Last week, the French
newspaper Les Echos broke the story that UEFA (or better said its subsidiary)
will be exempted from paying taxes in France on revenues derived from Euro 2016.
At a time when International Sporting Federations, most notably FIFA, are facing
heavy criticisms for their bidding procedures and the special treatment enjoyed by their officials, this tax exemption was not likely to go unnoticed. The French minister
for sport, confronted with an angry public opinion, responded by stating that
tax exemptions are common practice regarding international sporting events. The
former French government agreed to this exemption. In fact, he stressed that without
it “France would never have hosted the competition and the Euro 2016 would
have gone elsewhere”.
This is not the first
time that UEFA is exempted from paying taxes in a host country. For example,
for the Euro 2012, UEFA was not subject to direct taxation in Poland.[1] Similar
conditions were also part of the application procedures for Euro 2004 and Euro
2008, but is up to the host country to decide how it fulfils the tax exemption requirement
of UEFA.
On 12 November 2014
the French council of ministers approved a draft legislation that would provide a
fiscally advantageous solution for organisers of international sporting events.
The law still needs to be approved by the parliament where it is facing strong
political opposition. The organisers of the 2015 European basketball
Championships, the 2018 Ryder Cup (golf), and of the football Euro 2016 would
be fully exempted from paying direct taxes. However, it is unlikely that the
French organisers of the yearly held Tour de France (cycling) and Roland Garros (tennis) will enjoy the same privilege.
Even though the legislation is not specific to the Euro 2016, many critics hold that the main reason for introducing this
legislation was to satisfy UEFA’s demands.
Regarding the Euro
2016, a special joint-stock company has been created called Euro 2016 SAS. 95% of the shares of
this company are owned by UEFA, the remaining 5% by the French Football
Federation (FFF). Euro 2016 SAS is
responsible for organising the competition itself, related events, and the
promotion of the events.[2]
The board includes UEFA officials, FFF officials, and French government
officials. According to the French minister, Euro 2016 SAS will be exempted from direct and related taxes
(corporate tax, income tax, payroll tax, etc.). VAT, however, must still be
paid. Allowing Euro 2016 SAS to be
exempted from paying direct taxes comes at a time when most EU Member States,
including France, are forced to introduce austerity measures. Interestingly, it
also comes at a time when the European Commission is becoming increasingly
active in dealing with matters related to State aid and taxation. In February
2014, former taxation and customs union Commissioner, Algirdas Šemeta, stated
that competition policy in general and State aid law in particular could
“greatly reinforce our tax policy work.” He also said that pursuing cases under
competition rules could make a real difference as they can be enforced directly
on the basis of the EU Treaty. Since this statement, the Commission has opened
numerous investigations into alleged State aid received through tax schemes.[3]
These cases include alleged aid provided by Ireland to Apple, aid provided by the Netherlands to Starbucks and aid provided by Luxembourg to Amazon. Last week’s LuxLeaks scandal, concerning specific tax deals offered to
multinationals by the Luxembourg State, has put State aid and tax policy high on
the political agenda. Our analysis is embedded into this broader context, which
is decisive in understanding the potential readiness of the Commission to
tackle selective fiscal State aid measures. In the following paragraphs we will
engage in a substantial analysis of a hypothetical State aid investigation by
the EU Commission into the suggested tax exemption offered to UEFA by the
French State.
In order for a
measure to be considered unlawful State aid it has to fulfil the criteria
stipulated in Article 107 (1) TFEU.[4] However,
with respect to tax measures, the key question will generally be whether the
tax measure is selective.[5] In
this regard, when considering
whether a measure is selective, and consequently constitutes State aid, the
effects on the market are taken into account and not the causes or aim of that
measure.[6]
According to settled case-law, the material
selectivity of tax measures should normally be assessed by following a three-step
analysis.[7]
Firstly, the system of reference has to be identified. The system of reference
constitutes the framework against which the selectivity of a measure is
assessed. It is a consistent set of rules generally applicable to all
undertakings falling within its scope as defined by its guiding principle.[8]
Secondly, it should be determined whether the given measure constitutes a derogation
from the system of reference insofar as it differentiates between economic
operators who, in light of the objective intrinsic to that system, are in a
comparable factual and legal situation. In the case at hand one can think of
other sporting or cultural events held in France. If the measure in question indeed
derogates, it still needs to be verified in the last step of the test whether
the derogatory measure is justified by the nature or the general scheme of the
system.[9]
If a prima facie selective measure is justified by the nature or the
general scheme of the system, it will not be considered selective and thus fall
outside the scope of Article 107(1) TFEU.[10]
1. System of reference
The French corporate tax (impôt sur les sociétiés) is a standard tax with a rate of
approximately 33% that applies to all resident companies in France and that
affects all profits made in France by the resident companies. The guiding
principle of the corporate tax system would consist in levying taxes on all
undertakings generating profit in France.
2. Is the measure a derogation from the
system of reference?
In principle, all undertakings based in France that
make a profit are liable to pay the French corporate tax. Similarly, workers and
employers based in France are liable to pay the French payroll tax. The sole fact
that a new legislation would allow undertakings such as Euro 2016 SAS to be exempted from paying corporate tax and payroll
tax derogates from the abovementioned system of reference. Even if one were to
assume that international sporting events are subject to a specific system of
reference, exonerating their organisers from all direct taxes, this would still
be at odds with the fact that undertakings such as Amaury Sport Organisation (the French organiser of the Tour de
France) would not be exempted from paying taxes. In short, at this stage, the measure seems to
be prima facie selective.
3. Is the measure justifiable by the
nature or the general scheme of the reference system?
A prima
facie selective aid measure can still be found justified in light of the
logic of the system of reference.[11] It
has to be borne in mind that a Member State is free to shape the fundamental
aspects of its tax system by determining the taxable situations, the tax rate
and tax base. Art. 107 (1) TFEU does not prevent the Member State from
introducing, reducing or abolishing a tax in order to further its economic aims.[12] It
is, however, for the Member State, which has introduced a prima facie selective measure, to show that it is actually
justified by the nature and general scheme of the system in question.[13]
It is likely that the
French authorities will argue that the measure was introduced to facilitate the
organisation of international sporting events to be held on French territory.
Organisations responsible for the choice of the host of an international sporting
event, such as UEFA or the IOC, need incentives to select France as a host
nation. Yet it is doubtful that this could constitute an acceptable
justification for the whole scheme. It would imply accepting targeted fiscal
dumping as a viable strategy to raise competitiveness, opening the door to a
‘beggar thy neighbour’ policy. Moreover, this tax policy is not aimed at
targeting all sports events, i.e. to encourage the practice of sport or any
other objective of general interest. Therefore, the Commission is unlikely to
accept that it fits into the nature and general scheme of the reference system.
Nonetheless, the French government still believes that the measure is
justifiable for a number of reasons. The former French minister for sport, Jean-François
Lamour, admitted that hosting mega sporting events always cost more than they generate,
and that those who say the opposite are mistaken. However, he also stated that hosting
Euro 2016 would serve as an “economic accelerator that can boost the French
economy.”[14]
“This tax exemption may shock”, admits another former minister for sport, David
Douillet, “but it should be considered as an investment, since nearly 3 million
visitors are to be expected”. Moreover, “hosting the tournament creates about
20.000 jobs in the construction sector alone. The measure will allow France to
host major international tournaments and ensures that they are not organised
only in countries that have the means to afford them. In the case of Euro 2016,
UEFA will donate €20 million to the host cities, pay €23 million rental money
for stadiums and will participate for an amount of €20 million in shares of the
French Football Federation regarding amateur football”[15],
says the French minister for sport Patrick Kanner. Lastly, as stated in the introduction, Mr.
Kanner also held that “France would never have hosted the
competition and the Euro 2016 would have gone elsewhere”, had it not agreed to
the conditions set by UEFA. Justifications, such as the ones listed here, may be compatible with EU law if it facilitates the development of certain
economic activities where such aid does not adversely affect trading conditions
to an extent contrary to common interest. Furthermore, the measures must have a
clear objective of common interest in order for them to be justified.
According to the French newspaper Le
Monde, France has already invested nearly €1.6 billion in the construction
and renovation of stadiums and has spent €400 million in access and transport
infrastructures for Euro 2016.[16] In
Commission Decision SA.35501 Financement de la construction et de
la rénovation des stades pour l’Euro 2016, the Commission assessed the public money
spent on infrastructure and declared the spending compatible with EU law under
Article 107 (3)c) TFEU.[17] The
Commission took into account Article 165 TFEU and concluded that the public
spending was aimed at a well-defined objective of common interest. It also accepted that there was a public need for the
modernisation and enlargement of the stadiums, and that this would not occur
without State intervention.
It is important to note, however, that the case at hand describes a
different State intervention, namely a specific tax exemption for Euro 2016 SAS. Can arguments raised to
justify public spending on infrastructure (i.e. job creation, promotion of
France, market failure, cultural, and recreational considerations, etc.) be
used analogically to justify a tax exemption? Indeed, there is a direct link
between the State’s decision to spend public money in constructing
infrastructure and the creation of 20.000 jobs in the construction sector, but
not between the legislation allowing tax exemptions and the same job creation. The
foregone tax money is not going to be directly re-invested in France, not even
in the EU, but is ultimately going to go to a Swiss association: UEFA. The link
between the need for the tax exemption and the benefits derived from the
EURO2016 can only be made relying on the need to bow to UEFA’s illegitimate
blackmail: ‘you’ll get the EURO (and the jobs and exposure hereto tied) only
against a fiscal gift’. It is therefore unlikely that the measure at hand fulfils
an objective of common interest and would be compatible with Article 107 (3)c)
TFEU.
Usually a negative state aid decision is seen as a backlash for a Member
State. However, in UEFA’s tax exemption case, it might be a benediction. It would
have positive effects not only for France, but also for all EU Member States,
putting a definitive end to UEFA’s blackmailing. A clear precedent would be set
and all the organisers of international sporting events taking place in the EU,
whether FIFA World Cups, Olympic Games or else, would finally have to comply
with tax laws just like anyone else.
[1] Karolina Tetlak and
Dick Molenaar, “Tax Exemptions for Euro 2012 in Poland and Ukraine”, European Taxation, June 2012, page 328
[2] The French government and
local authorities, on the other hand, are to provide the sites, infrastructure,
public services and transportation. They are also responsible for public
safety, and for promoting the country and host cities
[3] Timothy Lyons, “The
modernisation of EU state aid law and taxation”, British Tax Review, 2014, 2, pages 113-114
[4] (1) The measure has to be selective; (2) granted through State
resources; (3) it has to confer an economic advantage upon the recipient; and;
(4) it must distort or threaten to distort competition and must have the
potential to affect trade between Member States.
[5] OJ C 384 of 10 December 1998, Commission Notice on
the Application of the State Aid Rules to Measures relating to Direct Business
Taxation, para. 3
[6] Case C-279/08 P, para. 51; Commission Decision
SA.34914, para. 29
[7] See e.g. Joined Cases C-78/08
to C-80/08, Paint Graphos and others
[2011], para. 49; Commission Decision SA.34914 - Alleged aid granted to
offshore companies – Gibraltar Income Tax Act 2010, para. 28
[8] Commission Decision SA.34914,
para. 31
[9] See e.g. Case C-279/08 P,
Commission v Netherlands (NOx) [2011], para.62
[10] Joined Cases C-106/09 P and
C-107/09 P, Commission and Spain v
Government of Gibraltar and United Kingdom [2011], para. 36
[11] Commission Decision SA.29769,
State aid to certain Spanish football clubs, para. 15
[12] Conor Quigley, “The
notion of State aid in the EEC” [1988] European
Law Review, pages 242 and 245
[13] Case T-211/05, Italy v Commisison, para.125
[14] Euro 2016: pourquoi
offrir un cadeau fiscal à l’UEFA? Le
Monde, 5 November 2014
[15] La France n’aurait pas eu
l’Euro 2016 si elle n’avait pas défiscalisé l’UEFA, Le Monde, 5 November 2014
[16] Ibid
[17] Article 107 (3)c):Aid to
facilitate the development of certain economic activities or of certain
economic areas, where such aid does not adversely affect trading conditions to
an extent contrary to the common interest may be considered to be compatible
with the internal market.