State aid to EU public service broadcasters and the efficiency conundrum

0

Roughly speaking, everybody may agree that any State financing to poorly managed and thus inefficient companies is a waste of public money totally unacceptable, since it ultimately deprives our national welfare systems of resources which are scarce and vital to the most disadvantaged people.

Under a legal point of view, this assumption seems not so plain to the EU General Court which on 16 October 2013, ruling on the Télévision Française 1 v Commission case, set aside the efficiency benchmark as far as the admissibility of the State financing to the public service broadcasters is concerned.

FT’s public financing mechanism

In the case at hand the applicant, the commercial broadcaster Télévision Française 1 (TF1), sought the annulment of the European Commission decision 2011/140/EU  concerning the permanent annual budgetary financing to be granted as from 2010 by the French Republic to the State broadcaster France Télévisions (FT). According to the European Commission, the mechanism entails an admissible State aid (pursuant to Articles 107 and 106(2) TFEU) since it is aimed at compensating the “net public service costs” (i.e. the costs of the public service mission reduced by the net commercial revenues) incurred by FT.

The main terms of the financing mechanism are contained in Law No 2009-258 on audiovisual communication and the new public television service (loi n° 2009-258 du 5 mars 2009 relative à la communication audiovisuelle et au nouveau service public de la télévision), which on the one hand provides the progressive reduction and discontinuance of advertising messages on FT’s programs between 20:00 and 06:00. In order to balance the related loss of commercial revenues, each annual finance law should allocate to FT a share of public grant supplementing the proceeds from the television licence fee. The budgetary grant is determined each year according to the net costs incurred by FT.

On the other hand, Law No 2009-258 amended the French Tax Code to introduce new taxes on advertising and electronic communications: the first tax relates to the total amounts paid by the advertisers for the broadcasting of their advertising messages to the taxable entity; the second one affects all electronic communications operators which provide a service in France.

TF1’s pleas

TF1 sought the annulment of the decision 2011/140/EU arguing that:

(i)                 the European Commission did not assess the State aid measure in its entirety, since it ruled out the existence of a relevant link between the annual financing mechanism and the new taxes levied on the broadcasters and telecoms operators;

(ii)               the financing mechanism entailed a risk of over-compensation of the public service net costs incurred by FT. In this respect TF1 argued that, not having access to several administrative documents, it was not in a position to usefully exercise its right of action and judicial review of the proportionality of the compensation granted by France with regard to the alleged “net costs”. Moreover, according to TF1, when assessing the admissibility of the State aid, the European Commission did not take into account whether the costs stemmed from a well managed economic activity complying with the efficiency benchmark;

(iii)             pursuant to Articles 49, 56 and 110 TFEU, the two taxes amounted to a restriction on the freedom to provide services and the freedom of establishment by broadcasters and telecommunication operators in France; they were moreover in breach of Directive 2002/20/EC on the authorization of electronic communications networks and services.

The Court’s judgment

TF1’s claims have been dismissed by the General Court, ruling that the European Commission correctly considered that the new taxes on advertising and electronic communications do not fall within the scope of the State aid measure in question. According to the established case law, for a tax to be regarded as forming an integral part of an aid measure two conditions shall be satisfied: the revenue from the charge shall be necessarily allocated for the financing of the aid (affectation juridique); moreover the revenue shall have a direct impact on the amount of the aid (affectation économique). In the FT’s case, the first condition was not satisfied since the French finance law did not expressly provide that the proceeds from the taxes on advertising and electronic communications would have been earmarked, in whole or in part, for the financing of FT.

Accordingly, it was not necessary for the Court to determine whether the two taxes amount to a restriction on the freedom to provide services and the freedom of establishment enshrined by the TFEU. In this respect, however, the Court clarified that the dismissal of TF1’s plea does not interfere with the ongoing infringement procedure opened by the European Commission against France, dealing with the compatibility with Directive 2002/20/EC of the tax on electronic communications.

Finally, the Court found that the French law provides a transparent ex-post control mechanism which rules out any risk of over-compensation of FT’s public service net costs. In reaching such a conclusion, the Court rejected TF1’s request for access to the administrative documents pertaining to the calculation of the net costs and related compensatory grants. In this respect, the Court considered that TF1 did not explain the reasons why the access to the documents was necessary in order to formulate any argument against the European Commission’s reasoning as far as the adequacy of the costs and grants was concerned. Moreover, the Court stated that the efficiency benchmark is applicable only in view of determining whether – according to the Altmark test – a public financing involves or not a State aid pursuant to Article 107 TFEU.

It is worth recalling that, pursuant to the Altamark test, the mere compensation of public service costs does not imply any State aid where such costs are comparable with those incurred by an efficient and well managed undertaking. On the other hand, if the costs do not satisfy the efficiency benchmark, the measure in question entails a State aid (pursuant to Article 107 TFEU). Such a measure shall be further examined by the European Commission in view of determining whether it is admissible pursuant to Article 106(2) TFEU, insofar as the State aid is necessary and proportionate for the fulfilment of the broadcaster’s public service mission.

In the Télévision Française 1 v Commission case, FT1 tried to argue that the efficiency benchmark still have to play a role in point of admissibility of the State aid pursuant to Article 106(2) TFEU, since it would appear illogic to consider truly “necessary and proportionate” the public financing aimed at covering costs which have been inefficiently generated.

The impasse logique lamented by TF1 becomes apparent in the Court’s reply. According to the Court, Article 106(2) TFEU prevents a beneficiary undertaking from receiving a State aid which exceeds its public service net costs. Pursuant to Article 106(2) TFEU, the Commission may declare admissible any State aid which is proportionate in view of ensuring the fulfilment of the public service mission under acceptable economic conditions. However, in the lack of any EU harmonised regulation on this subject matter, the European Commission cannot assess the scope of the public service activities entrusted to the undertaking, nor the amount of the costs related to such activities. Therefore, the fact that a public service broadcaster may operate more efficiently and accomplish its mission incurring in lower costs is not relevant in the assessment of the admissibility of the public financing under EU State aid rules (see TF 1 v Commission, §§ 131-134).  

 The position of the Court on this issue remains difficult to accept, especially in days where public spending cuts require national authorities to ensure the most efficient allocation of the available public resources, in such a way as not to distort competition within the market, nor spoil our welfare systems.

Share this article!

Share.

About Author

Leave A Reply