Court upholds the principles of art. 165 TFEU in a State aid ruling

Court upholds the principles of art. 165 TFEU in a State aid ruling

On 12May 2016, the Court of Justice of the EU (CJEU) ruled on the Czech “Hamr Sport” case, deciding to uphold the European Commission’s decision to declare public subsidies to non-for-profit sport facilities as compatible with the EU Internal Market.

The Court’s ruling in this case is significant for the sport sector. Not only did it uphold the reasoning of the Commission, which explicitly referred to the specificity of sport (Art. 165 TFEU), and thus strengthened it, it also provided further guidance to its own instances and to national courts for the assessment of cases where public support to non-for-profit sport organisation is contested by commercial actors.

In 2011, “Hamr - Sport”, a Czech sport facilities operator, had launched a complaint with the European Commission (EC) against the public support of the Czech public authorities (Ministry of Youth, Education and Culture) for the construction, operation, maintenance, reconstruction or development of non-profit sport facilities. Hamr, which operates three sport facilities in Prague, claimed that the subsidies scheme, to which, as a commercial entity, it does not have access, distorts competition in the market of rental of sport facilities, and should therefore be qualified as illegal state aid.

After a rather long process, which included a preliminary assessment by the Commission, request for further investigation by the Complainant, and examination by the Municipal Court in Prague, the Commission finally issued its decision on 11 June 2014. The Commission concluded that even though it cannot exclude that the public support measures do not constitute state aid, they are compatible with the internal market under the Article 107 (3) (c) TFEU, which sets out conditions for exceptions
The complainant contested this decision and asked the Court of Justice of the European Union to declare it invalid and refer it back to the EC for further investigation. In particular, Hamr claimed that its procedural rights were not upheld as the Commission should have opened an in-depth investigation. On substance, the complainant contested the qualification of the subsidies by the Commission as compatible with the internal market.

In its ruling of 12 May 2016, the Court rejected this Request to annul the Commission’s decision. It stated that the Commission made a correct assessment when it declared the subsidies compatible with internal market, and added that it also made the right decision, not to open an in-depth investigation, as neither the results of the examination, nor the presented evidence raised “serious doubts” about the compatibility.
Reasoning of the Commission
According to case-law, the Commission may declare State aid compatible with the internal market if:
1.    the aid contributes to the attainment of an objective of common interest, 
2.    is necessary for the attainment of this objective, 
3.    and does not adversely affect trading conditions to an extent contrary to the common interest.
In other words, such measures may be declared compatible if they are necessary and proportionate, and if the positive effects for the common objective outweigh the negative effects on competition and trade. It is interesting to review some of the Commission reasoning in this regard as it relies, in many cases, on the prerogative of Article 165 TFEU.

•    Objective of common interest
The Commissioned stressed that the subsidies “clearly aim at supporting amateur sport for masses and to improve access to it“, and that „the purpose of the funding is to promote sport, related education and social life of amateurs including youth in associations based on voluntary activity of their members. The system of support to non-profit organisations is thus a tool for improving civic society.” It concluded that the scheme can „be considered to aim at promoting sport as well as physical and mental integrity at a local, regional or national level as a common interest.“

•    Necessity and appropriateness 
The Commission pointed out that despite the commitment of their members (financial and voluntary contribution) non-profit sport organisations are normally not capable of financing the running costs of facilities on their own. It therefore concluded that the „public co-financing of the construction and operation of the facilities of non-profit organisations addresses a market failure. “

•    Incentive effect 
The support to sport has an incentive effect, especially for the education of children and youth for sports activities. Without the aid, the beneficiary would not carry out the activity at all, or the activity would be carried out in a reduced extent and/or quality, and he would thus not be able to achieve the objectives of the State policy in the field of sport and health.” 

•    Impact on competition
The Commission stressed that the “majority of the activities of the non-profit organisations (particularly activities of members and socially disadvantaged persons) has no potential to affect competition to an extent contrary to the common interest.” It acknowledged that the operation of a sport facility of a non-profit organisation “may lead to a loss of revenue for an existing private operator.” However, it “underlined that private operators are unlikely to meet the public interest in the provision of affordable sport facilities.”

The Court will rule on another state aid case – Magic Mountain Kletterhallen and others vs. European Commission – on 9 June 2016. Both these cases, however, derive from complaints made before the European Commission declared certain categories of aid compatible with the internal market in 2014 (so called “block exemption”) – including investment in sport facilities below a certain threshold. This means that similar complaints made today would no longer lead to an examination by the Commission. The European Commission published a practical guide on this Regulation in March 2016, also referring to investment in sport facilities.

 

The Court will rule on another state aid case – Magic Mountain Kletterhallen and others vs. European Commission – on 9 June 2016. Both these cases, however, derive from complaints made before the European Commission declared certain categories of aid compatible with the internal market in 2014 (so called “block exemption”) – including investment in sport facilities below a certain threshold. This means that similar complaints made today would no longer lead to an examination by the Commission. The European Commission published a practical guide on this Regulation in March 2016, also referring to investment in sport facilities.

FURTHER INFORMATION 

European Commission´s decision on Support from central government to non-profit sport facilities on 11 June 2014 (Hamr)
Ruling of the ECJ on the annulations on the Commission´s decision on 12 May 2016 (available in FR and CZ)
Magic Mountain Kletterhalten case awaiting decision at the ECJ on 9 June 2016
General Block Exemption Regulation
General Block Exemption Regulation FAQ

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