Good news: ECJ pushes for an antiformalistic extension of the 'market economy private investor test'

In its recent Judgment of 5 June 2012 in case C-124/10 P Commission and EFTA Surveillance Authority vs Electricite de France (EDF) and others, the European Court of Justice (in Grand Chamber) has endorsed the General Court in a significant push for an extended and antiformalistic use of the 'market economy private investor principle' in State aid control procedures.

The case clearly supports the use of the 'market economy investor' test as the general standard for the material appraisal of State aid measures, regardless of the instruments used by public authorities to grant support to undertakings (be it by exercising 'pure' public powers, such as taxation, or otherwise) and contributes to the development of more homogeneous substantive standards in this area of EU Competition Law.

The case arose from the failure of the European Commission to appraise a tax-related measure granted by France to EDF under the 'market economy private investor test'. The Commission had refused to do so on the formal grounds that
(96) [...] the private investor principle can be applied only in the context of the pursuit of an economic activity, not in the context of the exercise of regulatory powers. A public authority cannot use as an argument any economic benefits it could derive as the owner of an enterprise in order to justify aid granted in a discretionary manner by virtue of the prerogatives it enjoys as the tax authority in relation to the same enterprise.
(97) While a Member State may act as a shareholder in addition to exercising its powers as a public authority, it must not combine its role as a State wielding public power with that of a shareholder. Allowing Member States to use their prerogatives as public authorities for the benefit of their investments in enterprises operating in markets that are open to competition would render the Community rules on State aid completely ineffective." (Decision 2005/145/EC of 16 December 2003 on the State aid granted by France to EDF).
Basically, the Commission opposed the possibility to conduct a global appraisal of the conversion into capital of a tax claim by the State under the 'market economy private investor test' on the basis that a private investor could never hold a tax claim against an undertaking, but only a civil or commercial claim. Therefore, the Commission contended that tax measures that directly imply a capital injection (because the taxes not levied are added to the net assets of the beneficiary company) cannot be analysed as a whole and, if appropriate, be allowed as a single transaction. But that, rather, Member States should exact taxes from undertakings in regular form, and then inject the same amount of capital as State aid (in a double circulation of capital, rather than a set-off or compensation), if they wanted to benefit from an appraisal of such capital injections under the 'market economy private investor test'.

This argument seemed extremely formalistic and, even if there could be transparency and oversight issues involved (as the Commission indicated in the appeal, but which can be remedied by less intrusive and formalistic means), the General Court dismissed the Commission's argument by clarifying that
"[...]  the purpose of the private investor test is to establish whether, despite the fact that the State has at its disposal means which are not available to the private investor, the private investor would, in the same circumstances, have taken a comparable investment decision. It follows that neither the nature of the claim, nor the fact that a private investor cannot hold a tax claim, is of any relevance." (ECJ C-124/10 P, at para. 37, emphasis added).
The ECJ dismissed the opinion of AG Mazák [who supported the Commission on the basis that it was right "to take a principled line in the contested decision, insofar as there should be a visible separation of the role of the State qua public authority from the role of the State qua shareholder"; Opinion, at para. 96], and finally endorsed the GC finding that:
"(92) [...] in view of the objectives underlying [Article 107(1) TFEU] and the private investor test, an economic advantage must – even where it has been granted through fiscal means – be assessed inter alia in the light of the private investor test, if, on conclusion of the global assessment that may be required, it appears that, notwithstanding the fact that the means used were instruments of State power, the Member State concerned conferred that advantage in its capacity as shareholder of the undertaking belonging to it.
(93) It follows that [...] the obligation [...] to verify whether capital was provided by the State in circumstances which correspond to normal market conditions exists regardless of the way in which that capital was provided by the State [...]" (ECJ C-124/10 P, emphasis added).
Moreover, and as a matter of general principle, the ECJ ruled that:
"[...] contrary to the assertions made by the Commission and the EFTA Surveillance Authority, the private investor test is not an exception which applies only if a Member State so requests, in situations characterised by all the constituent elements of State aid incompatible with the common market, as laid down in [Article 107(1) TFEU] . [...] where it is applicable, that test is among the factors which the Commission is required to take into account for the purposes of establishing the existence of such aid."  (ECJ C-124/10 P, at para. 103, emphasis added)
Even if, in this case, the Judgment is in favour of the State granting aid (in less than a fully transparent manner), it is indeed a very interesting development of EU State aid law, since it can contribute to subject to more economic criteria the granting of aid through measures falling within the core sphere of 'public powers'--which, otherwise would have remained substantially shielded from economic considerations.

In my view, this Judgment is to be welcome, and it would be interesting to see this criterion extended to other areas of EU Economic Law and, particularly, public procurement, where the control the (disguised) granting of State aid is crying for further developments of the 'market economy private [buyer] test' (as I have recently stressed in 'Public Procurement and State Aid: Reopening the Debate?', available at