France Bailout Defense Passes High Court Muster

(CN) - The European Commission should not have assessed more than $1.5 billion in taxes on France for bailing out an electric company, the EU's high court ruled Tuesday.

Electricité de France (EDF) received a tax waiver of over $1.1 billion as part of a restructuring and capital infusion package from the French government in 1997. At the time, EDF was wholly owned by the French state.

Finding that France's actions amounted to unfair competition, the European Commission ordered EDF to pay the taxes, plus $400 million in interest.

On appeal in 2009, the EU General Court sided with EDF and the French government. That court found that the commission failed to examine "whether the French state acted as a 'private investor in a market economy,'" according to a statement from the Court of Justice.

EU law requires the private investor test to determine if a member state is pursuing an economic objective as a private investor, which could justify the government's investment in the marketplace.

But the commission claimed that the fiscal nature of France's actions make the private investor test pointless, since private investors have no opportunity to waive tax liabilities.

The high court disagreed Tuesday.

"The intention underlying ... the private investor test is thus to prevent the recipient public undertaking from being placed, by means of state resources, in a more favorable position than that of its competitors," the decision states. "However, the financial situation of the recipient public undertaking depends not on the means used to place it at an advantage, however that may have been effected, but on the amount that the undertaking ultimately receives."

In applying the private investor test, the lower court properly focused on the improvement - and the opening up of the electricity market - in EDF's financial condition, rather than France's means to achieve it, according to the Court of Justice.

"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," the decision states.

"It follows that the finding made by the General Court ... to the effect that the obligation for the commission 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, is not vitiated by an error of law," the Court of Justice added.

The high court also rejected claims that the General Court "distorted the evidence" in finding that France converted EDF's tax liability into capital, an action that rendered the private investor test irrelevant.

"Where a member state confers an economic advantage upon an undertaking belonging to it, the fiscal nature of the process used to grant that advantage does not mean that the applicability of the private investor test can automatically be ruled out," the justices found. "It follows ... that the precise modus operandi chosen by the member state is irrelevant for the purposes of assessing whether that test applies. In those circumstances, even if it were established, the alleged distortion of the facts would not, in any event, be such as to affect the soundness of the judgment under appeal. It follows that the first ground of appeal must be rejected as ineffective."

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