Ferracci and Montessori: ecclesiastical aid and post-Lisbon admissibility

On 15 September 2015 the General Court handed down two parallel judgments in the Ferracci and Montessori cases, concerning Italian rules granting tax exemptions for various “non-commercial” entities, including ecclesiastical institutions. The judgments are noteworthy for their comments on the impossibility defence to recovery and the application of the State aid rules to entities with predominantly non-commercial activities. Nevertheless, for this blogger, the most unusual aspect of the judgments is that this is the very first occasion where a challenge to a State aid decision was found to be admissible on the grounds that the decision was a “regulatory act which … does not entail implementing measures” for the purposes of the fourth subparagraph of Article 263 TFEU.

The Ferracci and Montessori cases were both challenges to a Commission decision concerning Italian rules granting different types of tax exemptions to entities that were regarded as non-commercial. These included (among others) specific rules for ecclesiastical institutions and amateur sports clubs. Following a formal investigation procedure, the Commission found that certain of the exemptions did not constitute State aid. Furthermore, while one of the exemptions did amount to unlawful aid, on the basis that it extended to situations where the beneficiaries were carrying out partly economic activities, the Commission accepted that the Italian tax register was structured in such a way that it would be impossible retroactively to ascertain the nature of the activities that were being carried on at the location in question, to determine whether or not they should properly have benefited from the exemption. On that basis the Commission did not require recovery of the unlawful aid.

Both the non-aid and non-recovery aspects of the decision were challenged by the applicants. On the basis of the Court’s previous case-law, the challenges might have been expected to be dismissed as inadmissible: these were merits challenges to a final decision taken following a formal investigation procedure, in circumstances where the applicants – competitors of the alleged aid beneficiaries – could not possibly have shown that they were individually concerned by the Commission’s decision.

On this occasion, however, the General Court found the challenges to be admissible, relying on the final limb of the fourth subparagraph of Article 263, a provision inserted by the Treaty of Lisbon, which gives a further admissibility “gateway” where the challenged act is (1) a “regulatory act” and (2) does not entail implementing measures. In such cases, while the applicant must still show direct concern, “individual” concern within the meaning of the Plaumann test need not be demonstrated.

In every previous State aid case where an applicant has sought to rely on this gateway, the Court has rejected the argument, either on the basis that the challenged decision was not an act of general application (Case C-33/14 P Mory v Commission) or because the decision did require implementing measures (e.g. Case C-274/12  Telefonica v Commission, Case C-541/14 P Royal Scandinavian Casino v Commission, and Case T-238/14 EGBA and RGA v Commission). This judgment is therefore the first occasion where the Court has accepted that a State aid decision was a regulatory act that did not entail implementing measures.

So what was different about this case? In the first place, the General Court found that since the relevant Italian measures were applicable to situations determined objectively with legal effects for general categories of undertakings, the contested aspects of the decision concerning those measures were likewise of general application and could therefore be regarded as a regulatory act. Secondly, since the contested parts of the decision were those in which the Commission either found there to be no aid or decided not to order recovery, no further action was imposed on Italy in that regard. The Court therefore found that in this case, by contrast with previous cases, the decision did not require implementing measures. Accordingly the new admissibility gateway applied, and it was thus sufficient for the applicants to show that they were directly concerned by the contested decision by reason of their competitive relationships with the undertakings who were the beneficiaries of the relevant tax exemptions.

However, having found that the actions were admissible, the General Court proceeded in both cases to dismiss the substantive grounds of appeal. On the recovery issue, it confirmed that although previous “impossibility of recovery” claims had usually been made after the adoption of the relevant decisions, the Commission could legitimately consider an objection of impossibility of recovery during the course of its investigation such that it decided, in the decision itself, not to order recovery. This conclusion seems to be plainly correct. As the Court pointed out, the State aid rules do not permit the Commission to impose obligations whose execution would be, from the outset, objectively and absolutely impossible. It must therefore be possible for the Commission to decide not to order recovery in the decision, if the relevant circumstances are brought to its attention by the Member State in question during the course of the formal investigation.

The Court likewise dismissed the objections to the no-aid decisions, including in particular the challenge to the ecclesiastic exemptions. A decisive consideration in this regard was the fact that, under Italian law, ecclesiastical institutions could only retain their status as such if they did not carry out commercial activities.

The unusual admissibility conclusion did not, therefore, ultimately assist the applicants to overturn this decision. The judgments do, nevertheless, represent an opportunity for future cases where aggrieved competitors of aid beneficiaries might otherwise have struggled to demonstrate individual concern so as to challenge the merits of a State aid decision. Given the very specific facts of this case, however, that opening is more likely to be a chink rather than a gaping chasm in the otherwise strict admissibility rules for State aid appeals.


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