. As part of that restructuring, EDF, which was wholly-owned by the French State, was granted a tax break of EUR 888.89 million on its corporate tax. This formed part of a wider effort to clarify the legal and financial regime under which EDF operated, in order to prepare for the opening up of the Internal Market for electricity in 1998.


Previous EC Decisions and Judgments


In 2003, the European Commission (“EC”) adopted its first decision (SA.13869 EDF) which concluded that the EUR 888.89 million waiver of the corporation tax liability, granted as part of EDF’s restructuring effort, constituted State aid that strengthened EDF’s position in the Internal Market. The EC estimated that the total amount to be repaid, including interest, amounted to EUR 1.37 billion.


The GC annulled the EC’s decision in 2009, stating that it had failed to apply the “private investor test” (Case T-156/04 EDF v Commission). According to the Court, the EC could not conclude that the measure was State aid merely by reason of its fiscal nature. Instead, it should have assessed whether a private investor would have acted to preserve its investment in the same way as the French State in such circumstances. If not, it must have acted as a public authority.


The ECJ agreed in 2012 (Case C-124/10 P Commission v EDF). In its judgment, the ECJ also clarified that, while the EC could not ignore the private investor test merely because the measure was a fiscal one, the State bore the burden of proving that it had acted as a private investor.


In 2013, its initial decision having been annulled, the EC  re-opened its  investigation. It concluded in 2015 that the tax break granted by the French State did not satisfy the private investor test and the decision to grant a tax break had been made in its capacity as a public authority rather than as a shareholder.


EDF again appealed the EC’s decision to the GC (Case T-747/15 EDF v Commission). The GC dismissed EDF’s appeal on the basis that the French State had failed to show during the administrative procedure that it had acted as a private investor by evaluating the profitability of its investment in EDF before granting the tax break. The EC was therefore right to consider that the measure was State aid because the French State had acted as public authority rather than as a private investor. EDF subsequently appealed to the ECJ.


The 2018 ECJ Appeal


On appeal to the ECJ, EDF brought five claims, all of which were rejected.


First, EDF argued that the GC did not fulfil its obligation to state reasons for its decision and distorted evidence. The ECJ rejected those claims, stating that the GC had adequately set out why the measure at hand was the tax consideration, and not the recapitalization of EDF.

Second, the ECJ confirmed that the GC had correctly applied the principles stemming from the Frucona Košice judgment (Case C-300/16 P Commission v Frucona Košice), which obliges the EC to review evidence that could show that the measure in question fulfils the private investor test, despite the fact that the GC’s judgment made no reference to that case.


In its 2015 Decision, the EC took heed of the initial judgment of the ECJ as to the need to review all the available economic evidence in concluding that the tax break did not meet the private investor test. The EC’s conclusion having been confirmed by the GC, on appeal, the ECJ confirmed that the EC had taken into account all elements available to it to decide that the measure did not meet the private investor test. It also noted that EDF had not brought any new evidence that the EC had not already considered.


Lastly, EDF also argued that the GC infringed the principle of res judicata by ruling on the same matter twice, once in 2009 and again in early 2018. However, the ECJ confirmed that the cases were indeed different, given the second investigation and newly adopted EC decision.


Sophie Bertin, Rolf Ali, and Geoffrey Kalantari

Covington & Burling

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