Court of Justice of the European Communities (including Court of First Instance Decisions)

Facts and procedure before the Court of First Instance

'1 The applicant, Ladbroke Racing Ltd (hereinafter Ladbroke), is a company incorporated under English law and controlled by Ladbroke Group plc whose activities include organising and providing betting services in connection with horse-races in the United Kingdom and other countries in the European Community.

2 The Pari Mutuel Urbain (the PMU) is an economic interest group (groupement d'intérêt économique) consisting of the principal racecourse undertakings (sociétés de courses) in France (Article 21 of Decree 83-878 of 4 October 1983 concerning racecourse undertakings and totalisator betting), which was set up to manage the organisation of off-course totalisator betting on behalf of its members. In discharging that responsibility, the PMU's status was initially that of a joint administrative department (decree of 11 July 1930 extending totalisator betting to off-course operations). Article 13 of Decree 74-954 of 14 November 1974 concerning the racecourse undertakings provides that as from that date the PMU alone may manage the organisation of off-course totalisator betting by the racecourse undertakings. The PMU's exclusive position is further safeguarded by the preclusion of persons other than the PMU from offering to receive or receiving bets on horse-races (Article 8 of the Interministerial Order of 13 September 1985 laying down rules for the PMU). It covers the taking of bets on races in France and bets in France on races abroad, services which likewise can be offered only by the racecourse undertakings which are authorised to do so and/or the PMU (Article 15(3) of Law 64-1279 of 23 December 1964 laying down the Finance Law for 1965, and Article 21 of Decree 83-878, cited above).

3 On 7 April 1989 seven companies belonging to the Ladbroke Group, including the applicant, submitted a complaint to the Commission in respect of several forms of aid which the French authorities had granted to the PMU and which those companies maintained were incompatible with the common market.

...

5 By letter of 11 January 1991, the Commission informed the French authorities of its decision to initiate the procedure laid down in Article 93(2) of the EEC Treaty in respect of the following seven categories of aid granted to the PMU (OJ 1991 C 38, p. 3):

1. cash-flow benefits represented by the deferring of the periods for the payment of the Treasury levy, as from 1980 and 1981;

2. waiving of [FRF] 180 million of the levies for 1986;

3. exemption from the one-month delay rule for the deduction of VAT;

4. use of unclaimed winnings to pay an additional redundancy allowance in 1985;

5. exemption from the housing levy;

6. waiving from 1982 to 1985 of amounts deriving from the practice of rounding bettors' winnings down to the nearest ten centimes;

7. exemption from corporation tax.

...

13 On 22 September 1993 the Commission adopted [the contested decision], terminating the procedure initiated against France.

...

16 In the contested decision, the Commission drew a distinction between two types of sums collected on horse-race betting, namely levies or public levies (prélèvements publics), which go to the Treasury, and non-public levies, which are distributed between bettors. According to the contested decision, for every [FRF] 100 in registered bets, the PMU levies about [FRF] 30 and pays back about [FRF] 70 to the bettors. Of the [FRF] 30 withheld, the PMU uses about [FRF] 5.5 to cover its expenses, the national authorities and the City of Paris retain about [FRF] 18, and the rest is allocated to the racecourse undertakings.

17 The Commission went on to point out that whereas the markets in games of chance have traditionally been partitioned along national lines, betting on horse-races on national courses is organised internationally, and it was not until January 1989, when the Pari Mutuel International (the PMI) was set up, that the PMU expressly made clear its desire to extend its activities beyond France by concluding agreements in Germany and Belgium, and by thereby entering into competition with other betting organisations and particularly with Ladbroke (part III of the contested decision).

18 Of the seven measures adopted by the French Government in favour of the PMU with regard to which the procedure under Article 93(2) of the Treaty wasinitiated, three were identified by the Commission as State aid within the meaning of Article 92(1) of the Treaty.

19 The Commission considered that the waiver between 1982 and 1985 of part of the levy ([FRF] 315 million) on the amount deriving from the practice of rounding down bettors' winnings to the nearest ten centimes - allocated to the Treasury since 1967, pursuant to the Finance Law of 17 December 1966 - constituted aid since it was a measure limited in time and intended to solve a specific problem, namely computerisation of the PMU's operations in order to assist it in strengthening its market position (parts IV and V, point 2).

20 It also regarded the exemption from the one-month delay rule for the deduction of VAT as a cash-flow benefit equivalent to State aid; however, the Commission found that this had been offset between 1989 and its abolition on 1 July 1993 by a permanent deposit lodged with the French Treasury (parts IV and V, point 6).

21 Lastly, as regards the PMU's exemption from the social housing levy, the Commission considered that, even though the Conseil d'État held in a 1962 judgment that horse-racing was an agricultural activity and therefore exempt from such contributions, the PMU's activity - organising and processing bets - fell manifestly outside the scope of agricultural activities. Accordingly, since the exemption at issue was not justified under the PMU's articles of association, it constituted State aid (parts IV and V, point 7).

22 However, the Commission considered that the three forms of aid in question qualified for exemption under Article 92(3)(c) of the Treaty.

23 As regards the aid resulting from the waiver of the amounts deriving from the practice of rounding down winnings to the nearest ten centimes, the Commission took the view that, although the intensity of that aid was high (almost 29% of the total cost of computerisation), given the state of development of competition and trade before the setting-up of the PMI in January 1989, the aid granted between 1982 and 1985 for the computerisation of the PMU did not produce any disruptive effects on the market contrary to the common interest, bearing in mind the direct and indirect effects of the aid in developing all the economic factors making up the sector, including the improvement of bloodstock (part VII, point 1).

24 In the case of the exemption from the one-month delay rule for the deduction of VAT, the Commission took the view that - for the same reasons as were cited in connection with the aid just referred to - it had likewise to be regarded as compatible with the common market up to January 1989. Thereafter, any adverse effects of that aid on competition were offset in full by a permanent deposit lodged with the Treasury (part VII, point 2).

25 As for the aid attributable to the exemption from the housing levy, the Commission considered that, like the aid resulting from the exemption from the one-month delay rule for deduction of VAT, it qualified up to 1989 for the derogation provided for in Article 92(3)(c); thereafter, however, it had to be declared incompatible (part VII, point 3).

26 However, with regard to the obligation to repay the aid obtained in that form as of 1989, the Commission stated that ... repayment as from that date should not be required in view of the French authorities' argument that the contribution could not be levied because of the 1962 decision of the Conseil d'État referred to in part IV, point 7 (see above, paragraph 21); none the less, [that] argument cannot be accepted as from the time when the initiation of proceedings was notified to the French authorities, namely on 11 January 1991. The Commission also stated that it had not been given the means to quantify for itself the amount of aid to be recovered and requested the French authorities to determine themselves and communicate to the Commission such amount (part VIII).

27 In the case of the other four measures, the Commission decided that the conditions laid down for the application of Article 92(1) of the Treaty were not satisfied.

28 As regards the amounts resulting from unclaimed winnings, the Commission considered that, in so far as those amounts have always been regarded as normal resources, they form part of the non-public levies. Their use to finance in particular social security expenditure together with monitoring and supervision costs, horse-breeding incentives and investment connected with the organisation of horse-racing and totalisator betting cannot therefore be regarded as State aid, since the State resources criterion is not met (parts IV and V, point 1).

29 As regards the change in the allocation of the public levies (see above, paragraph 16), the Commission stated that the tax arrangements applicable to horse-races are the responsibility of the Member States and increases or reductions in the rate of tax do not constitute State aid provided that they apply uniformly to all the undertakings concerned. The question of State aid arises only where a significant reduction in the rate of taxation strengthens the financial situation of an undertaking in a monopoly position. That was not the case here, however, in so far as the 1984 reduction in the public levy on bets was limited (some 1.6%) and subsequently maintained, and was thus not designed to finance a specific ad hoc operation. The French authorities acted with the aim of increasing the resources of the recipients of the non-public levies on a permanent basis. Taking account of the special nature of the recipients' situation, the measure in question did not constitute State aid, but a reform in the form of a 'tax adjustment that is justified by the nature and economy of the system in question (parts IV and V, point 3).

30 As regards the PMU's exemption from corporation tax, the Commission took the view that, in so far as corporation tax cannot apply to the [economic interest group] PMU since its legal form is that of an economic interest grouping, the exemption must be considered to stem from the normal application of the general tax system (part V, point 4).

31 Regarding the cash-flow benefit - amounting to nearly two months' additional resources - deriving from the deferral allowed in the payment of the public levies, which was granted to the PMU by decisions of the Minister for the Budget of 24 April 1980 and 19 February 1982, the Commission considered that in so far as that advantage had had the effect of increasing the share of the non-public levies continuously since 1981, it did not involve a temporary waiving of resources by the public authorities or a specific ad hoc measure, and accordingly fell to be assessed in the same way as the change in the allocation of the levies (see above, paragraph 29) (parts IV and V, point 5).

(1) that the following measures fell outside the scope of Article 92(1) of the EC Treaty (now, after amendment, Article 87(1) EC):

(a) cash-flow benefits allowing the PMU to defer the payment of certain betting levies to the State;

(b) exemption from corporation tax;

(c) exemption from income tax;

(d) waiver of FRF 180 million of betting levies in 1986;

(e) the PMU's entitlement to retain unclaimed winnings;

(f) exemption from the one-month delay rule for the deduction of VAT from 1 January 1989 onwards;

(2) that the following measures were compatible with the common market pursuant to Article 92 of the Treaty:

(a) the rounding down of bettors' winnings to the nearest ten centimes between 1982 and 1985, representing FRF 315 million;

(b) the exemption from the one-month delay rule for the deduction of VAT prior to 1 January 1989;

(c) the exemption from the housing levy prior to 1 January 1989;

(3)(a) that there should be no repayment of aid granted to the PMU in the form of exemption from the housing levy in respect of the period prior to 11 January 1991;

(b) that the Commission had no obligation to determine itself the amount of the aid in respect of the exemption from the housing levy that it ordered to be repaid from 11 January 1991.

The judgment under appeal

- first, that various advantages granted to the PMU, through

(a) the amendment in 1985 and 1986 of the allocation of the levies,

(b) cash-flow benefits granted to it by the authorisation to defer payment of certain levies on betting,

(c) access to unclaimed winnings, and

(d) exemption from the one-month delay rule for the deduction of value added tax, after 1 January 1989,

did not constitute State aid for the purposes of Article 92(1) of the Treaty;

- second, that the obligation on the French authorities to require repayment of the aid deriving from the PMU's exemption from the housing levy applied not as from 1989, but as from 11 January 1991.

The appeal

First ground of appeal

Second ground of appeal

Costs