Publications / McDermott Newsletters / Brussels Brief - July 27, 2007

Brussels Brief - July 27, 2007

July 27, 2007

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KEY DEVELOPMENTS

State Aid:  Infringement Procedure Against Italy Over Recovery of Illegal Employment Aid

Elena Kostadinova

The European Commission has sent Italy a letter of formal notice, the first step in an infringement procedure, for repeatedly failing to recover illegal employment aid granted to a large number of companies in the 1990s.  In May 1999, the Commission concluded that an Italian aid scheme, which provided for social security exemptions to companies recruiting workers on certain types of contracts, constituted illegal State aid.  The Commission ordered Italy to recover this aid from the beneficiaries.  Italy’s failure to execute the Commission's decision was confirmed by the European Court of Justice (ECJ) on 1 April 2004.  Three years after the ECJ’s ruling, Italy has only been able to demonstrate the recovery of a small fraction of the aid.  The Commission can refer the matter again to the ECJ and request that a penalty be imposed, if Italy does not demonstrate that it has taken effective steps to recover all the aid.

 

Competition:  Hungary Amends Media Act

Yannis Virvilis

Following amendment of the Hungarian Media Act, the European Commission has withdrawn its case before the European Court of Justice (ECJ) against Hungary for violating the Directive on Electronic Communications.  The provision of the Media Act to which the Commission objected prevented cable TV operators from offering their services to more than one third of the Hungarian population.  This provision prevented further consolidation of the cable TV sector in Hungary, leading to higher prices and less innovation.  The Commission had initiated a procedure before the ECJ against Hungary pursuant to Article 226 of the EC Treaty.

 

Taxation:  Discrimination Against Outbound Dividend Payments

Michal Cieplinski

The European Commission has sent a Reasoned Opinion, the second step in an Article 226 infringement procedure, requesting Austria and Germany to amend their fiscal legislation.  These Member States impose higher tax on dividends paid to foreign companies than on dividends paid to domestic companies.  If the relevant national laws are not amended to comply with the Reasoned Opinion, the Commission may refer the matter to the European Court of Justice.  The Commission has also sent requests for information to Italy and Finland about their rules under which dividends paid to foreign pension funds may be taxed more heavily than dividends paid to domestic pension funds.  Italy and Finland have been asked to reply within two months.

 

Telecommunications:  Radio Spectrum for Innovative Wireless Services

Elena Kostadinova

The European Commission has proposed measures to remove regulatory barriers and help mobile operators in Europe to develop and offer innovative wireless technologies.  Mobile networks use low frequency bands, which are currently reserved for GSM mobile phones under the Global System for Mobile communications (GSM) Directive of 1987.  This Directive, which played an important role in the opening up of the GSM market, now prevents “next generation” wireless technologies from using the spectrum.  The Commission therefore proposes to repeal the GSM Directive and adopt a new decision that will allow new technologies to co-exist with the GSM network in the frequencies of 900 MHz and 1,800 MHz.  The repeal requires the formal approval of the European Parliament and EU Council and is expected by the end of this year.  The proposal is part of the reform of the EU Telecom Rules.

 

State Aid:  Commission Refers Spain to ECJ for Failure to Recover Illegal Aid

Juan Gutiérrez

The European Commission has referred Spain to the European Court of Justice (ECJ) for failure to comply with a 2002 Decision declaring State aid granted to Refractarios Especiales S.A. as incompatible with the Common Market.  The aid took the form of a debt waiver by the Spanish Wage Guarantee Fund of the EUR 550,000 owed to it by Refractarios Especiales since June 1995.  The 2002 Decision ordered Spain to recover the aid.  Almost five years after the adoption of the Decision, only a fraction of the incompatible aid has been recovered.  The decision to refer Spain to the ECJ is in line with the Commission’s State Aid Action Plan advocating closer monitoring of the implementation by Member States of State aid decisions.

 

State Aid:  Commission Endorses EUR 32 Million Aid to Kia Motors Slovakia to Expand Car Manufacturing Plant

Alana Tart

The European Commission has authorised EUR 32 million of ad hoc aid from the Slovak Government to Kia Motors Slovakia.  Although the Commission does not favour the award of ad hoc regional aid, it found that the potential distortive effect of the aid would be outweighed by the economic development of a disadvantaged area.  The aid, which was approved by the Slovak State Aid Office before the accession of Slovakia to the European Union, will finance expansion of Kia Motors’ car manufacturing plant.  It is expected that 663 new jobs will be created by the end of 2008 and the project is expected to attract numerous additional investors in the car sector.

 

Transport:  Commission Asks Austria to Respect EU Law When Adopting Driving Bans

Jérôme Cloarec

The European Commission has sent an opinion to Austria related to a driving ban package proposed by the Government of Tyrol.  These prohibitions aim to improve air quality in the Alps by reducing road traffic.  The Commission’s opinion concludes that most of the package’s provisions do not harm the free movement of goods within the European Union since the restrictions are proportional to the objective sought.  However, the Commission rejects one measure closing one section of a motorway to all heavy vehicles carrying certain types of goods—the list is long and diverse.  The Commission is calling on Austria to withdraw this measure as the European Court of Justice has already held that such a provision is incompatible with the EU Treaty.

 

Taxation:  Infringement Procedure Against Germany Concerning Foreign Family Foundations

Geert Dierickx

Pursuant to German legislation, the beneficiaries of family foundations (Familienstiftungen) established or managed in Germany pay tax on the benefits they receive from them.  However, for anti-avoidance reasons, when the family foundation is domiciled abroad the income of the family foundation is attributed to the founder, or to the beneficiaries, and taxed in their hands.  This is irrespective of whether they actually receive benefits from the foundation.  According to the European Commission, this differing treatment of domestic and foreign foundations is incompatible with the free movement of capital and persons.  The Commission has therefore formally requested Germany to change its taxation system for non-resident family foundations.

 

NEXT WEEK’S EVENTS

Monday 30 July – Friday 3 August 2007

 

COUNCIL MEETINGS

No Council meetings scheduled for next week.

 

COURT OF JUSTICE

Judicial vacation of the Court of Justice from 16 July 2007 to 2 September 2007 inclusive.

 

COURT OF FIRST INSTANCE

Judicial vacation of the Court of First Instance from 16 July 2007 to 2 September 2007 inclusive.

McDermott Will & Emery

McDermott Will and Emery